How a NYC Non-Profit Did a $26.5 Million Real Estate Deal Without Selling Its Building
Thursday, January 15, 2015
WNYC
The Door (left), a social service agency on Broome Street, sold its air rights to a luxury developer. (Jim O'Grady/WNYC)
Air rights.
In New York's white-hot real estate market, owning air can be as lucrative as owning land. That's what a social service agency on Broome Street at the western edge of Soho recently found out — to the satisfaction of its board and bank account. But some of their neighbors, while supporting the agency's mission, decry the role of air rights in making the buildings around them bigger, bulkier and priced for the wealthy.
The agency is The Door, which each weekday serves about 200 teenagers and young adults from troubled homes and neighborhoods in New York. They come from all over the city, as they have since The Door opened in an East Village storefront in 1972. Over the years, the agency has grown by adding services: health care and housing assistance, counseling and meals.
By 1989, The Door needed more space. So it bought a red-brick building on Broome Street across from the Holland Tunnel. The building is six stories tall and, to the naked eye, there is nothing above it. But on zoning maps, that space contains a hot commodity: about 90,000 square feet of air rights.
Simpleton's Guide to Air Rights
Picture a rectangular box of air that sits on the roof within the same footprint as the building below it. In the case of The Door, that box is six stories tall. The owner of that box of air has the right to fill it with more building. They also have the right to sell it to the property owner next door. Those are its air rights.
In 1989, The Door's new building was a warehouse that once held the city's voting machines. It was in the printing district, which was then a dying industrial zone. Michael Zisser, The Door's longtime CEO, said nobody in real estate was interested in the building's assets. "For decades, that air wasn't worth anything," he said.
That changed after Tribeca, next door, became Gentrification Central and started filling up with Wall Street whales and celebrities. Zisser said the first nibbles about The Door's air rights came in 2000. "The early offers started off with virtually nothing: a couple of hundred thousand dollars," he said.
There are companies that specialize in studying New York zoning maps to spot potential sales of air rights. Zisser heard from a lot of them, especially in recent years, as luxury high-rises sprouted around the neighborhood. "I can't even count how many phone calls I got with numbers that were sometimes absolutely ridiculous," he said. "But there was no way of us vetting whether these people were legitimate or not."
A Tempting Offer
Then two years ago, a company called Halpern Real Estate Ventures showed up. Halpern and its partners had bought up 13 lots to create an L-shaped piece of land around The Door. They had enough rights to build to the maximum height allowed by the zoning code, based on the size of their lot. But when the city rezoned the neighborhood and raised the maximum height, Halpern needed to gather more rights to make their building higher. (Developers can only build to the maximum zoning height if they have enough rights to do so.) For that, Halpern needed to purchase The Door's box of air.
"The Door, they had on their property the ability to add more to their building but they weren't likely going to use it," he said. So he called Zisser to make an offer. Zisser recalled the negotiation. "I think the first offer was somewhere around $100 a square foot." Months passed and as they kept talking, the Lower Manhattan real estate market kept booming.
In the end, The Door got about $325 per square foot of air, for a total of $32 million. Some of that went to a charter school and a small non-profit that share the building. The rest — $26.5 million — went to The Door. Zisser says that now, for the first time since The Door began as a storefront drop-in center for street kids, the agency enjoys financial security.
City to Non-Profits: Leverage those assets
Micki McGee, a member of a group called South Village Neighbors, has lived in the area since 1991. She supports the work of The Door but has a problem, in principle, with their air rights sale. "The question becomes the intent of the original zoning law," she said. She means New York's 1961 Zoning Resolution, which basically set the rules for building in New York, including the rules for air rights.
McGee said the problem is this: non-profits often have air rights that allow for extra-dense development. It's the city's way of encouraging what they do. That's fine with her, but she objects when a non-profit's extra-dense development rights are sold to a private company that plans to build luxury condos. "When you allow market forces to exercise complete control over the changes to a neighborhood, you risk destroying the very neighborhood that people are flocking to see," she said about the Village and, by implication, other low-rise areas.
Sometimes the non-profit just sells everything and leaves. For years, McGee put her daughter in daycare at The Children's Aid Society on Greenwich Avenue. But Children's Aid recently sold its building to developer and moved. Andrew Berman of the Greenwich Village Society for Historic Preservation, said that's a symptom of a larger problem. "Any site that's — quote, unquote — under-built, meaning it has some air above it that theoretically could be built on but hasn't been, is being built upon," he said. "So we're not only losing social services and public amenities, we're losing light and air, which arguably is a public amenity as well."
And Berman said government cuts to social services don't help. "More and more, we see that government is saying to non-profits, 'Look, we're not gonna help you. You've gotta leverage whatever resources you have. If you got real estate, sell it or build on it.'"
A Potential Reform
For complicated reasons of zoning, The Door's air rights were not any more dense than ordinary commercial air rights. And the agency sees Soho as its long-term home. "We ain't leavin'," said Zisser. "We are never going. We were here first."
Oddly enough, Berman and other preservationists think it might help neighborhoods to encourage even more sales of air rights, by allowing air rights to be transferred not just to the lot next door but to areas zoned for density — even if they're not nearby — as long as the process is open to public review. So a building owner in a brownstone neighborhood could sell his air rights to a developer in Midtown, where they like to build high. Margaret Newman of the Municipal Arts Society said that would protect the character of the brownstone neighborhood and stimulate growth where it's wanted.
"I think those kinds of transfers are really positive ones for the city where development actually funds things we want to preserve or encourage," she said, as long as the process is open to public review.
The Municipal Arts Society will release a report on the idea next month. The real estate industry is salivating at the prospect of a whole new frontier of development in New York. The rest of us can look at the boxes of blue sky above us and wonder, what's to become of them?
