APPAM_Draft_Market for TDRs in New York City 11 1 12 -1

A number of special transfer programs allow transfers from specified granting zones or sites to specified receiving zones, usually within the same neighborhood.These transferable develop

The Market for TDRs in New York CityVicki Been, John Infranca, and Josiah MadarFurman Center for Real Estate and Urban Policy

New York UniversityNovember 1, 2012 Draft

Landmark transfers allow transfers from landmarked buildings across a street or intersection, subject

to certain restrictions and approvals A number of special transfer programs allow transfers from specified granting zones or sites to specified receiving zones, usually within the same neighborhood.These transferable development rights (TDR) programs are used to advance a variety of planning and development goals, including directing the location and intensity of development, alleviating thehardships imposed on property owners by landmark or other restrictions, and encouraging the development of affordable housing

In this paper we explore the market for TDRs in New York City by studying a unique data set assembled by the Furman Center for Real Estate and Urban Policy By examining legal

documents filed with New York’s City Register, the Furman Center identified over 400 transactions involving the transfer of development rights that took place between January 2003 to June 2011 While the transactions are publicly recorded, lawyers register them in many different ways, and New York City has no centralized system to easily identify and track the transfers, many of which

can be executed without any public approval process The Furman Center’s database provides the most comprehensive information available on these transfers

The database allows us examine how developers have used development rights transfers in lieu of, or in conjunction with, other methods for increasing allowable development size, including developer-initiated rezonings, incentive zoning bonuses, and lot assembly.1 The database also allows us to analyze the determinants of TDR prices, including the relative supply of development rights available to a buyer, the complexity of the transfer process, a development site’s location within a block, and the project’s final size

This paper offers the first comprehensive empirical analysis of development rights transfers

in New York City. 2 A number of legal scholars in the 1970s and 1980s including John Costonis,3Norman Marcus,4 and David Alan Richards,5 among others6 analyzed the legal issues affecting development rights transfers in New York and elsewhere, and proposed new conceptual frameworksfor thinking about TDRs This early literature helped shape the development and regulatory

structure of New York City’s TDR programs While later legal scholars have described and

1 “When planning a structure that, on its ‘footprint,’ exceeds applicable FAR regulations, developers naturally have other routes available under the Zoning Resolution to secure permission for additional bulk, including incorporation of plazas or other amenities, zoning amendments or special permits, and variances But the development rights transfer technique, effected through as-of-right zoning lot merger, has enabled the most aggressive builders to bypass the

restrictions that the law would otherwise impose.” David A Richards, Downtown Growth Control Through

Development Rights Transfer, 21 REAL P ROP P ROB & T R J 435, 472 (1986).

2 The only other study of how TDRs are used that we are aware was published in 1989 by the City’s Department of City Planning and examined new residential construction on the Upper East Side of Manhattan It found that 36 of 77 new residential buildings used zoning lot mergers, and the rights transferred made up 12.5% of the total new floor area

constructed Arik Levinson, Why oppose TDRs?: Transferable development rights can increase overall development,

27 R EG S CI & U RB E CONS 283 (1997) (citing N EW Y ORK C ITY D EPARTMENT OF C ITY P LANNING , NYC DCP #89-46,

R EGULATING R ESIDENTIAL T OWERS AND P LAZAS : I SSUES AND O PTIONS (1989)).

3 J OHN J C OSTONIS , S PACE A DRIFT : S AVING U RBAN L ANDMARKS THROUGH THE C HICAGO P LAN (1974); John Costonis,

The Chicago Plan: Incentive Zoning and the Preservation of Urban Landmarks, 85 HARV L R EV 574 (1972); John J

Costonis, Development Rights Transfer: An Exploratory Essay, 83 YALE L.J 75 (1973).

4 Norman Marcus, Air Rights in New York City: TDR, Zoning Lot Merger and the Well-Considered Plan, 50 BROOK L

R EV 867 (1984); Norman Marcus, Mandatory Development Rights Transfer and the Taking Clause: The Case of

Manhattan's Tudor City Parks, 24 BUFFALO L R EV 77 (1975); Norman Marcus, Air Rights Transfer in New York City,

36 L AW & C ONTEMP P ROBS 372 (1971)

5 Richards, supra note Error: Reference source not found; David A Richards, Note, Development Rights Transfer in

New York City, 82 YALE L.J 338 (1972).

6 Hershel J Richman & Lane H Kendig, Transfer Development Rights A Pragmatic View, 9 URB L AW 571 (1977);

Note, The Unconstitutionality of Transferable Development Rights , 84 YALE L.J 1101 (1975).

analyzed various aspects of TDR programs, none explore how developers actually use TDRs or assess the market for TDRs.7

This paper advances the literature, not only by presenting findings from the first broad empirical study of development rights transactions in New York City, but also by evaluating what these transactions reveal about the decision-making processes of developers Further, the findings

we report provide valuable insights for municipal officials seeking to harness the private market for development rights to serve particular public purposes

Our initial analysis confirms that, as one would predict, developers prefer methods for obtaining additional capacity at a development site that involve less uncertainty and less expense Zoning lot mergers, district-wide development rights transfer programs that do not require the grant

of a special permit, and lot assemblies accordingly prove more popular than petitioning for an upzoning or seeking a development bonus through the City’s Inclusionary Housing Program.8 In addition, transfers that involve fewer transaction costs and greater certainty command higher prices than those that require regulatory approval To the extent that a local government wishes to

encourage development, our results accordingly suggest that it should introduce programs that do not require individualized review and approval of each transfer

In Part I of this paper we review the concept of transferable development rights and describe the history and regulations governing the transfer programs that New York City has adopted We describe the Furman Center’s database in Part II, and provide an overview of what it reveals about the market for transferable development rights in New York City Part III considers the factors that

7 A number of articles appearing in the economics literature in the mid- to late-1970s discussed TDRs and their

economic impacts See, e.g., David E Mills, Transferable Development Rights Markets, 7 J URB E CON 63 (1980);

Bruce E Carpenter & Dennis R Heffley, Spatial-Equilibrium Analysis of Transferable Development Rights, 12 J URB

E CON 238, 241, 251 (1982) (developing model of “simple TDR system” and analyzing “market TDR supply and

demand functions within a competitive spatial economy”); S.I Schwartz & D.E Hansen, Two Methods for

Preserving Agricultural Land at the Urban Fringe: Use-Value Assessment and Tranferable Development Rights, 2

A GRIC & E NV ’ T 165 (1975) But these analyses typically focused on simple forms of TDRs quite different from either the zoning lot mergers typically used to transfer development rights in New York City or the complex special transfer districts the City has recently used to govern TDR transfers

8 See infra note – and accompanying text.

might affect developer preferences for certain forms of TDRs and for other mechanisms for

increasing project size We then examine how TDRs have been used in conjunction with other mechanisms for increasing the size of a development project Part IV [to be added] explores the determinants of the prices paid for development rights Part V concludes with recommendations for policymakers about how to make TDR programs more effective

I General Background on Transferable Development Rights

A The Concept of Transferable Development Rights

Transferable development rights programs permit owners of land that is not developed to its full zoning capacity to transfer all or some portion of the right to develop that land to another parcel

of land.9 The owner of the receiving parcel is then allowed to develop her property at a higher capacity than permitted under the existing zoning regulations The granting parcel may be

developed below the allowable capacity because of a separate regulatory restriction, such as a historic preservation ordinance or environmental regulation, or because the owner has simply chosennot to develop to the full permitted capacity TDR programs allow such owners to recoup some of the value of this unused capacity through a sale of the development rights on the private market.10

Several hundred TDR programs, with a range of structures and purposes, exist throughout the United States and internationally.11 Among the best known are Montgomery County,

Maryland’s farmland preservation program and New Jersey’s Pinelands program.12 In addition to

9 See Mills, supra note Error: Reference source not found, at 63-64.

10 See Mills, supra note Error: Reference source not found (“[T]he attractiveness of TDR is held to be the equitable

treatment it affords landowners Specifically, it avoids arbitrary rationing of gains from development associated with direct controls DRs are assigned on some equitable basis and the land market (working within the constraint of whatever direct controls may remain) determines the most efficient use for every parcel.”).

11 See Rick Pruetz & Erica Pruetz, Transfer of Development Rights Turns 40, PLAN & E NVTL L., June 2007, at 3, 3 (“We know of 181 TDR programs in 33 states that have preserved at least 300,000 acres of farmland, natural areas, and

open space to date.”); ARTHUR C N ELSON , ET AL , T HE TDR H ANDBOOK 131 (identifying 239 communities in the United States with TDR programs).

12 Pruetz & Pruetz, supra note Error: Reference source not found, at 4; see also Sarah J Stevenson, Note, Banking on

TDRs: The Government's Role as Banker of Transferable Development Rights, 73 N.Y.U L REV 1329, 1347-58 (1998) (discussing TDR programs in New Jersey, Montgomery County, and Seattle).

preservation of farmland and environmentally sensitive lands, program purposes include the

preservation of historic sites and the historic or rural character of particular neighborhoods, as well

as the development of affordable housing and broader urban design and revitalization goals.13 A number of TDR programs serve multiple goals

New York’s TDR programs also serve a range of purposes.14 Writing in 1986, David Alan Richards distilled four goals that had been reflected in New York’s TDR programs up to that time: (1) “promot[ing] growth in the municipal tax base through new construction;” (2) preserving

resources, including landmarks; (3) obtaining public amenities without municipal expenditure; and (4) preserving an industry, such as the theater district.”15 In recent years, New York City has

enlisted TDRs as a substitute for upzoning an area, to “carefully direct the form and intensity of permissible development in a way that reflects the goals (and structure) of more traditional

zoning.”16

Nationally, TDR programs also differ in how they permit unused capacity at a granting site

to be converted into more intense development at a receiving site Some programs convert the preservation of, for example, a certain number of acres of farmland into a defined number of

development credits.17 These credits allow for a specified amount of additional density at the receiving site one additional residential unit for ten acres of preserved farmland, for instance In New York City, the transfer of development rights occurs on a one-to-one basis, with transfers taking the form of a specific number of square feet of floor area

Another critical difference in the design of TDR programs is in the rules they use to govern the transfer of the rights Some programs specify the geographic boundaries of the sites that can

13 N ELSON, supra note Error: Reference source not found, at 131-227 (cataloguing and discussing TDR programs by purpose); see also RESOURCES FOR THE F UTURE , T RANSFER OF D EVELOPMENT R IGHTS IN U.S C OMMUNITIES (2007)

(discussing ten primarily rural and suburban examples of TDR programs).

14 For a broader discussion of the changing uses of TDRs in New York City see generally Vicki Been & John Infranca,

Transferable Development Rights Programs: “Post” Zoning?, 78 BKLYN L R EV (forthcoming 2013).

15 Richards, supra note Error: Reference source not found, at 474-75.

16 Been & Infranca, supra note Error: Reference source not found, at 18.

17 See NELSON, supra note Error: Reference source not found, at 3.

receive transfers (with significant variation in the rationale for, and breadth of, those boundaries), while others use the continguity of properties to limit transfers In New York City, the most basic TDR transactions zoning lot mergers can occur only between lots that are contiguous for a minimum of ten feet or are connected by a chain of contiguous lots, all of which must agree to be considered part of the same lot for zoning compliance purposes As such, the potential receiving sites for a given lot’s undeveloped capacity are limited to, at most, lots on the same block The number of potential receiving sites will depend, of course, not only on the regulations governing transfer, but also on how many of sites that legally could receive the rights are likely to be

redeveloped in a manner that would make the rights useful the them Further, under contiguity rules, the number of potential receiving sites will depend upon whether a seller and buyer whose lotsare not contiguous with one another are able to convince the owners of intervening lots to assist withthe transfer by forming a chain of contiguity

In short, then, transferable development rights programs differ along a variety of dimensions:– the purposes they are intended to serve; the relationship between the scope of the rights the

sending site has foregone and the rights the receiving site can take; the nature of the regulatory review (if any) of proposed transfers; the rationale behind, and restrictiveness of, rules governing which sites can receive TDRs from a sending site; and the use of intermediaries such as TDR banks

to facilitate transfers

B Transferable Development Rights Programs in New York City

New York City permits property owners to transfer the unused development capacity of one parcel of property to another parcel through a number of different mechanisms The “simplest example of transferable development rights,”18 the zoning lot merger, can be traced to the city’s

18 Marcus, Air Rights in NYC, supra note Error: Reference source not found at 870.

original zoning code The 1916 New York City Zoning Resolution restricted the size of buildings primarily through height limits and setback requirements.19 However, these limits applied only when a building occupied more than one quarter of its total lot – which was interpreted to include any contiguous lots if the owners of those lots leased or sold their air rights to the building’s

developer.20 This created an incentive for property owners to enlarge their lots by leasing or

purchasing air rights, in order to avoid height and setback restrictions.21

New York City’s 1961 Zoning Resolution applied the concept of floor air ratio (FAR) to the entire city FAR, which became the central determinant of building bulk, “is the ratio of total building floor area to the area of its zoning lot.”22 For example, a building on a 10,000 square foot lot, in a zoning district with an FAR of five, cannot exceed 50,000 square feet If the building covered the entire zoning lot, it could rise to five stories If it covered only half the lot on which it was built, the building could rise to ten stories See Figure 1 below However, buildings still remain subject to height and setback restrictions in zoning districts where those apply

19 Michael B Kruse, Constructing the Special Theater Subdistrict: Culture, Politics, and Economics in the Creation of

Transferable Development Rights, 40 URB L AW 91, 100 (2008).

20 Marcus, Air Rights in NYC, supra note Error: Reference source not found, at 871-72.

21 Kruse, supra note Error: Reference source not found, at 100.

22 City of New York Department of City Planning, Zoning Handbook (2011 Edition) 148 FAR was first developed in

New York City in 1940, but initially only applied to low density areas of the city Richards, Note, supra note Error:

Reference source not found, at 338, 346 The real estate industry initially objected to this new bulk restriction, but the

1961 resolution won their support by including two additional changes to offset the effect of the new FAR regulations: the availability of a bonus of 20% of a building’s FAR if the developer added a plaza to the development; and a

redefinition of the “zoning lot” to which the FAR would apply, to include any other parcel owned by a developer within

the same city block Id at 347-48 This new definition, by applying the FAR limit to the entire zoning lot, allowed for

the transfer of bulk from underdeveloped buildings to a new development, creating the zoning lot merger, the first TDR program.

Figure 1

The 1961 Zoning Resolution did not introduce a specific development rights transfer

mechanism, but its definition of “zoning lot” permitted a developer to enter into a long-term lease ofcontiguous lots on the same city block – and then purchase and shift unused development rights from one lot to another.23 A long-term lease was required to be at least fifty years in duration, with

an option to renew that provided a total lease of at least seventy-five years.24 The seventy-five year lease posed potential problems if, for example, a lessee stopped paying rent under the lease or the lessor was foreclosed upon and the lease terminated.25 Those uncertainties hampered the use of development rights

To alleviate these concerns, the Zoning Resolution was amended in 1977 to eliminate the lease requirement The definition of “zoning lot” now includes a tract of land consisting of two or more contiguous tax lots, located on a single block, which at the time of filing for a building permit

or certificate of occupancy “is declared to be a tract of land to be treated as one zoning lot for the

23 Marcus, Air Rights in NYC, supra note Error: Reference source not found, at 873-74; Kruse, supra note Error:

Reference source not found, at 101.

24 Marcus, Air Rights in NYC, supra note Error: Reference source not found, at 873 (citing NEW YORK, N.Y.,

ZONING RESOLUTION § 12-10 (1961)).

25 Marcus, Air Rights in NYC, supra note Error: Reference source not found, at 874; see also Richards, supra note Error:

Reference source not found, at 468-470 (1986) (discussing additional concerns that motivated amendment).

purpose of this Resolution.”26 The Zoning Resolution requires that Declarations of Restriction be executed by all parties in interest to any portion of the zoning lot These Declarations must be recorded with the Office of the City Register against each relevant tax lot.27 In addition, a licensed New York State title insurance company must provide certification that all “parties in interest” have either joined the declaration or waived the right to do so.28 In certain zoning districts, the ability to use a zoning lot merger to increase building height is restricted by the requirement that a tower occupy some minimum percentage of the merged zoning lot.29 These restrictions are intended in part to avoid the construction of buildings like the Trump World Tower, which obtained

development rights from a large number of merged zoning lots to build a tower that occupied “only

13 percent of the merged lot.”30

New York City introduced a development rights transfer program specifically for designated landmarks in 1968.31 The program sought to compensate owners of landmarks for the potential

26 N.Y.C Zoning Resolution Section 12-10 (2006) (part (d) under definition of Zoning Lot).

27 Kruse, supra note Error: Reference source not found, at 101 n.12.

28 Richards, supra note Error: Reference source not found, at 470; see also Marc Israel & Caroline G Harris, Higher

and Higher, N.Y LAW J., Jan 16, 2007 (discussing “basic mechanics of development rights deals”)

29 See, e.g., NYC Zoning Resolution § 23-633(c)(3) (district R10X: portion of tower above 85 feet must cover minimum

of 33% of zoning lot); id at § 35-24(d)(3) (district C4X); id at § 81-752(c)(1) (Eighth Avenue Corridor); id at §

82-36(a)(2) (Special Lincoln Square District)

30 David W Dunlap, A Complex Plan’s Aim: Simpler Zoning Rules, N.Y TIMES, Jan.30, 2000, available at

http://query.nytimes.com/gst/fullpage.html?res=940DE4DF133CF933A05752C0A9669C8B63 (“Intended to curtail the

transfer of development rights, [the ‘packing the bulk’] rule is despised by developers.”); David W Dunlap, Battle

Lines Drawn on New Zoning Plan, N.Y TIMES, June 4, 2000, available at http://query.nytimes.com/gst/fullpage.html?

res=9C0DEEDC133CF937A35755C0A9669C8B63 (“This [requirement] was intended to prevent the harvesting of air rights up and down a block and piling them on a single building site, as was done at Trump World Tower, which occupies only 13 percent of the merged zoning lot.”)

31 The relevant provisions are found at § 74-79 of the Zoning Resolution Eligible landmarks include Landmarks Preservation Commission designated landmarks (designated pursuant to Chapter 8-A of the New York City charter and Chapter 8-A of the NYC Admin Code), except cemeteries, statues, monuments, bridges, or structures within historic districts An “adjacent zoning lot” eligible for receiving development rights from a landmark is defined as one

contiguous to the lot occupied by the landmark structure, one across a street and opposite to such a lot, or, if the

landmark structure is on a corner lot, one that fronts on the same street intersection as the lot occupied by the landmark

In the case of lots in zoning districts C5-3, C5-5, C6-6, C6-7 or C6-9, an adjacent lot can also mean “a lot contiguous or one that is across a street and opposite another lot or lots that except for the intervention of streets or street intersection, form a series extending to the lot occupied by the landmark.” In this case, all such lots must be under common

ownership

financial loss resulting from the restrictions imposed by the City’s Landmark Preservation Law.32 According to Marcus, the landmark TDR program provided a practical means through which the city was able to protect landmarks and restrict redevelopment without being required to pay

compensation, a particular concern given Manhattan land values.33 Under the program, landmarks are permitted to transfer unused development rights not only to other lots on the same block (which they could do through zoning lot mergers), but also to lots directly across a street or, if the landmark

is at a corner, to any of the other corner lots at the same intersection.34 This ability to transfer development rights beyond the same block came with the restriction that the rights could only increase a receiving site’s FAR by twenty percent above the site’s maximum FAR prior to the transfer.35

The Landmark Preservation Law was challenged by the owner of Grand Central Terminal in

a case that eventually reached the United States Supreme Court, Penn Central Transportation

regulation destroyed so much of the value of its property that it constituted an uncompensated taking, and that its TDRs were worthless and therefore were not just compensation for the taking, because no purchasers existed under the then-existing transfer rules.37 To blunt this claim, the Landmark Preservation Commission adopted two amendments in 1969 The first permitted the transfer of TDRs to “any site connected to the landmark through a chain of lots under common ownership.”38 The second amendment removed the twenty-percent limit on the increase in FAR at

32 Kruse, supra note Error: Reference source not found, at 102; Richards, Note, supra note Error: Reference source not

found, at 351-53.

33 Norman Marcus, Mandatory Development Rights Transfer and the Taking Clause, supra note Error: Reference source

not found, at 91, 92.

34 Richards, supra note Error: Reference source not found, at 447; Stevenson, , at 1334-35 (“The [1968] amendment

was the first example of “beyond-the-block” TDR use, drastically changing the concept of, and traditional justifications for, TDRs.”).

35 Kruse, supra note Error: Reference source not found, at 101 (citing N.Y City Planning Comm'n, Rep CP-20938, at

876 (1969)); Marcus, Air Rights in NYC, supra note Error: Reference source not found, at 880.

36 438 U.S 104 (1978).

37 Kruse, supra note Error: Reference source not found, 102.

38 Kruse, supra note Error: Reference source not found, 102; Richards, supra note Error: Reference source not found, at

451 (noting that amendment was “announced October 7, 1969 (the same day the railroad’s suit was filed)”).

the receiving site, but only for sites in the highest-density commercial districts.39 In 1978, the Supreme Court rejected the takings claim, and therefore did not need to address the question

whether the TDRs were adequate compensation for a taking But the Court did rely on the value of the TDRs in its determination that no taking had occurred, reasoning:

Second, to the extent appellants have been denied the right to build above the Terminal, it is not literally accurate to say that they have been denied all use

of even those preexisting air rights Their ability to use these rights has not been abrogated; they are made transferable to at least eight parcels in the vicinity of the Terminal, one or two of which have been found suitable for theconstruction of new office buildings Although appellants and others have argued that New York City's transferable development rights program is far from ideal,the New York courts here supportably found that, at least in the case of the Terminal, the rights afforded are valuable While these rights may well not have constituted "just compensation" if a "taking" had occurred, the rights nevertheless undoubtedly mitigate whatever financial burdens the law has imposed on appellants and, for that reason, are to be taken into account in considering the impact of regulation

438 U.S., at 138 (notes and citations omitted).40

Although the litigation over the Grand Central development rights eventually led the City to create a special district program like those described in the next section, the landmarks transfer program has remained largely as it was prior to the litigation Under Section 74-791 of the current New York City Zoning Resolution, the owners of both the landmark seeking to transfer

development rights and the potential receiving lot must submit an application to the City Planning Commission (CPC) for a permit to allow the transfer This permit application – in contrast to a zoning lot merger, which can be done as of right – is subject to New York City’s Uniform Land Use

39 Richards, supra note Error: Reference source not found, at 451 Richards notes that the original landmark TDR

program was introduced by a Planning Commission statement lauding, among its benefits, the City’s ability to obtain

“new tax revenues from what was previously untaxable.” Id at 448 (quoting New York City Planning Commission,

Minutes 303 (May 1, 1968)) He deems the 1969 amendment, which was introduced to allow broader transfers from Grand Central and blunt the legal challenge, “a classic case of spot zoning: an amendment enacted solely for the benefit

of one landowner which was not in accordance with a comprehensive plan.” Id at 451.

40 The Penn Central Court’s discussion of TDRs has been questioned by several current members of the Court See

Suitum v Tahoe Regional Planning Agency, 520 U.S 725, 747-48 (1997) (Scalia, J., conc.) See also James E

Holloway & Donald C Guy, The Utility and Validity of TDRs Under the Takings Clause and the Role of TDRs in the Takings Equation Under Legal Theory, 11 Penn St Envtl L Rev 45 (2002); Andrew J Miller, Transferable

Development Rights in the Constitutional Landscape: Has Penn Central Failed to Weather the Storm?, 39 Nat

Resources J 459 (1999).

Review Process (ULURP) The permit application must include a site plan of the granting landmarklot and the receiving lot, all plans for development on the receiving lot, a program for continuing maintenance of the landmark, a report from the Landmarks Preservation Commission, and any otherinformation required by the CPC

Development rights transfers from landmark sites may only be authorized upon CPC

findings that the transfer “will not unduly increase the bulk of any new development, density of population or intensity of use in any block to the detriment of the occupants of buildings on the block or nearby blocks, and that any disadvantages to the surrounding area… will be more than offset by the advantages of the landmark’s preservation to the local community and the City as a whole.”41 The CPC also must find that the program proposed in the transfer application for

continuous maintenance of the landmark will indeed result in its preservation.42 As noted, with the exception of certain commercial districts, a receiving site may not obtain via TDRs more than a twenty percent increase over its prior maximum allowable floor area.43 If a government entity (city, state, or federal) owns the landmark, the special permit application must include a plan to provide a major improvement to the area’s pedestrian circulation or transportation system.44

Thus, the procedures for obtaining approval of a proposed landmark transfer are “complex,”

to put it mildly.45 In an article published just four years after the institution of the landmark transfer program, Professor John Costonis argued that a number of program characteristics reduce its

effectiveness as a preservation technique.46 In particular, the zoning lot merger provision, which

41 New York City Zoning Resolution § 74-792(e)(1).

42 New York City Zoning Resolution § 74-792(e)(2).

43 New York City Zoning Resolution § 74-792(b)(4) A few provisions in the Zoning Resolution provide additional regulations that apply to landmarks in designated areas of the city that seek to transfer development rights These include, among others, the Special Midtown District, which imposes a maximum FAR for certain zoning lots, see § 81- 211; the Grand Central Subdistrict, which allows transfers to certain receiving lots without an adjacency requirement and transfers of less than 1 FAR by certification (rather than requiring a special permit), see §§ 81-63, 634; and the Theater Subdistrict, which allows more distant transfers via a chain of lots under common ownership, see § 81-747.

44 74-792(e)(3) Richards describes this requirement as an exaction levied by the government “upon the private builder

who would utilize the development rights.” Richards, supra note Error: Reference source not found, at 453

45 Costonis, The Chicago Plan, supra note Error: Reference source not found, at 585.

46 Costonis, The Chicago Plan, supra note Error: Reference source not found, at 586-89.

allows transfers as-of-right, renders the landmark transfer program “useful only when a developer can be found who happens to own a lot located across a street or an intersection from a landmark or when a landmark owner who owns a series of lots that connect with the landmark lot desires to build

on one or more of those lots.”47 It should be noted that developers also may be able to obtain more development rights through a zoning lot merger than they could through the landmark transfer program, because of the latter’s limit on the increase in floor area obtainable through TDRs

Echoing these concerns, an American Planning Association publication from 1987 noted that

in the 18 years since the creation of New York City’s landmark TDR program, only approximately adozen transfers had occurred.48 According to the authors, this was because developers had access to easier and more attractive methods for increasing density: “The first choice of developers in the market for additional density is the zoning-lot merger, which is as-of-right and is not subject to a process of review and approval If a developer cannot achieve density through zoning-lot merger, a change in zoning to a higher density classification may be sought Only after these options have been exhausted does a developer typically seek TDRs from landmark properties and submit to the strenuous planning review involved in TDR approvals.”49

Given these additional constraints, it is not surprising that our data reveal few TDR

transactions that use the landmark transfer mechanism under Section 74-79.50 Landmarks more

47 Costonis, The Chicago Plan, supra note Error: Reference source not found, at 586-87.

48 R ICHARD J R ODDEWIG & C HERYL A I NGHRAM , A MERICAN P LANNING A SSOCIATION , P LANNING A DVISORY S ERVICE ,

R EPORT N O 401, T RANSFERABLE D EVELOPMENT R IGHTS P ROGRAMS 8 (1987); see also Richards, supra note Error:

Reference source not found, at 462-63 (“[T]o this writer's knowledge, only a dozen [landmark] transfers have been processed in eighteen years.”).

49 R ODDEWIG & I NGHRAM, supra note Error: Reference source not found, at 8 One commentator has argued that a

municipal bias exists in favor of programs that entail minimal administrative effort: “With respect to the goal of growth,

this bias has meant the laissez-faire encouragement of the ‘as-of-right’ zoning lot merger, which produces the same

development rights increment to the city’s tax base as any more complicated alternative which, while maximizing municipal discretion in the production of individually tailored developments over areas wider than a city block, would

also require considerably greater administrative costs.” Richards, supra note Error: Reference source not found, at 475 (citing Marcus, Air Rights in NYC, supra note Error: Reference source not found, at 911).

50 Writing in 1986, eighteen years after the institution of the landmark TDR program, Richards observed that few

transfers had occurred through the program Richards, supra note Error: Reference source not found, at 462-63 (“[T]o

this writer’s knowledge only a dozen [landmark TDR] transfer have been processed in eight years, which fact would seem to demonstrate the unreliability of development rights transfer as a general preservation device.”).

frequently transfer development rights via a zoning lot merger, which can be done as-of-right

(avoiding the expense or uncertainty of filing for a discretionary special permit), without restrictions

on the amount of development rights that can be transferred, and without commitment to a program for continued maintenance of the landmark Commentators have contended that the landmark TDR program, by “[i]ncreasing the distance over which these rights could be transferred increased the number of available receiving sites, which then increased both the number of potential buyers and (by increasing demand) the price of those rights.”51 However, our analysis of transfers that have occurred from landmarks indicates that other transfer mechanisms are more desirable for landmark owners looking to sell TDRs During the period of 2003-2011 only two landmarks made use of the transfer mechanism under Section 74-79, but an additional twenty-five landmarks transferred

development rights via a zoning lot merger, the Theater Subdistrict program, or the Grand Central Subdistrict program

In addition to zoning lot mergers and landmark transfers, special districts are a third major category of TDRs New York City has established a number of special districts, which are defined geographic areas within which contiguity requirements are eliminated and eligible granting sites are able to transfer development rights to specified eligible receiving lots outside the block or even many blocks away Hence these programs expand the market of potential sellers as well as potentialbuyers of TDRs

These special transfer districts include, among others, the South Street Seaport Subdistrict,52the Theater Subdistrict,53 and the Special West Chelsea District.54 The South Street Seaport District

51 Kruse, supra note Error: Reference source not found, 102; see also COSTONIS , S PACE A DRIFT, supra note Error:

Reference source not found, at 55 (“The adjacency restriction [in New York City’s TDR program for landmarks] severely impairs the marketability of development rights.”).

52 New York City Zoning Resolution § 91-60.

53 New York City Zoning Resolution § 81-70.

54 New York City Zoning Resolution § 98.

was created to preserve a historic area in lower Manhattan near the Fulton Fish Market, while still encouraging development in an area with high property values.55 Owners of historic properties wereallowed to transfer unused development rights either to designated recipient sites or to a TDR bank, which would hold the rights for subsequent disposition to a receiving site.56

The Theater Subdistrict, which is a part of the Special Midtown District, allows the transfer

of development rights from 46 theaters listed in the Zoning Resolution (some, but not all, of the theaters are also designated landmarks).57 With a few exceptions, the listed theaters may transfer development rights to any other lot within the Theater Subdistrict.58 The owner of the granting site must provide written assurances that the site will continue to be used as a legitimate theater,59 and must show that the theatre is physically and operationally sound or have a plan in place to upgrade it

as necessary for its continued use.60 The City Planning Commission must either certify or authorize each transfer Certification, which is a ministerial process, allows the owner to transfer only those rights that would increase the maximum floor area at a receiving site by no more than twenty

percent.61 To transfer by certification, the owner also must contribute to the Theater Subdistrict Fund, which finances inspection and maintenance of the granting theaters.62 Authorization, which

is a discretionary action, allows receiving sites within a designated Eighth Avenue corridor to receive an additional twenty percent FAR bonus, above the amount that can be transferred by

certification To authorize such a transfer, the City Planning Commission must find that the

55 Marcus, Air Rights in NYC, supra note Error: Reference source not found, at 890.

56 Marcus, Air Rights in NYC, supra note Error: Reference source not found, at 890-91 This program reflected some of the ideas advocated by Professor John Costonis See Costonis, The Chicago Plan, supra note Error: Reference source

not found, at 622-23 (championing creation of “development rights transfer district” as part of TDR program)

57 New York City Zoning Resolution § 81-742 (providing list of theaters).

58 New York City Zoning Resolution § 81-744.

59 New York City Zoning Resolution § 81-743.

60 New York City Zoning Resolution § 81-743.

61 New York City Zoning Resolution § 81-744(a) Kruse, supra note Error: Reference source not found, at 115-16

(“[T]he only requirement for such transfers beyond the FAR limit was that the C[ity] P[lanning] C[ommission] confirm that (1) the TDRs available to the granting site be reduced once the transfer is complete, (2) that the theater owner transferring the TDRs satisfy the requirements regarding the continued use of the property as a legitimate theater, and (3) that a contribution of ten dollars per square foot of transferred floor area be made to the Theater Subdistrict Fund.”).

62 New York City Zoning Resolution § 81-744(a) The contribution amount is adjusted over time and the current rate is

$14.91 per square foot transferred

development (i) relates harmoniously to all structures and open space in its vicinity in terms of scale,location and access to light and air in the area; and (ii) serves to enhance or reinforce the general purposes of the Theater Subdistrict.63

The Special West Chelsea District, which includes the High Line, a public park built atop an abandoned elevated train line, includes a sophisticated TDR program The district regulations restrict development of properties under and immediately west of the High Line These properties form a “High Line Transfer Corridor” and are designated as eligible granting sites for TDRs.64 Parts

of the district are divided into designated subareas, a share of which are eligible receiving sites for transferred development rights The maximum amount that a receiving site can increase its FAR through TDRs varies by subarea, between 1.0 and 2.65 FAR.65 Certain subareas allow receiving sites to obtain additional FAR by contributing to a High Line Improvement Fund or participating in New York City’s Inclusionary Housing Program.66 In some of the subareas, a developer may obtain additional FAR via the inclusionary housing program only after first using the maximum allowable TDRs, a requirement that provides further incentive for the purchase of TDRs.67

A number of other regulations serve to encourage transfers and further the development of the High Line Certain lots, in order to transfer TDRs, must dedicate an easement for an elevator or stairwell that will provide access to the High Line.68 Vacant sites within the High Line Transfer Corridor that have already transferred all of their development rights may be granted an additional 1.0 FAR, which can only be used for a commercial purpose within the High Line Transfer

Corridor.69 These provisions serve the goals of establishing a vibrant and accessible neighborhood

63 New York City Zoning Resolution § 81-744(b).

64 New York City Zoning Resolution § 98-31 To execute a transfer, written notification must be made by the owners of the granting and receiving sites to the Department of City Planning § 98-33(a)

65 New York City Zoning Resolution § 98-22.

66 New York City Zoning Resolution § 98-22.

67 New York City Zoning Resolution §§ 98-22, 98-262.

68 New York City Zoning Resolution §§ 98-33(d), 98-62

69 New York City Zoning Resolution §§ 98-33(d), 98-35 Vacant lots must contribute $50 per square foot (adjusted for inflation) to the High Line Improvement Fund in order to obtain the additional 1.0 FAR