Declining to buy what you can’t see would seem to be a guiding principle of success in real estate, but in New York, that’s bad advice.
Pricing for air rights, the ability to build atop or around an existing structure, has become an accurate, sensitive, and, at times, prescient index of the development market. Though it’s not a large segment of the industry in New York, real estate veterans say it’s wise to watch the skies and how much little pieces of it cost.
“Typical air rights values are worth about 60 percent of comparable land values,” said Robert Von Ancken, executive managing director at Grubb & Ellis’ valuation and advisory group. “But clearly they can differ given the desirability of the land.”
Two main factors determine the value of air rights and the frequency of their transactions: location and zoning. Not surprisingly, popular neighborhoods such as Tribeca and Soho see many air rights transactions, said Von Ancken. And areas that are zoned with no building height limitations for example, along First, Second, and Third avenues from the Upper East Side to Gramercy have also seen many air rights transfers.
Despite the myth that air rights provide a legal loophole to avoid zoning, they are restricted by the same limitations as any new construction.
Said Samuel Lindenbaum of Kramer Levin Naftalis & Frankel, one of the top real estate lawyers in the city and an air rights expert, “Air rights are very much a part of zoning. Yes, you can merge lots, you can add floor area, but you will be constrained by setbacks. And you can’t get around a height maximum.”
According to Sandy Hornick, director of strategic planning at the Department of City Planning, merging lots is the most common form of air rights transfer. By purchasing an adjacent lot, a developer can merge two to increase the maximum floor to area ratio (FAR) of the building, which translates into an increased allowance of vertical construction. (See link to air rights map, prepared by real estate Web site propertyshark.com, below).
Lot-merging illustrates how the real estate market has come to shape the application of air rights. Where in the past, said Lindenbaum, land assemblages were common for commercial development on a massive scale, now smaller parcels use lot-merging to create more desirable residential development.
Air rights transactions have closely followed the broader trajectory of real estate in New York, shifting from commercial to residential markets.
“Now commercial land is pretty flat,” said Von Ancken. “As a result, there is little incentive for commercial real estate developers to purchase air rights,” as they likely wouldn’t gain a significant return a reflection simply of a weak commercial real estate market.
But with residential real estate going through the roof, air rights are no gamble, since developers know they’re going to get a good return. According to Von Ancken, brokers are increasingly advising buyers and sellers whether they have and how to use their air rights.
Developers large and small see possession of air rights as an integral resource to the success of a property. It’s not just a matter of going taller and bigger, though, but also of allowing an architect to create an exceptional design.
“Sometimes you will see developers buying air rights as a light-protector, so they can put windows along the side of the building that faces the lot you merged with,” said Von Ancken. This attitude of using air rights to enhance design is gaining popularity, as smaller developers build up smaller parcels to their maximum heights in a fiercely competitive market.
One such developer, Angelo Cosentini of On the Level Enterprises, wanted to both maximize usable space as well as create a distinctive building. He bought the air rights of three lots adjacent to his own parcel, on Norfolk near Delancey, with rights to cantilever over all three.
“We wanted a more extensive build out,” said Cosentini. By acquiring the air rights and permission from his neighbors to cantilever his building over theirs Cosentini could have a more flexible floor plate.
The developers hope their Blue condo, designed by Bernard Tschumi Architects, will stand out from the surrounding area, which, based on its scale, shouldn’t be a problem: With the extra air rights, the blue-glazed building can rise eight stories higher than it would as a single parcel.
For anyone familiar with the area, this height is far from keeping with the low scale of the Lower East Side. Cosentini defends its character. “The building is visible, it won’t be buried by other buildings,” he said. “I think having varying building heights is aesthetically pleasing.”
Local community groups pushing for rezoning tend to disagree. Recent years have seen a dramatic increase in community efforts to protect neighborhood character through downzoning and contextual zoning. Activist groups such as the Greenwich Village Society for Historic Preservation, led by executive director Andrew Berman, have aggressively pushed for the DCP to protect areas from overdevelopment.
“We have to worry a lot about the transfer of air rights creating ridiculously out-of-place buildings,” said Berman, “A contextual envelope means we have to worry a lot less.”
In areas such as West Chelsea, air rights are being determined in relation to special zoning circumstances, such as the planned conversion of the High Line into a public park. To prevent development from encroaching on the new greensward, the DCP allows the transfer of air rights from properties beneath and adjacent to the High Line elsewhere within the district.
Certain building types tend to sell more air rights usually institutional or symbolic buildings that are typically low in scale or don’t require massive square footage. Government buildings such as Grand Central Station and the James A. Farley Post Office, which is being converted into Moynihan Station, have had highly publicized and record-setting air rights sales. The Church of the Epiphany on York Avenue on the Upper East Side is selling air rights to build condominiums above itself. One church on the Upper East Side recently sold air rights for $235 per square foot according to Von Ancken, one of the highest prices ever paid for air rights.
In the link below, the map from propertyshark.com shows sites all over New York City that are sitting on large amounts of unused air rights (the map can also be viewed at propertyshark.com).
These include large swaths of land at the foot of the Upper West Side; small areas along the East River, including around the United Nations and in the southeastern portion of the Lower East Side; and large zones in Queens areas which are sure to experience a wave of development, as more and more people understand real estate’s hottest commodity.