Conservatively estimated, the town controls over 50 million sq. toes of unused improvement rights, largely related to municipal properties equivalent to public faculties, well being facilities, police stations and firehouses. These buildings usually occupy solely a fraction of their allowable zoning envelopes. Above them sit unused air rights that signify actual, monetizable worth and, extra essential, a once-in-a-generation alternative so as to add housing in neighborhoods that have already got infrastructure together with transit entry, faculties and different group providers.
As well as, the town shares title over giant below-grade rail yards and ancillary transit services. These websites may yield one other 30 to 40 million sq. toes of improvement potential if unlocked by way of decking or air-rights transfers. Collectively, these two classes alone signify sufficient capability to help roughly 100,000 housing items on city-controlled property alone.
The central query, subsequently, is just not whether or not the town has land, however somewhat what monetary and possession instruments will yield the perfect long-term public consequence. Ought to the town promote land outright? Enter into long-term floor leases? Kind joint ventures or fairness partnerships? There isn’t a one-size-fits-all reply. However conventional metropolis apply — most notably the reflexive use of 99-year triple-net floor leases — shouldn’t be the default response. In lots of instances, they diminish worth, complicate financing and refinancing, and cut back long-term flexibility, particularly in residential improvement.
Actual property is a prized asset, and New York Metropolis house owners (private and non-private alike) cling to it. Even when a sale or partnership with a succesful developer may produce a greater financial and social consequence, the proprietor’s intuition is to carry on to payment easy absolute title and to alienate just some rights-typically by way of floor leasing. Within the personal market, this conduct is comprehensible. Capital beneficial properties taxes, depreciation recapture, and the straightforward indisputable fact that actual property worth tends to understand over time. However a vacant lot, or a website occupied by a one-story “taxpayer” tenant, produces negligible revenue and does nothing to handle the housing scarcity.
Town, in fact, is just not topic to capital beneficial properties tax, so in contrast to personal sellers, there is no such thing as a financial disincentive to not promote. Certainly, promoting underused land or improvement rights can produce each money and, equally essential, a constructive coverage consequence: housing for these in want. Even if a floor lease essentially creates uncertainty, and thus yields decrease financial worth day one, the town has traditionally favored long-term leases over gross sales for causes that always appear extra sentimental (or at the very least frightened of remorse long run) than analytical. As each regulation scholar learns, “a 99-year lease is tantamount to a sale.” Town provides up management for a number of generations whereas retaining a reversionary curiosity so distant that its current worth is minimal. In change, it usually receives floor hire that’s modest relative to the underlying land worth and extremely contentious over time.
There’s one well-known instance from 126 years in the past: Columbia College relied on its floor lease of Rockefeller Heart whereas Harvard College, which had a similar-sized endowment, invested in equities. By 1970, the Harvard endowment was double Columbia’s. Whereas the bottom lease might not be the one rationalization, it’s truthful to say that an fairness portfolio presents extra upside alternative (albeit with danger) however, importantly, extra liquidity for investing in new initiatives.
Moreover, though a floor lease can present reliable annual revenue and, in concept, periodic market hire resets for the lessor, it additionally creates an inherently adversarial relationship between landowner and constructing operator. The pursuits of the 2 events diverge nearly instantly. The lessee seeks flexibility, refinancing choices, and predictability; the lessor seeks hire maximization and management. This rigidity introduces uncertainty that lenders worth into their underwriting, growing financing prices and decreasing total challenge worth.
In concept, a floor hire obligation is sacrosanct, permitting the lessor to easily implement its rights if the lessee defaults. In apply, enforcement is messy, politically fraught, and economically harmful. Residential initiatives on leased land are tougher to refinance, tougher to recapitalize, and infrequently tougher to take care of over time. The consequence may be underinvestment, deferred upkeep, and, paradoxically, decrease long-term income for the town and worse outcomes for tenants.
Against this, selective land gross sales or well-structured fairness partnerships can align incentives somewhat than divide them. An outright sale at truthful market worth, significantly when coupled with deed restrictions, affordability covenants, or profit-sharing mechanisms, can produce rapid capital that the town can redeploy into housing, infrastructure, or providers. Joint ventures, in the meantime, permit the town to retain an possession stake, take part in upside, and train governance rights with out the rigidity of a floor lease.
None of this implies that floor leases ought to by no means be used. They are often applicable in sure industrial contexts or the place long-term public management of land is genuinely important. However within the residential realm, particularly when the purpose is fast, scalable housing manufacturing, they need to be the exception somewhat than the rule.
If the town is critical about assembly its housing targets, it should deal with land not as a relic to be preserved in any respect prices, however as a device to be actively managed. Unlocking air rights, rationally monetizing public property, and selecting monetary constructions primarily based on outcomes somewhat than custom will do extra to provide housing than any single zoning modification. The land is there. The problem is utilizing it correctly.
Dan Egers, a shareholder of Greenberg Traurig, focuses his apply on New York Metropolis land use and zoning. The views expressed are his personal.
Ed Wallace, co-chair of Greenberg Traurig’s New York workplace, is counsel to the Residents Price range Fee.
