You could call the New York City Department of Education’s latest air rights deal a class-ic.
Last month, the Department of Education leased air rights above an East Side campus to a developer for 75 years — in return for two new school buildings. For its part, the developer, World Wide Holdings, will use the air rights to put up a third building as large as 460,000 square feet, which could be either condos, retail or some combination of the two. Construction is set to begin in 2008 after an environmental review is complete. Andy Morris, spokesman for World Wide, declined to comment.
It is the first time in city history that the DOE, through its Educational Construction Fund arm, has traded air rights for development in exchange for new school buildings.
All the action is taking place at the East 57th Street Educational Campus at Second Avenue. There, World Wide will build an 85,000-square-foot elementary school and an 180,000-square-foot high school to replace the existing High School of Art & Design and the Beekman Hill International School.
The new buildings are expected to have a value of $130 million, said Margie Feinberg, spokeswoman for the DOE.
Robert Von Ancken, executive managing director at Grubb & Ellis, the commercial real estate consulting services firm that assessed the value of the school air rights for the city, noted that air rights are “a hidden asset” because “land is just not available.”
The space at 57th Street and Second Avenue, in particular, has a “huge potential for development,” Von Ancken said.
“That’s a great location,” said Jonathan Merrill, acquisition and development director for Time Equities, a real estate development and investment company that put in an unsuccessful bid for the air rights. “It’s a good site.”
Air rights, in general, are a major commodity.
“They have increased significantly in value across the board in the last several years,” said Paul Massey Jr., a partner of Massey Knakal Realty Services, which specializes in the sale of small- to mid-sized properties. “In some places, they’ve quadrupled in value.”
In the central Midtown area, for example, the value of air rights has multiplied to $400 per square foot from $100 a square foot five years ago, he said.
This is not the first time the city has partnered with a private developer to create a combined occupancy development, but this is the first time the city has negotiated a school air rights deal on municipal land, according to Feinberg. Though the 57th Street deal is the only one on the books right now, she said the city is considering other school air rights leases.
A rumored two-school deal under consideration would include Louis D. Brandeis High School at 145 West 84th Street and P.S. 9, across the street at 100 West 84th Street, according to Von Ancken from Grubb & Ellis.
Feinberg said she had not heard of the 84th Street deal but noted that the city might consider deals in all of the boroughs. “The purpose is to build top-notch school buildings at no cost to us,” she said. “We’re always looking for available space for our schools because we are so overcrowded.”
School air rights usage is a creative way for the Department of Education “to put their sites to good use for the benefit of our school kids,” said Michael Slattery, senior vice president of the Real Estate Board of New York. He notes that the city would have to limit its school selection to those air rights in “strong markets.”
In other boroughs that would mean residential neighborhoods like Riverdale and Brooklyn Heights, he said.
For a developer, school air rights deals provide untapped development opportunities.
A potential obstacle for a developer in conducting business with the city is that “it’s a lot more political,” said Eric Anton, senior managing director and principal at Eastern Consolidated, a real estate investment services firm. “It’s more of a challenge to get consensus,” he said.
On the other hand, Andrew Oliver, managing director and principal at real estate investment bank Sonnenblick Goldman, noted a single property owner “can be difficult — and can be a holdout.”
One potential drawback for the city — and any landowner sitting on air rights — is that once you sell or lease your air rights, “you forego the opportunity for further expansion,” Massey of Massey Knakal said. He warned that the city “needs to make sure that makes sense today — and makes sense tomorrow.”