While the City Council debates the virtues of the Bloomberg administration’s plan to rezone a large section of Midtown East, a new report by New York University’s Furman Center for Real Estate shows that the rezoning’s pricing structure for air rights may hurt its twin goals of encouraging new development while raising funds for infrastructure improvements.
The proposed rezoning – which was approved by the City Planning Commission at the end of September and brought before City Council for its first official hearing Tuesday – will allow developers to build taller buildings after first making cash contributions to a District Improvement Fund earmarked for local pedestrian and transit improvements. The rezoning sets the per-square-foot contribution rate — based on a city-sponsored appraisal of the current market value of air rights in the area — at $250 for commercial uses and $360 for residential uses.
However, relying on fixed contribution rates ignores how widely the market value for air rights has varied in recent years, said Vicki Been, director of the Furman Center.
Indeed, though the average price per square foot of air rights in CB5 was $203 per square foot, 14 percent of transfers were priced at less than $100 per square foot, and 7 percent were priced at more than $300 per square foot, according to the Furman Center report, which analyzed 81 arm’s length air rights transfers between 2003 and 2011 in Midtown’s Community Board 5 (a district that includes Midtown East).
“If the city’s goal is to reflect the market value of the density bonuses, our data suggests the proposal may miss the mark by using a single number,” Been said.
Setting the contribution rates too high “risks impeding the goal of encouraging new construction, while undercharging limits the funds available to finance area infrastructure improvements needed to support additional density,” Been added.
But veteran air rights broker Robert Shapiro said that the city’s efforts to establish a benchmark for air rights was useful, as it would remove a measure of uncertainty from deals.
“It’s not a perfect market,” Shapiro said, “but you’d be dealing with rational, reasonable pricing, rather than some guy just playing Jesse James.”
The value of air rights in Midtown East jumped significantly in the last 18 months, and currently hovers at north of $300 per square foot, a source involved in several deals in the area told The Real Deal.
A City Planning spokesperson could not immediately be reached for comment.
The findings point to some clear policy implications for the city, according to the report. First, the city’s Department of Finance should strive for greater transparency in the air rights market by requiring parties to provide more detailed information about air rights transfers when recording a property sale. Buyers and sellers of air rights would have a better idea of what those air rights would be worth if this was enforced, the report states.
The data can also help the city design more flexible zoning programs, which would allow the transfer of air rights over a greater location — an initiative that’s been used in the Hudson Yards and West Chelsea neighborhoods, according to the report.
A spokesperson for the finance department could not immediately be reached for comment.