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TDR in the Big Apple

Rick Pruetz

Developers in New York City paid more than $1 billion for TDRs between 2003 and 2011. Despite a slump during the Great Recession, at least 421 development rights transactions occurred in New York during this nine year period. However, zoning lot mergers, the form of TDR with the most activity, are generating some controversial skyscrapers. Conversely, the landmarks TDR program continues to languish, generating only two transfers within this time frame (Furman, 2013). Fortunately, observers generally seem pleased with the results of the special district TDR programs that are helping to keep theater alive in the Theater District and are instrumental to the phenomenal success of the High Line elevated park in West Chelsea.

On February 26, 2015, the Steven L. Newman Real Estate Institute of Baruch College and the New York City Department of City Planning hosted “Trading High in the Sky.” This half-day symposium reviewed New York’s TDR hits and misses with the goal of launching a comprehensive examination and possible reform of TDR in the city. After hearing about TDR programs in San Francisco and other cities, the program drilled down on New York City issues: the struggle to transfer stranded development rights from designated landmarks, the mega-towers generated by the zoning lot merger mechanism and possible solutions including expanded use of special district TDR programs and an ambitious proposal to create a pool of landmark TDRs usable in bonus-development zones in all five boroughs.

It is not rocket science why developers like to gain bonus floor area using the zoning lot merger process. ZLMs treat contiguous tax lots as a single lot for zoning purposes, allowing the unused floor area from one tax lot to be freely used on another contiguous tax lot. The tax lots do not have to be under common ownership or lease. The mergers occur as a matter of right and require no approvals other than the recording of a Zoning Lot Development Agreement, known affectionately as a ZLDA or “Zelda”. ZLMs are not required to implement any particular planning goals. The Department of City Planning refers to ZLMs as “not technically TDRs” but feels obligated to treat them like TDRs since ZLMs operate in the same markets and produce results similar to TDR. A 2015 report from the Department entitled A Survey of Transferable Development Rights Mechanisms in New York City takes the position that it is problematic to place additional restrictions on ZLMs. “Tax lot lines reflect historic ownership patterns but typically do not relate to any land use purposes. Restrictions on the ability to merge them into unified zoning lots would give land use effect to tax lot lines, often without obvious underlying land use rationale. That may present legal and administrative difficulties” (NYC, 2015).

Although ZLMs are not required to implement planning goals, they sometimes do. Of the 421 transactions occurring between 2003 and 2011, 21 involved transfers from landmarks with 19 transfers resulting from ZLMs versus two under the Landmarks Program (Furman, 2013). In fact, since its inception in 1968, the Landmarks TDR program has generated transfers from only 11 landmarks. These numbers illustrate the hurdles to using the Landmarks TDR program, known to TDR aficionados as “74-79” for its section in the city Zoning Resolution. The 74-79 mechanism is detailed in The TDR Handbook and on the TDR Updates tab at www.SmartPreservation.net. But, five problematic requirements are listed here. 1) The proximity requirements for sending and receiving sites are restrictive: contiguous, across a street, across an intersection or connected by a chain of lots owned by the transferor or transferee. 2) The bonus on the receiving site is limited to 20 percent of the receiving site’s as-of-right floor area. 3) The sending site is subject to a landmark maintenance plan. 4) The Special Permit needed for approval is time consuming and expensive (estimated by one expert to cost $750,000 (NYC, 2015). 5) Many landmarks have little or no unused floor area to transfer. Although New York has 1,300 landmarks, only 466 have unused development potential and many of these have so little unused potential floor area that transfers are functionally infeasible.

In addition to ZLMs and 74-79, New York has fortunately been experimenting with other forms of TDR for the last 45 years. The Planning Department’s 2015 Survey identified no fewer than nine special districts that employ TDR to implement preservation and open space goals (NYC, 2015). Some of these TDR mechanisms are generally regarded as successful and are likely to be closely considered as New York proceeds with its examination and possible reform of TDR. Three examples are listed below. For details on these and other New York TDR programs, see The TDR Handbook and the TDR Updates tab at www.SmartPreservation.net.

Theater District – The TDR Handbook describes the current mechanism that allows 30 listed landmark theaters to transfer unused floor area throughout the Theater District, (using less-demanding procedures than those required under Section 74-79), in return for theater rehabilitation, commitment to operate a legitimate theater for at least five years and contribution to a Theater District Fund. The 2015 Survey reports that 15 transfers have occurred to date, transferring 473,546 square feet of floor area from six theaters: Hirschfield, St. James, Broadhurst, Booth, Shubert and Majestic.

Special West Chelsea District – In 2005, New York City adopted the Special West Chelsea District, which include a transfer mechanism to facilitate the transformation of the High Line from an abandoned rail line to a linear, elevated park. The sending area includes a 100-foot wide corridor just west of 10th Avenue between 19th and 30th Streets. The program evolved when owners of constrained properties agitated for removal of the rail infrastructure. Rather than demolish the rail line, the City committed to creating a new neighborhood amenity and allowing owners of land in and near the High Line to transfer unused floor area to receiving areas in most of the nine subareas in the West Chelsea District. TDRs transfer by Notification, which the 2015 Survey notes is the least onerous procedure used in any of the City’s TDR programs. As of 2015, over 400,000 square feet of floor area has been transferred in 26 transactions.

High-Line

The High Line in the West Chelsea Special District links to open space planned to be created by TDR in the Hudson Yards Special District in the background of this photo.

South Street Seaport – The South Street Seaport TDR mechanism is described in The TDR Handbook. The 2015 Survey notes that the South Street Seaport is the only New York City TDR program to use a TDR bank to date. The TDR Handbook states that almost all of the TDRs in this district have been transferred. To be more specific, the 2015 Survey reports that all but 340,000 square feet of the 1.4 million square foot supply of transferable floor area has landed on district receiving sites. In 2007 and 2008, TDR prices in this program ranged from $110 to $150 per square foot.

References

Furman Center for Real Estate & Urban Policy. 2013. Buying Sky: The Market for Transferable Development Rights in New York City. New York: New York University.

New York City Department of City Planning (NYC). 2015. A Survey of Transferrable Developments Mechanisms in New York City. New York: New York City Department of City Planning.

 

TDR without Borders:
An International Look at Transferable Development Rights  

January 13, 2014 

I just posted profiles of 37 TDR programs in 11 countries outside the United States to www.SmartPreservation.net making them freely available at the “TDR Updates” tab. I found these programs while writing an article published in Built Environment (Volume 39, Number 4, 2013) entitled Transfer of Development Credits Helps Cities Grow Up. That article argues that TDR can be a relevant and useful tool outside as well as inside the US when jurisdictions follow the 10 rules shown to produce successful TDR programs.

Australia (6) Brisbane, Gosford, Ipswich, Melbourne, Perth, Sydney
Brazil (1) Porto Alegre
Canada (2) Toronto, Vancouver
France (7) La Cadiere d’Azur, La Clusaz, Les Gets, Le Grand Bornand,
Longeville Sur Mer, Lourmarin, Taninges
India (1) Mumbai
Italy (14) Casalecchio di Reno, Cesena, Cremona, La Spezia, Monza, Padua,
Parma, Piacenza, Regio Emilia, Ravenna, Rome, Schio, Turin, Venice
Japan (1) Tokyo
Mexico (1) Sian Ka’an
Netherlands (1) Brabant
New Zealand (1) Auckland
Puerto Rico (1) San Juan
Spain (1) Almeria

I was pleased to learn about TDR experiences in other countries. But 37 programs represents less than 12 percent of the 320 TDR programs that I have been able to find so far. The other 283 TDR programs are from US jurisdictions. Of this US subtotal, 242 are profiled and freely accessible at www.SmartPreservation.net while case studies of the other 41 US programs can be found in The TDR Handbook (Island Press, 2012).

As explored in my Built Environment article, underwhelming foreign use of TDR may suggest that planners in other countries are not convinced that TDR is an effective planning implementation tool. In response, I argue in Built Environment that many TDR programs don’t work because they don’t observe the success factors identified in the study that Noah Standridge and I published in the Winter 2009 issue of the Journal of the America Planning Association: “What Makes Transfer of Development Rights Work? Success Factors from Research and Practice.”

Some foreign planners may also question the relevance of TDR outside of the US because of misconceptions about the purpose of TDR. As discussed my Built Environment article, planning literature has repeatedly portrayed TDR primarily as a legal defense against a claim based on the Fifth Amendment of the US Constitution that a regulation has gone so far that it has effectively “taken” private property for public purposes without compensation. In reality, US jurisdictions should not rely on TDR as their sole defense against a taking challenge since the US Supreme Court has not yet definitively ruled on how much legal cover TDR would provide in the event that a regulatory taking has actually occurred.

Despite the fact that TDR is not primarily a legal strategy, the impression persists in many circles that TDR is chiefly designed as a means of complying with property rights protections in the US Constitution. Unfortunately this may have led many foreign practitioners to assume that TDR is inapplicable in countries where compensation has traditionally been required only when a regulation has led to the revocation of building permits or actual damage to private property.

As planners who have followed TDR closely know, very few US TDR programs involve regulations that would constitute a taking within the criteria established by the 1992 US Supreme Court decision of Lucas v South Carolina Coastal Council: a regulation that eliminates all economic use of a property unless the use would have been prohibited by the state’s underlying property and nuisance law. In fact, most US TDR programs are not adopted in conjunction with any form of downzoning, (a zoning change that reduces development potential.) Yet, many planners in other countries continue to dismiss TDR as a solution to a uniquely US problem.

In most US programs, TDR allows developers to voluntarily achieve additional development potential in an appropriate location when they contribute to community benefits established in the TDR ordinance. Some US jurisdictions use TDR to create affordable housing or public facilities but most programs aim to preserve environmental areas, farmland and historic landmarks. At home and abroad, planners rely primarily and sometime exclusively on zoning to achieve their land use goals despite evidence that these tools do not adequately protect significant natural and agricultural areas. In a 1997 survey, US planners confirmed their preference for zoning even though less than one third of the respondents expected that they would actually achieve all of their preservation goals with their current regulations and level of conservation funding. The inadequacy of zoning is perhaps best illustrated by the sad statistic that between 1982 and 2007, the population of the contiguous US grew by 30 percent while the amount of land converted to development in this time period grew 56 percent, almost twice as much.

Zoning alone is not winning the war on sprawl. The limits of regulation are perhaps best illustrated by impermanence syndrome, a state of mind afflicting the owners of farmland in US peri-urban areas. These owners fear that nearby land will be rezoned for urban or suburban development, creating land use conflicts that make the continuation of agriculture difficult or impossible. The perceived inevitability of urban encroachment often prompts these landowners to defer agricultural investments and land stewardship, causing further decline of rural activities and lifestyles, ironically accelerating sprawl. As illustrated in my 2012 book, Lasting Value, permanent preservation can treat and perhaps cure impermanence syndrome. As perpetual conservation easements are recorded in peri-urban areas, neighboring landowners gain confidence in the future of rural pursuits and often preserve their land as well. The maps of conservation easements in places like Lancaster County, Pennsylvania and Montgomery County, Maryland demonstrate how permanent preservation can spread through a community and stop sprawl in its tracks.

As with perceptions about the relevance of TDR, planners in other countries may also believe (or perhaps want to believe) that sprawl is a US problem. So called command-and-control land use systems in other countries rely primarily on regulations to keep unwanted growth out of important farmland and natural areas. Command and control seems to work, to an extent, partly because jurisdictional organization in other countries appears to be more rational than the balkanization and cross-border rivalry that characterize most US metro areas. But, while regulations might be more effective abroad than in the US, they don’t always produce perfection. Private property owners around the world apply pressure to develop their land and sometimes elected officials respond to that pressure. In other words, perhaps other countries may not need permanent preservation as much as the US, but many need to do more than simply rely completely on regulatory control.

The 37 international TDR programs just added to www.SmartPreservation.net demonstrate an understanding that TDR is relevant beyond the US and that it can be a useful tool for permanently securing land use goals without reliance on taxes. As an advocate of TDR, I hope to see expanded international use. But I also recognize the need to be sensitive to each country’s land use laws and customs. Some countries might want to avoid a TDR program that provides compensation for permanently limiting the amount of development allowed on private land. However, as shown by the profiles of some TDR programs in Italy, Spain, and Gosford, Australia, TDR can also be used to acquire land in fee for parks, greenbelts and public facilities. Conversely, other countries might view TDR as simply a means of recapturing part of the value of bonus development potential and redirecting it to community benefits ranging from affordable housing, parkland and civic buildings to permanent development restrictions on private land. Of course, to deliver these outcomes, TDR programs must actually work. To do that, jurisdictions at home and abroad must build programs with the factors found in the 20 most successful US programs as detailed in our Winter 2009 JAPA article.

Beaufort TDR Program Wins Award