Free as air? Part 2
[Continued from yesterday’s Part 1.]
Several of the town-house owners said they were distressed over the idea of a tall building going up next door, one that would loom over their backyards and one that had been opposed by many people in the neighborhood because of its size.
Lacking the power to be arbitrary, the neighbors become economically rational:
But they ultimately decided to band together and hire a lawyer to advise them and work out a contract with Extell.
“Basically, our feeling was it was going to happen; they were going to build this thing,” said Jonathan F. Richards, who owns the upper two floors of one of the town houses that had been turned into a co-op with two units. Mr. Richards lives in
The asymmetric negotiations also encouraged the small parcel owners to collaborate on some issues (like broad negotiation) even as they competed on others:
The owners’ lawyer, Gary R. Tarnoff, said he was able to get Extell to agree to several concessions that benefited his clients, including an agreement that the developer would try to place a garage entrance away from their property.
Those who elect to engage do better than those on the sidelines — a very common result in multi-player non-zero-sum games.
But while the owners negotiated the overall contract together, they agreed on prices separately. According to a calculation based on the real estate transfer tax paid on the transactions, they were paid a total of $2.72 million. Individual payments ranged from $584,000 to $764,000, depending on both the square foot price and the amount of air rights each owner decided to sell, city records show.
Each property had a different amount of air rights available to transfer, and two of the buildings kept 500 square feet of air rights in case they wanted to add on to their houses in the future. The price per square foot paid by Extell was $132 to $148.
All this is sophisticated behavior. Collaboration within competition is characteristic of mature markets (such as NFL teams within a league), where there is a shared interest in maximizing the collaboration’s share of the large market, and then a competitive interest to carve the biggest slice one can for oneself out of the rising, maximized pie.
“The pie is now this much higher.”
While those who play do better, those who refused to play affirm their right to complain:
Extell has faced vocal opposition in the neighborhood to its 32-story tower, which it plans to call the Ariel West. Residents contend that the building is out of scale with others around it — including the town houses that have sold their air rights.
In any given neighborhood, people do not all have the same interests or perceptions, distinctions that are latent if it’s just a matter of political activism but become visible when there’s money to be made … and people to continue living adjacent to:
The opposition has made some of the town-house owners nervous, and three of the six owners (two of the buildings have been converted into two-unit co-ops) asked that their names not be used and one refused to talk to a reporter. They said that they feared drawing their neighbors’ ire for cooperating with the developer or that they were wary of violating a confidentiality provision in the air-rights deal.
Those who profit sometimes (often?) experience seller’s remorse:
Deals do not always have to spell regret, but many people who sell development rights do feel pressured in a variety of ways. Like the
Which one of you will sell to me?
The air-holder’s dilemma raises important public-policy considerations: for whose benefit do air rights exist? (We can observe, as a start, that their existence implicitly taxes owners of undeveloped property as it has capped their appreciation.) Do zoning and air rights development limitations exist to benefit future generations, or current inhabitations, or the city?
At the same time, developers frequently play one neighbor off against another. That is because a developer may be able to choose from among several adjoining properties when buying development rights. A developer may tell an owner that if he or she will not agree on a price, a deal will be made with someone else on the block.
And the developer may fib …
Sponsors pressuring bidders by demonstrating mobility is exactly the same competitive dynamic we see at work in cities (even New York!) bidding to build (or renovate) stadiums to lure NFL teams, offering tax concessions for new auto plants (Poletown), or doing the dirty work of eminent domain parcel assembly (New London) over the squawks of outraged homeowners.
The abutters-only rule means that air-rights markets are very localized
When a property owner sells his air rights, he is really agreeing to merge his property with another one into what is known as a single “zoning lot.” In most cases, the receiving site has to share at least 10 feet of lot line with the selling site. On
But F.A.R. can also be made to pass through a series of properties. That is, if a development company buys air rights from a neighbor, it can then buy the air rights from the next property down the block, even though it does not directly border on the building site. That is because all three properties will then be made part of the same contiguous zoning lot.
Just like the child’s game of tag via electricity!
All of us have the same air rights!
In a case that has received a great deal of attention recently, the developers William L. and Arthur W. Zeckendorf have been trying to increase the size of a planned condo tower on
The Zeckendorfs offered both properties $430 a square foot for their air rights, in what would be the highest price ever paid in such a deal. But more recently some members of the Grolier Club have balked at the arrangement, pointing out that the club’s air rights are actually more valuable to the developers, since without them the Zeckendorfs cannot buy air rights from the church.
High-stakes poker for the big bucks.
You wanna play showdown against these guys?
Like any highly complex activity that most people do only once, the air rights market has created specialists:
Robert I. Shapiro, the president of City Center Real Estate, a brokerage and consulting company specializing in development rights deals, cautions that, in practice, all air rights are not equal. Some blocks have height restrictions, so that no matter how many square feet of development rights a developer has at his disposal, his ability to build upward has a definite limit.
Other factors affect the value of air rights. When a developer has several neighboring plots to choose from in buying air rights, the law of supply and demand will help keep the price low. The opposite is true if a developer needs the air rights from a particular parcel. There are also some restrictions on the transfer of air rights between high- and low-density zoning parcels.
Air rights are a spectacularly clever means of channeling private-sector incentives to manage a city’s growth. But there’s a flip side to all this Laputan speculation: if air rights are worth so much, what does that tell us about the cost premiums created by development restrictions?
Have you got zoning for that?
