Deflating demand for air rights

Until recently, there was sky-high demand for the air rights of properties in Miami and nearby cities, including Coral Gables, Miami Beach and Sunny Isles Beach.

Fifteen such deals closed in the City of Miami in 2015 — down from 18 in 2014 — but still significantly higher than the 10 air-rights transfers that took place in 2013.

But as the South Florida condo market has slowed, so goes the market for air rights, which are sold by property owners to developers. In the first half of 2016, only two air-rights transactions occurred. As of September, 10 property owners in Miami were offering air rights on the market, down from 18 the year before.

The transfer of air rights is relatively new to the City of Miami. Since 2009, the owners of historic properties or properties in historic districts within the Miami city limits have been able to sell the air rights to develop the space above their buildings. The approval came along with the ratification by city commissioners of Miami 21, an extensive revamp of the city’s zoning code. Once the owner of a historic property receives authorization from the city’s Historic Preservation Office, the air rights can be marketed in a similar fashion to real property.

Developers can also purchase air rights above public buildings and structures directly from the City of Miami.

The vertical space above a low-rise building can be just as valuable as the land beneath the structure. The transference of these air rights from one property to another, where higher-density uses are permitted, allows condo builders to increase the floor-to-area ratio of projects and build taller towers.

Developers say that building taller towers makes it possible for them to generate sufficient profits to include amenities like rooftop pools, exclusive beach clubs and rock climbing walls, some of the features future condo owners will find at the 450-unit SLS Lux, which is slated to open in 2017.

The 58-story mixed-use building is planned to include suites designed by Yabu Pushelberg and public spaces that include a Fernando Botero bronze statue and a large-scale mural by Fabian Burgos. None of these amenities would have been possible without acquiring the unused air rights of two historic properties in Miami’s MiMo District, according to SLS Lux co-developer Allen Morris.

“By transferring development rights from these other buildings, we were able to add more floors and more units,” Morris said. “It allowed us to add all these beautiful features.”

The Allen Morris Company has also purchased air rights from historic property owners in Coral Gables, another city that allows the practice. Those rights were used to increase the floor-to-area ratio for Alhambra Towers, which is located at 121 Alhambra Plaza.

Morris explained that staying true to the intent of the Spanish Mediterranean revival design envisioned by Coral Gables founder George Merrick  was going to cost a lot of money. “We were able to afford it and make it happen when the city allowed the transfer of development rights from a historic building across the street from our Alhambra Towers,” Morris said.

Developer Allen Morris

The developer is now looking to acquire air rights from other buildings, including municipal-owned parking garages, for a $250 million mixed-used project his firm and the Related Group are proposing to replace city-owned parking structures at 245 Andalusia Avenue in Coral Gables. Morris also partnered with Related to build the SLS Lux.

“Transferring development rights makes it possible to shift more square footage into our buildings so the pro forma will work,” he said.

Avra Jain, a Miami developer who has sold the air rights to several of her historic properties, said, “Once owners realized the opportunity was out there, everybody rushed to get into the game…With the condo market slowing down, I am not sure they are valuable anymore.”

With the ability to sell their air rights, historic property owners have an incentive to preserve and renovate their buildings instead of resorting to demolishing them, said Jain, whose portfolio includes a number of vintage hotels and other MiMo-style structures on Biscayne Boulevard between 62nd and 79th streets.

“I can tell you transferring development rights were critical for our properties on Biscayne Boulevard,” Jain said. “We sold about $3 million worth and reinvested it. Those dollars allowed us to take properties like the Vagabond Hotel to the next level.”

In 2011, Jain was the first property owner to win city approval to transfer air rights in the City of Miami (this was possible prior to 2011 in other areas of South Florida).

Between 2012 and 2015, Jain sold nearly 1 million square feet in air rights from MiMo District buildings she owns in Miami’s to condo developers in Brickell, Coconut Grove and Edgewater, according to city records. No other historic property owner in the city comes close to that amount. According to historic preservation office records, the second-largest seller, Ricardo Caporal, sold 340,559 square feet of air rights from his property at 5101 Biscayne Boulevard.

In June 2013, Jain sold portions of the 434,945 square feet of air rights for the Vagabond Hotel to the developers of the SLS Hotel & Residences Brickell, Icon Bay and the Grove Grand Bay. She also sold 142,868 square feet of air rights from the Royal Hotel at 7411 Biscayne Boulevard to New York City-based Property Markets Group. That transaction allowed PMG to increase the floor-to-area ratio of Echo Brickell, a 180-unit luxury condo at 1451 Brickell Avenue.

“We would not have been able to do Echo without the transferred development rights from Avra,” said Ryan Shear, principal of PMG’s South Florida office. “We would not have bought the site.”

Jain said that her timing was lucky. “When I got mine approved, it was leading into the new condo boom,” she said, adding that most of her deals to sell air rights fetched between $6 to $9 a square foot.

“Now, I’m hearing the going price is $3 a square foot,” she said. “Personally, I wouldn’t do it at $3.”