Before City of Yes, Bob Knakal would rarely work on air rights deals. When he did, it was one at a time. Now the chairman and CEO of BK Real Estate Advisors has 17 in the works.
Mayor Adams’ marquee rezoning plan, passed in December, has made these types of deals much easier, thanks to new flexibility around air rights, also called transferable development rights.
Commercial brokers say developers are seizing the opportunity — not just in the low-slung outer borough neighborhoods that were the focus of City of Yes, but in the priciest and densest parts of Manhattan.
“We have seen a definite uptick in clients interested in these transactions,” said James Power, an attorney and head of land use at Herbert Smith Freehills Kramer. What once had been a rare inquiry has become a regular conversation.
Landmarked buildings have been able to sell leftover development rights to adjacent lots since the 1960s. These buildings can’t be demolished, and most of them aren’t going to be built higher. Selling the floor area rights they’re entitled to through zoning can help those owners raise cash for repairs and maintenance.
But in the past half century, only 15 such deals have closed, according to the Department of Planning. Landmarked buildings could only transfer their rights to adjacent lots, which meant few potential buyers. Any deal also required a lengthy process to get approval from the city.
The City of Yes plan significantly expanded which lots could receive the rights. Landmarked buildings can now transfer development rights to lots on the same block, across the street or at the next intersection.
“You’re much more likely to transact if you have 52 potential buyers than if you have two,” Knakal said.
For brokers and lawyers, interest in air rights deals has swelled. Most of the deals brokers anticipate are in Manhattan, which has a high concentration of landmarked buildings. There are 1220 landmarked buildings and sites in the borough, according to the Landmarks Preservation Commission, compared to just 294 in Brooklyn with the second-highest concentration. Air rights typically sell for about half of what the land is worth, Knakal said, meaning that in areas where land values are lower, owners may not feel it worth the trouble to sell.
The City of Yes plan loosened zoning regulations in other ways, such as raising height limits in some parts of the city. Those changes have also encouraged owners to seek out air rights deals, Power said, because they are now permitted to build higher.
Part of the motivation behind the policy changes was to help owners of landmark buildings raise money to maintain them.
“Those landmarks can’t do anything with those air rights,” said Wilson Parry, CEO and co-founder at Property Scout. “It’s like found money for them.”
Another goal of making air rights transfers easier was to encourage housing density and development, as the mayor aims to build a moonshot 500,000 new units by 2032. The City of Yes plan overall is expected to create about 82,000 of those.
Brokers and lawyers said many deals are in the works, but none have closed. It may take some time for developers to seize upon the new rules and for the owners of landmarked buildings to learn about their new opportunities.
“A lot of times you don’t need the development rights until you’re in the process of building,” said Michael Smith, an attorney and partner at Herrick Feinstein. “You may be having conversations, you may be entering into contracts, but it hasn’t hit city records.”
The presence of retail leases and residential tenants can also hold up development, which in turn kicks air rights deals down the timeline. And there are still limitations on what you can build; receiving sites can only increase their density by 20 percent.
“The owners of landmarked buildings are anxious to sell and the developers are anxious to buy,” Power said. “It’s a matter of finding the right deal, the right time and the right business terms.”
Still, the process is much more streamlined than it once was. Although the city still needs to approve any transfers, there is no longer a need for a special permit and a lengthy process with the Landmarks Preservation Commission. Removing some of that uncertainty from the process has made it more attractive for both sides.
“Theoretically, City of Yes has definitely taken a good step forward for landmarks,” said Brian Strout, president and broker at TRIZ Advisory. ”Now it’s rolling up your sleeves to work through some of the practical realities.”
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