How Air Rights Transfers Can Save Rent-Stabilized Buildings

When you think Gary Barnett, you think Billionaires’ Row penthouses, not run-down rental buildings.

But Barnett’s Fifth Avenue air rights deal offers a solution for rent-stabilized properties in crisis.

Barnett’s Extell Development is acquiring 135,000 square feet of air rights from the Metropolitan Club on Fifth Avenue for his mixed-use project at 655 Madison Avenue — a deal made possible by the City of Yes.

The club’s 790 Fifth Avenue is a landmark. Before City of Yes, it could sell air rights to a very limited number of properties next to it, but because the market was microscopic, a deal never happened. The club is only using 42 percent of its theoretical square footage, according to PropertyScout.

The City of Yes for Housing Opportunity, passed in 2023, allowed landmarks to transfer air rights to sites farther away. Barnett’s development site is a full avenue from the Metropolitan Club, but now it can acquire the club’s rights.

If Extell uses the 135,000 extra square feet to build more apartments, it would mean homes for hundreds more people and millions of dollars of additional tax revenue. I think we can all agree those are good things.

Another plus: The Metropolitan Club will get money from the sale. Landmarks are expensive to maintain, and the sale proceeds will be used to fund continuing maintenance under a plan filed with the Landmarks Preservation Commission.

Given the extra costs that the commission imposes on buildings when it makes them landmarks, expanding their ability to sell air rights was the least the city could do.

Why not help rent-stabilized buildings in the same way?

They, too, have been burdened by the government: The state strangled their revenues by passing the HSTPA in 2019. It also made the law permanent, removing landlords’ leverage to negotiate changes. Demolition of these buildings is extremely difficult because tenants have a right to perpetual lease renewals.

Even if an owner can buy out enough tenants to reach 80 or 100 percent vacancy, the state’s Division of Homes and Community Renewal sometimes refuses permission to substantially rehabilitate the building and remove it from rent regulation. HCR has become increasingly stingy about this.

For many owners, there is no escape from this financial vise. All they can do is buy time by deferring maintenance.

Mayor-elect Zohran Mamdani is looking for ways to help landlords keep up their rent-stabilized buildings without raising rents. Giving them the ability to sell air rights to a broad range of buyers is one way to do that — and would also allow developers to build more housing, which is also desperately needed.

NIMBY groups such as Village Preservation and people in Queens who voted for Andrew Cuomo would voice hysterical opposition to the prospect of more apartments, but Mamdani doesn’t owe them anything.

Tenant groups, meanwhile, would likely support a measure that raises money from developers and ensures it can only be spent to upgrade rental buildings. YIMBY groups would welcome the creation of housing.

Developers hate Mamdani’s plan to raise taxes, but they willingly pay for air rights. And unlike a tax hike, the city could liberalize air rights transfers without a new state law.

The housing shortage is crushing New Yorkers, and rent-stabilized buildings are falling apart. Mamdani and Julie Menin, the next City Council speaker, could get their tenures off to a strong start by creating revenue literally out of thin air for two of the city’s most pressing needs.