The Invisible Hand - Price Clearing Airspace
Air Rights Are Nationwide Blessings
Market access unlocks value. Price signals in open markets help aggregate and distribute knowledge, aligning incentives with societal benefits.
St. Paul and St. Andrew Methodist churches in Manhattan need to fix the church's roof. The cost is around $25M. The most valuable possession they have is their air rights. They are looking to use these rights as collateral to restore the church to its former glory.
Traders who buy rights can hold them as assets and potentially offer them to developers to build higher and bigger than they otherwise could. Religious institution's air rights are useful because the buildings and lots are generally large. Air rights are behind the skyscrapers around Central Park.
Air rights assets have become more important to religious institutions. According to the Real Deal in 2020 47% of Americans belonged to a church, synagogue or mosque, according to Gallup, down from 70% in 1999, with 30% of New Yorkers seldom or never attending religious services. Religious institutions are one of NYCs largest real estate owners. Churches control 13% of all land in Manhattan and 65% of the city's houses of worship are in Brooklyn and Queens. Lower attendances leads to lower funds.
For years buildings have been able to use their air rights for gains, but the paper and quill market is hard to access for many. Transferring air rights helps owners to benefit and developers to profit, but the current price discovery methods leave the collection plate lighter than it could be for religious orders, the city and their congragations.
Subject to the building's floor area ratio a developer can build as high as they like. A developer can build up to 9X the height of a plot in certain jurisdictions. Adding air rights increases the size of the lot and the building can go higher again.
“There is a vast cloud of air rights hovering over New York. Many would love to sell theirs” Carl Weisbrod, former City Planning Commission chairman.
Air rights have utility. Air rights and real estate need to be used, they need to move, be sold, bought, leased, and improved for the market to work and for people and society to benefit. Stagnant air rights are of no benefit to anyone.
St. Pauls and St. Andrews want to sell their air rights so a developer could construct a new building blocks away. The houses of worship, their trusts, boards and parishioners all want air rights to trade and be used fluidly. This added unlock for assets that the churches control is an example of how, through technology, forward-thinking communities of historic significance can move markets.
In 2013 Christ Church on the Upper East Side sold its air rights, appraised by the city at $7 million, there were competing market participants and they sold to Zeckendorf Development for $40 million.
The Real Estate Board of New York called the transaction ingenious because a nonprofit got a record sum per square foot. The revenue from apartment sales derived from the air rights transaction was 15X higher than the cost of the air rights. A more transparent way for price discovery would help benefit both sides of the market and open-air rights deals to new communities who want to trade.
Air rights are now even more valuable than before. This is due to improved building technology, increased drone usage and the requirement for permission to be in private airspace. In certain circumstances, the value attached to views is in high demand for both condos and advertising visibility, air rights are purchased to protect them.
With air rights, you can create ‘new’ land. Without building into the airspace but having the approval or option to do so also creates value in the underlying real estate. The act of trading air rights increases their value regardless of the use.
The One Constant Is Change
In 1972 how far Grand Central Terminal could sell its air rights was extended. In 1998 Broadway theater owners’ air rights were used and buildings could spting up blocks away on Eighth Avenue. In 2005 Hudson Yards and the High Line were in play, then Coney Island and Columbia University's northwest expansion. All are opaque and lack market forces to guide, balance, and clear prices.
The 2017 rezoning of East Midtown granted St. Bartholomew's Church, St. Patrick's Cathedral and Central Synagogue the power to sell their air rights for developments blocks away. St. Bartholomew's, at Park Avenue and East 51st Street, sold 50,000 square feet of air rights to JPMorgan Chase for $20 million. The air rights and those from Grand Central gave safe passage to the bank's new 70-story headquarters. Subsequently, St Patrick’s air rights were sold for $164M to Ken Griffin.
Moving markets means people are making a profit, and society is benefiting. More of this leads to more positive outcomes.
It Takes A Village
The Village Preservation Society believes air-rights sales in their current format are inefficient because only a fraction of the money goes to the house of worship. With new technology this changes. The ability for the communities who own and control the air rights can sit firmly in their hands and attract bids an order of magnitude higher than currently exists. This also opens more potential air rights deals to developers and traders.
A targeted use of air rights for churches is a way of encouraging development in poorer neighbourhoods. Big air rights transactions have taken place in Manhattan because that's where developers want to build. In the outer boroughs of New York and suburban neighbourhoods throughout the United States air rights may not be as valuable as Manhattan but utilizing these air rights will help spark the development of affordable housing, schools, and drone transit for lower-cost package delivery.
The Flatbush Reformed Protestant Dutch Church in Brooklyn expressed interest in using its air rights but nothing came of it as the market was so opaque they were unable to attract fresh capital interest. This changes with an air rights marketplace.
“... air..rights can be an important tool and the administration is committed to working with the city’s faith communities to provide the support they need.” - NYC Mayor Office
Time To Clear
Selling its air rights would copperfasten St. Paul and St. Andrew's future. The air rights are worth an estimated $350 to $500 per sq ft, with close to 140,000 sq ft. This means the transaction is up to $70M - even without open market access to clear the price.
Digitization and open bids for air rights will help places of worship to be preserved for generations to come.
Individual real estate owners in all States, towns and cities have a safety deposit box with air rights deposited above their heads and they need keys to open them. Time stands still for no one - air rights are heaven-sent.
Thank you for reading, you can reach at jonathan@sky.trade
