Time to close the air rights loophole

From The Real Deal:

A longtime city program that gives landmarked properties the ability to sell their air rights to developers across the street in a “kitty corner” transaction is woefully underused, and some industry insiders have been discussing plans for air rights reform. Eager to avoid getting tangled in expensive bureaucratic red tape, developers currently prefer to engage in as-of-right zoning lot merger transfers with these landmarked buildings, thereby rendering the city’s special provision for landmarks largely useless, insiders say.

Of the 353 arm’s length transfers of air rights in New York City between 2003 and 2011, 27 were from landmarked buildings, according to new research from the Furman Center for Real Estate and Urban Policy. But only two of these 27 transactions occurred through the landmark transfers program.

For the most part, landmark transfers are considered too complex, time-consuming and stifling to development to be a viable option for air rights transfers, the research, published last month in a New York University School of Law working paper shows. The recent Midtown East rezoning proposal has reignited the air rights debate, as landmarked properties including St. Patrick’s Cathedral have expressed the need for greater flexibility in the sale of their air rights, as The Real Deal previously reported.

The landmarks transfer program was created by the city in 1968 to compensate landmarked buildings for the potential financial losses stemming from the landmark preservation law, which severely restricts alterations to landmarks. It allowed the city to skirt the responsibility of directly compensating these buildings, instead giving them the right to sell their air rights to developers for potential projects.

Elisabeth de Bourbon, a spokeswoman for the city’s Landmark Preservation Commission, said that the program was “an important benefit, because it allows owners of landmark buildings to use development rights they may not be otherwise able to use on the landmarked property.” This, she added, “results in the restoration and continued maintenance of the landmark building.”

However, most air rights transfers involving landmarks happen through a zoning lot merger, which can occur without the city’s intervention and involves joining together two or more contiguous lots. Once the lots are merged, the development rights from all merging lots are combined and can be used freely within the property.