The Air Up There: Smaller Residential Buildings Profit From the Skyscrapers Next Door

Turns out high-rises aren't uniformly hated. At least, many of their neighbors don't mind.

Turns out high-rises aren’t uniformly hated. At least, many of their neighbors don’t mind. Illustration: Kaitlyn Flannagan/New York Observer.

Despite living in a city famed for its skyscrapers and crowded sidewalks, New Yorkers can be cantankerous when it comes to tall buildings going up—from the yowling that accompanied the skinny skyscrapers rising along 57th Street to Sutton Place residents’ very public panic over the super-scraper intended for their sleepy enclave. What often goes unmentioned, or at least overlooked, is that none of those projects could have achieved such cloud-piercing height had it not been for their immediate neighbors, who were only too happy to lend a helping hand in the form of air rights.

While NIMBYism is very much alive and well in New York, a new development’s most direct neighbors—the ones who literally have to deal with a tower rising in their backyard—often prove more amenable to a little additional height and density than the area at large. That’s because they’ve sold their rights—unused development rights, calculated by square foot, that buildings smaller than zoning allows may use to expand their own vertical footprint or transfer to another buildable lot—to the developer. In Manhattan, the price for air rights averaged $305 in 2013, although they have sold for as much as $600 per square foot (in a deal the Zeckendorfs made to buy 70,000 square feet of rights from Christ Church, on the corner of Park Avenue and East 60th). Some are ambivalent about getting a payout for aiding and abetting their shadow-casting neighbors, but sell they (almost always) do; brokers, lawyers and developers say that flat-out refusals are rare. Nor is it always a matter of acquiescing to the developer next door—not infrequently, condos and co-ops hire brokers to see if anyone wants to buy.

Susan Cartier, a board member of Del Este Village Condominium, a four-story condo that sold its air rights to Extell last year for a seven-story development on 14th Street, reasoned that it really didn’t matter if there was a six-, eight- or 10-story on the lot directly behind them. “Granted there is less light, but they were going to build there anyway,” she said. “You either get a building, or you get a building and a check.”

“If you’re six stories tall, what do you care if the building going up next door is 12 stories, 30 stories or 75 stories?” asked Elias C. Schwartz, a lawyer who has represented many building boards in air rights negotiations, including those of 434 East 58th and 436 East 56th Streets—a Sutton Place co-op composed of two small buildings that sold some of the rights that would have enabled the Bauhouse Group to erect a 900-foot tower on East 58th Street (the controversial project is now stalled in bankruptcy).

Indeed, while co-op residents have been known to come to fisticuffs over lobby renovations, they can usually be persuaded to make a deal with developers. Stuart Saft, a partner at the law firm Holland & Knight, represented two of the co-ops that sold air rights to Extell’s One57—the skyscraper that set off Midtown’s super-tall condo spree. “People thought, ‘it’s a co-op board, they’re never going to sell their development rights,’ ” Mr. Saft recalled. But they did sell—for $200 a square foot. “That was unheard of!” Mr. Saft exclaimed. “The analysis comes down to, ‘It’s going to be 56 stories rather than 45. Why wouldn’t we?’ ”

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You really have to know what the zoning is and I knew there was no height limit on the block,” declared Continuum Company founder and developer Ian Bruce Eichner, who is building a 777-foot tower in the Flatiron at 45 East 22nd Street. Mr. Eichner was also the developer behind CitySpire, a 1990s Midtown skyscraper that, at 814 feet, remains the tallest mixed-used tower in New York.

His first move after buying the site for the Flatiron tower, he explained, was to hammer out a deal with 33-39 East 22nd Street, the five-story co-op in the center of the block, which had some 65,000 square feet of air rights to sell—an extremely valuable commodity given that the north side of the street, unlike much of the neighborhood, had no height limit, thanks to an upzoning that allowed for the construction of the MetLife Tower in 1909.

“I think they had to get 75 percent of the shareholders to agree and I bet there were 25 percent who vociferously opposed it,” said Mr. Eichner. “If it were unanimity I never would have got the air rights and the project never would have gone anywhere.”

The board president of 33-39 did not respond to a request for comment, though Geoffrey Newman, the Newmark Grubb Knight Frank broker who represented the co-op in the deal, described “innumerable” meetings with tenants. “We went over everything from who the developer was to the final design of the building. It took having residents involved at every turn to generate a sense of trust. We had discussions and also a lot of arguments and fights; it’s like making a decision as a family.”

“It is often difficult for residents to decide to enable a taller building,” he continued. “It almost always requires consensus building among the different members of the condominium or co-op and that really starts with the inevitability of a project—whether they sell excess development rights or not, a project is going to get built, the question is strictly height.”

Assembling the rest of the development rights for 45 East 22nd Street—which involved two co-ops, buying out one rent-stabilized tenant (an 82-year-old whom Mr. Eichner installed in a renovated co-op next door) two restaurant leases, several other building owners, and offsite inclusionary housing development rights—came together with unusual alacrity, taking just over a year to assemble when it very well could have taken five. Or 10.

Just because most residential buildings are usually willing to sell doesn’t make acquiring air rights remotely simple. Extell’s Gary Barnett, who is widely considered a master of such assemblages, amassed the development rights for 217 West 57th Street—expected to be the tallest residential building in the Western Hemisphere when completed—over more than a decade, with the final dealing closing in 2014.

Putting together a parcel that can accommodate an as-of-right super-tower requires not only merging buildings’ zoning lots, but negotiating pass-throughs to access air rights from parcels not directly adjacent to the proposed project, as zoning laws dictate that development rights can only be merged between contiguous parcels.

Brokers and attorneys cite any number of things that a prudent board can and should negotiate, from input on the final design to construction guidelines—what time in the morning work will start, whether it will be allowed on Saturdays, etc. Then there are talks to ensure that any damage caused by the construction will be compensated, which requires extensive surveys and inspections (who pays for these must also be decided) to document the building’s condition in minute detail. Meanwhile, anything from a new roof to a new façade is up for discussion, and the whole process becomes even more exhaustive if the building is landmarked. Shadow studies have become increasingly common, especially with the popularity of cantilevers to maximize shrinking building sites.

And aside from balconies and rooftops losing light (often a given) there is, more pressingly, the issue of precious lot-line windows—will they be blocked? If they are, it may cost residents not only light and air, but a legal right to call some spaces bedrooms.

“Anytime some of my clients call us about development rights I say, ‘Where are they going to build and how far will it be?’ ” said Wagner Berkow attorney Steven Wagner, who represents many building boards. “In one deal that I did recently, while they weren’t planning to build adjacent to my building, I had a clause that they would not build 75 or 100 feet closer to it.”

When it came to Ms. Cartier’s condo, getting all 18 residents and the one commercial unit to agree on a price wasn’t hard at all, but final approval was another matter. (Bylaws and board rules differ by buildings, but in general, condos require every owner to sign off on a deal, while co-ops need only a percentage.) One owner had a lawyer in the family, “who went over every single word in the agreement,” according to Ms. Cartier. “We had several meetings with her to make sure everything met her standards so her parents would sign.”

“The feelings that one encounters is these co-ops are the same as if you had a conversation with someone on the street,” Mr. Newman explained. “…But the difference is that there are strong financial incentives—for someone to come along and hand you a check for a quarter million dollars…”

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There are, of course, some transactions that end up falling apart, though rarely for reasons of principle.

Mr. Saft could recall only one such deal, involving a building on Hudson Street, whose objections to selling remain mysterious to this day. And when a deal falters, he said, it’s often because individual unit owners get greedy, especially when a developer is buying the entire building. The guy who recently got a new kitchen will complain that he should get more than his downstairs neighbor, even if he is getting $5 million for an apartment worth $500,000.

Timing can be difficult—those who sell first often get the lowest prices. But wait too long and a developer may find other options, especially in areas with stringent height restrictions, or just move forward on a slightly squatter project. And because air rights transfers are so geographically constrained, missing out on one deal can mean missing out on the chance to sell altogether.

“It’s always good to be able to monetize an asset you have no use for,” Mr. Wagner advised.

Mr. Eichner could only recall two owners who wouldn’t sell, one of whom was a publisher with a two-story building next to CitySpire. “He said, ‘I’m not selling you air rights. I think your building is too big and I don’t need your money,’ ” Mr. Eichener said. “That’s basically the only time I’ve had someone say, ‘No, I don’t care.’ ”

And for those who really can’t resign themselves to any living in the shadow of a new neighbor, there’s always another option, which most developers are only to happy to facilitate: sell the entire building.

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Of course, neighbors across the street who aren’t sharing in the windfall may not be so sanguine. “If you live across the street and you’re the tallest building and you’ve just lost your view…those are the people who are going to care a lot,” said Mr. Schwartz.

Boards have also been known to experience seller’s remorse. The Sutton Place co-op that hired Mr. Schwartz did so after claiming that they’d been deceived as to the size of the project—they maintain that they’d been told by one of the firm’s partners that the project would be only 13 stories (which Bauhouse denies).

And when Extell released plans that revealed its Nordstrom Tower would cantilever over the landmarked Arts Students League—its final negotiation to add square footage to the skyscraper—several residents of the Osborne, a stately landmarked co-op at 205 West 57th Street that had sold 100,670 square feet of air rights to Extell for $7.73 million in 2006, turned up at the landmarks hearing to object. Meanwhile, residents of several other buildings that sold air rights to Extell for One57 have complained publicly about its lack of regard for them during construction.

Still, for a city where density is both a necessity and, at the moment, something of a dirty word, it’s refreshing to hear that some New Yorkers have, if not embraced, then at least resigned themselves to it.

“If you live in New York, you have to resolve yourself to the fact that if there’s a square inch of space it’s going to be taken up,” insisted Ms. Cartier. “For us it’s not a major issue. Obviously, there’s construction every morning and you hear banging, but there are three other nearby projects where you can hear banging and clanging anyway. In fact, I have banging and clanging in here because I’m redoing my kitchen right now!

“It’s part of New York life,” she continued. “If you want all the good parts of New York City, you better be able to take some of the more undesirable things as well.”

The Air Up There: Smaller Residential Buildings Profit From the Skyscrapers Next Door