Air rights transfer could pave way for more affordable housing: expert

Michael Greenberg

Michael Greenberg

By Sabina Mollot

Blackstone’s $5.3 billion purchase of Stuy Town also bought the firm a jumbo 700,000 square feet of air rights that could wind up being “just the tip of the iceberg” in Mayor Bill de Blasio’s plan to preserve and build affordable housing in the city, according to one expert.

News of the air rights in Stuy Town — and new owner Blackstone’s claim over them, along with the 110-building property, was reported in the Wall Street Journal last week.

While the value of the air or development rights wasn’t clear since it depends where they’d end up, commercial real estate attorney Michael Greenberg, also founder and CEO of the Level Group brokerage firm, predicted many more similar arrangements in the future as the city looks for creative ways to get those elusive units of affordable housing.

In Stuyvesant Town, this meant preservation, and if air rights are transferred elsewhere, possibly new affordable housing.

Blackstone and its partner in the Stuy Town deal, Ivanhoe Cambridge, have gotten the city’s support to transfer the Stuy Town air rights since the owner has made a commitment not to build on the property’s open spaces or its existing structures.

“What’s unusual is that it’s rare for the city to allow it — there have been requests for them to allow the transfer to sites that are not contiguous or to other neighborhoods even,” said Greenberg.

Noting the mayor’s ambitious plan for affordable housing, Greenberg predicted that if the city got creative with ways to transfer air rights, “he might be able to jumpstart his campaign promise and get pretty close to accomplishing it. It’s an insight to how the mayor’s thinking in a non-traditional way.”

According to Wiley Norvell, a spokesperson for the mayor, any transfer that resulted in residential use would be subject to mandatory inclusionary zoning, which means at least 25-30 percent affordable housing.

“This,” said Norvell, “represents a commitment to work with the new owner, which has agreed not to develop any of the open spaces within the complex and to protect its affordable housing, and to study opportunities to transfer those existing rights elsewhere.”

Greenberg, who said he’s worked with air rights his whole career, pointed out that this issue “is much bigger than Stuyvesant Town,” considering that there are currently millions of square feet of unused air rights in the entire city.

“If you create affordable housing units and lose others you net zero, which doesn’t help,” said Greenberg.

“This sets a precedent. This might be the tip of the iceberg as to how they plan in the future (for affordable housing).”

Typically, he said, air rights are worth about “half of what the underlying land is worth. It’s a little higher in places where you can monetize it for a higher price, but 50 percent is the rule of thumb.”

Of course, with air rights typically just transferred to nearby lots, cooperation of the city to allow them to be used farther away is what would likely spur the interest of developers.

Greenberg gave the example of the High Line Transfer Corridor as an occasion where the city allowed landowners to transfer development rights beyond contiguous lots to accomplish a particular policy goal.

“Here, it appears that the areas of the city where the new owners of Stuy Town can transfer their air rights is less defined,” he said. “But this concession to the owners of Stuy Town is clearly an outgrowth of the High Line program and a nod to its success in achieving a particular policy goal of the city, which in that case was the development of the neighborhood around the High Line. Here, the goal is preservation of existing affordable housing units and, perhaps, at least in part, the transfer of development rights to areas where new units of affordable housing can be developed.”

While none of the information regarding the air rights or development rights was mentioned during the hour-long press conference in Stuyvesant Town announcing the change in ownership last week, Norvell noted that the development rights in Stuy Town are nothing new. They have existed as a right of the owner, despite going unused, since Met Life owned the property.

Additionally, even with the city’s blessing, to utilize that right, Blackstone will still have to go through what any other landlord would: a months-long ULURP process and getting input from the local community board, the City Council and borough president. By doing this, Stuy Town’s air rights would be used up, even if the property is sold again.

“The incentive” of the development rights, noted the Journal article, “offers a window into why Blackstone may have agreed to a deal to preserve middle-income housing that was viewed as a low-cost win for the city — one far cheaper for City Hall than plans proffered by other developers that have vied for the property.”

It also went on to note that any attempt by an owner of Stuy Town to use those rights within the complex would be near-impossible, unless the owner doesn’t mind having tenants and elected officials storm the management office with pitchforks.

“It would have been worse than a war,” Martin McLaughlin, a political consultant who advised a prior Stuyvesant Town owner on community relations, was quoted as saying.

When asked for comment, Christine Anderson, a spokesperson for Blackstone, reiterated that the owner is committed to preserving “the physical character of the community.”

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4 thoughts on “Air rights transfer could pave way for more affordable housing: expert

  1. METHINKS THAT MR. GREENBERG IS BEING NAIVE

    As any revenues received from using “air rights” would not make for more affordable housing — but revert to the real estate company who owned the properties at the time.

    Greed reigns!

  2. I was reviewing the term sheet between the City of New York (NYC) and Blackstone (Purchaser) which is located on DanG.’s website. I have a concern with the air rights transfer. The term sheet compels the City of New York, not the mayor or DanG but the entire City of New York, to support the transfer of air rights. To me this reads that the mayor, the city council, the controller, city planning and the entire municipality known as the City of New York MUST support the transfer. What happens if one City Council member, a community district or the borough president fail to support Blackstone and the transfer is denied? It seems to me that the City of New York would be in breach of its obligations within the contract and Blackstone could seek remedy, including the cancellation of the contract.

    I understand that this is only a term sheet and not the contract but, having signed a few term sheets in my lifetime, I have come to rely upon the ‘reasonable efforts’ verbiage as default language in clauses similar to this. This leads me to assume that someone explicitly inserted ‘support’ rather than ‘reasonable efforts’ into the term sheet. If the language stays the same in the contract and the City of New York fails to ‘support’ Blackstone’s endeavors (unknown and can be whatever they wish), it may provide Blackstone the chance to cancel the contract in its entirety.

    Dan: You are a lawyer and should have caught this issue on first read. Sort it out before contracts are signed.

    For readers unaware of the clause in question, here it is:

    “In consideration of the Purchaser’s commitment to preserve affordable housing units at the Property, NYC agrees to support Purchaser’s efforts to transfer unused development rights from the Property to appropriate receiving area(S) subject to all legally required reviews. Such transfer will be subject to standard procedures utilized in similar development rights transfers.” NYC is defined as the City of New York. And note, each party with a ‘vote’ in the review process is part of the City of New York (now you can infer why Scott Stringer sent his follow-up letter to Blackstone).

    Last thought – does the mayor’s executive capacity even allow him to sign such a contract on behalf of the City of New York??? (it does obligate the City Council to act in a specific manner, doesn’t it? and there is a separation of powers, right?)

    • I think that DeBlasio has gotten carried away with his own sense of importance. The man is grandiose and delusional and these bloodsuckers are taking advantage of this. These agreements and contracts should not be binding just as a marriage to someone who is mentally deranged can be annulled because one party was not of sound mind.

      • Re: Comment by Vickie

        Mayor Bill de Blasio’s goal is simply to become the major progressive and Liberal voice in this country … as he used the platform of NYC mayor to accomplish his real objective.

        Since he attained this office (about two years ago) … he has spent more time in other parts of the U. S. than recent former mayors. His well-intentioned rationalization for his actions is in reality just a cover for his egomaniacal personality. When he became a friend of the huckster “Rev.” Al Sharpton all was clear. And if he loses the support of Bratton (which he will) and the NYPD… he will be fin.

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