On August 9, 2017, the New York City Council adopted the Greater East Midtown rezoning by unanimous approval. The rezoning should spur new office space, more public spaces in certain instances, and improved public transit. The rezoning is aimed to help Midtown East remain the city’s paramount business sector, as Hudson Yards and other sites Downtown have started to pull tenants away.
The approved rezoning stretches across 78 blocks and is largely bound by Fifth Avenue and Third Avenue and East 39th Street and East 57th Street. The rezoning allows developers to achieve additional floor area ratio (FAR) subject to certain conditions in the following three ways: (1) transfer of landmark development rights; (2) rebuilding square footage; or (3) transit improvements.
Transfer of Landmark Development Rights
Developers may purchase unused air rights of adjacent landmarked buildings to build their developments higher than would otherwise be permitted by the property’s FAR. Such landmarks include Grand Central Terminal and St. Patrick’s Cathedral, just to name a couple. The City imposes a tax on each such transfer set at $61.49 per square foot or a 20% minimum purchase right, whichever is higher. This tax will contribute to a public realm improvement fund.
Rebuilding Square Footage
The plan permits owners of pre-1961 buildings that have legally non-compliant square footage to legally rebuild that structure to the same FAR subject to a contribution to a public realm improvement fund.
Developers in a designated transit improvement area may build to a higher FAR subject to making infrastructure improvements that will directly advance public transit. These transit contributions would typically be a pre-requisite to tenants occupying the building.
Some believe that the minimum purchase rights and required taxes and contributions imposed will be an impediment to achieving the desired affect and will deter developers from purchasing the unused development rights.
It will be interesting to see how this rezoning impacts long-term rental rates on office space in midtown Manhattan and how quickly it can be implemented. Although built outside of this rezoning framework, an early test case will be SL Green’s building at One Vanderbilt. Commercial office tenants that want to stay in midtown Manhattan with leases expiring several years from now will need to weigh leasing space in older, less efficient but less expensive buildings versus space in newer, more efficient (i.e., green) but more expensive (trophy) buildings.
If you have questions, please contact Charles F. Martin, III, who has 16 years’ experience negotiating commercial office and retail leases, with a specialty of headquarters leasing for corporate tenants in Manhattan.