Rezoning a top-notch CBD: The choreography of land-use regulation and creative destruction in Manhattan’s East Midtown

Abstract

Chinese

This paper makes the case for the connection between making land-use regulatory changes and the process of destruction and redevelopment. Under the capitalist imperative, buildings that do not fulfil the full potential for profit are likely to be demolished (or refurbished) but demolition and new development are not shaped exclusively by the immutable laws of the market as they are mediated and facilitated by specific institutional contexts. Using the case of East Midtown rezoning in New York City, the paper examines the amendments of two land-use regulatory mechanisms: the enlargement of development rights (rezoning or upzoning) and the relaxation of the spatial limitations on the usage of existing unused rights (transferable development rights). While apparently unconnected, upzoning and transferable development rights are part of the regulatory framework that seeks to secure the ongoing generation of the highest-possible profits for private as well as public interests. By examining the choreography of rezoning and transferable development rights, the paper shows how the mechanics of creative destruction work while substantiating an existing body of knowledge on land use policies and practices in New York City. When used together, rezoning and transferable development rights are instrumental in remaking the built environment. Essentially, the rezoning of a 78-block area in East Midtown Manhattan unlocks captured and latent development rights that otherwise could not come about, and demonstrates the necessity of institutional arrangements to make creative destruction actually work.

Keywords

built environment CBD land use real estate redevelopment/regeneration rezoning

Introduction

Following his visit to New York City, Le Corbusier declared that ‘A considerable part of New York is nothing more than a provisional city. A city which will be replaced by another city’ (Le Corbusier, 1947: 199). Sixty years later, Justin Davidson, the architecture critic of the New York Magazine shared a similar, albeit more critical, view of the transient nature of the city’s built environment: ‘colossal towers are merely placeholders, temporary arrangements of future debris … The only thing permanent about real estate is a measured patch of earth and the column of air above it. The rest is disposable’ (Davidson, 2008). While the transience of the built environment is undoubtedly shaped first and foremost by the forces of supply and demand, its realisation is contingent upon an intricate and specific context of land-use regulation.

This paper aims at filling a gap in urban scholarship. Two mechanisms, rezoning/upzoning and the transfer of development rights (TDR), have been examined in the literature and but they examined together. On the one hand, following growing pressures to expand housing development, recent studies have investigated links between rezoning/upzoning and housing prices (Greenaway-McGrevy et al., 2021; Kuhlmann, 2021), demographics (Davis, 2021; Freemark, 2023), and construction (Freemark, 2020; McFarlane et al., 2023). On the other hand, the TDR mechanism was largely examined separately from rezoning and only a few studies have begun to address both mechanisms either in the residential or the commercial sectors (e.g. Murray and Gordon, 2023; Sclar, 2021). This paper examines how these mechanisms are embedded and choreographed within specific institutional settings and how they really work while substantiating an existing body of knowledge on land-use policies and practices in New York City. When used together, rezoning and TDR are highly instrumental in recreating the built environment.

Located near the southeastern corner of Central Park and dominated for more than a century by the presence of the Grand Central Terminal, East Midtown has been one of New York City’s major office districts and a top corporate address. After many years in which new development was practically stalled in this area, partly due to zoning disincentives/restrictions, the approval of a two-phase rezoning (Vanderbilt Corridor in 2015 and East Midtown two years later) has made possible the option of demolishing older buildings and constructing much larger towers.

As a primary mechanism within the land-use regulatory framework, zoning codes determine the nuts and bolts of land-use regulation: what are the permitted land-uses, what are the maximum permitted densities and heights, and what are their design principles? Zoning ordinances may be revised as a response to changing preferences, needs, and technologies, keeping in mind the powerful role of promoting profit generation and capital accumulation in setting these rules (Grodach and Martin, 2021; Weber, 2015; Wolf-Powers, 2005). Recently, severe housing shortages and affordability crises have led researchers to explore the possible impact of rezoning on housing supply (e.g. Freemark, 2023; Greenaway-McGrevy et al., 2021; Kuhlmann, 2021; Manville et al., 2022); much less research has been directed at exploring the impact of possible rezoning on business/industrial districts (Grodach, 2022; Sclar, 2020, 2021; Weber, 2015). Nonetheless, revisions to land-use regulation point to the significance of local arrangements in the actual transformation of the built environment.

Land use regulation and creative destruction

The process of creative destruction of the built environment facilitates the replacement of the old with the new; in this process, older structures are demolished and newer and bigger buildings are erected instead making it ‘an essential fact about capitalism’ (Schumpeter, 1962: 83). New is preferred over the old as it is expected to deliver greater rates of return and profits thus making the city-building process guided by the ‘capital’s restless search for profits [which] requires constant renewal through gale-like forces that simultaneously make way for the new and devalue the old’ (Weber, 2002: 522). Essentially, creative destruction is largely steered and stimulated by landowners and property developers, whose ultimate objective is profit maximisation through the extraction of value from urban land (Fainstein, 2001; Haila, 1988; Harvey, 1982; Weber, 2002, 2015). But their aspiration for greater profits is either enabled or disabled by the state’s readiness to provide the necessary regulatory framework (Sorensen et al., 2010; Yuan, 2019).

Since the beginning of the 20th century, the unrestricted nature of creative destruction has been tamed by land-use regulation. In New York City, the 1916 zoning ordinance was established to control building volumes, heights and land uses. While seeking to instil order, health and safety, it was equally important to facilitate the removal of old buildings and the construction of taller and bigger buildings thus responding to the needs of the real estate industry (Barr, 2016; Kayden, 1991, 2020; Page, 1999; Weiss, 1992; Willis, 1995). In 1961, New York City revised the zoning ordinance establishing the concept of Floor Area Ratio (FAR). The FAR places caps on building volumes; for example, a FAR of 10 means that the allowable buildable area is 10 times larger than the plot on which the building is situated (Barr, 2016).

Real estate interests have gained ascendancy within zoning, and in New York City, zoning has turned into ‘an instrument for maximising real estate return’ (Huxtable, 1980: 25). As an instrument that creates value, zoning has been closely associated with the extractive and calculative practices of market actors and that of the financialisation of real estate (Guironnet et al., 2016; Robinson and Attuyer, 2020; Rutland, 2010; Weber, 2021). The close affinity of interests between developers and local governments to build denser and larger developments to generate higher financial value and maximise profits from land and yield higher assessments and higher taxes makes zoning an important instrument to advance destruction and redevelopment. Municipalities that wish to gain public objectives (e.g. affordable housing, historic preservation) offer developers bonuses (incentive zoning); the most common bonus offered to developers is increased density (Homsy and Kang, 2023).

Zoning change (rezoning or upzoning) is often justified by the inadequacy of existing zoning ordinances to address contemporary functional, technological and design requirements of office buildings (e.g. higher ceilings, column-free spaces). In a competitive marketplace, new buildings tend to outperform older buildings by attracting high-profile tenants, commanding premium rents, and experiencing high occupancy rates (Bryson, 1997). Beyond their financial devaluation, older buildings are often labelled as obsolete or outdated, making the concept of obsolescence ‘a dominant paradigm for understanding change in the built environment’ (Abramson, 2016: 3). Beyond the inevitable structural obsolescence of electrical, communication, and safety systems, older buildings experience diminishing financial performance. While structural obsolescence is visible to all, economic/financial obsolescence is in the ‘eyes of the beholder’: it depends on the landlords’ objectives rather than the buildings’ actual physical characteristics (Barras and Clark, 1996). This makes buildings obsolete ‘not because they were unusable, but because they could not be used as profitably as current or future investors desired … Obsolescence is seen as an innate attribute of older products, as if the impaired valuations of aged stock are proof of a disease that plagues buildings and submarkets as a result of their age’ (Weber, 2015: 72–73, italics in original).

Metaphorically, real estate interests often view buildings as products with unwritten ‘expiry dates’. To justify destruction, stakeholders, planners, and decision makers often describe older buildings as obsolete/outdated/outmoded; this is accompanied by a rhetoric aimed at questioning their right to exist as they age. The term obsolescence is often used as a pretext for the destruction of older buildings, it is accompanied by a rhetoric that reiterates the perils of obsolescence and of zoning itself; however, the relationship between the age of buildings and rents is typically non-linear (Buitelaar et al., 2021). While older buildings may be well-maintained, renovated, and experience high occupancy rates, developers and landowners often favour their demolition. Being described as obsolete, such buildings experience a form of territorial stigmatisation reinforcing inequality and marginality by blemishing a place (Wacquant, Slater and Pereira, 2014). Above all, as argued by Weber (2002: 537), stigmatising older buildings as obsolete reflects ‘a neoliberal alibi for creative destruction’ assisting in closing the rent gap and achieving what is considered to be the highest and best use of land. The most probable outcome is the demolition of older buildings (Imrie, 2021). While the interpretation of obsolescence through the prisms of technology and environment emphasises the use value of buildings, the economic viewpoint is geared towards their exchange value.

Within the regulatory framework, the mechanism of transferable development rights (TDR) is a tool to treat land as a tradable commodity supporting the financialisation of land. This mechanism breaks the link between a specific land parcel and its development potential by allowing the transfer of potential unused rights to another adjacent location (Costonis, 1973). The purchase of unused rights from one parcel (sending site), allows a developer to increase the permitted buildable area on another parcel (receiving site). Strict requirements for proximity between sending and receiving sites makes this practice constrained by geography (Been et al., 2014). In 1908, New York City pioneered in using TDR to build over railroad tracks unleashing commercial and residential development along Manhattan’s Park Avenue (Goldschmidt, 1964); later, the 1916 zoning ordinance permitted the sale and transfer of unused rights among adjacent land parcels (Giordano, 1987). Unused development rights, or air rights, are valuable because they constitute ‘invisible land and … a potential pot of gold for many properties’ (Finn, 2013: 1). This makes the transfer of rights ‘containers for capital accumulation’ (McNeill, 2020: 823) and air rights potential commodities to be realised and financialized (Sclar, 2021).

A clear link between zoning and TDR exists as the transfer of development rights by itself is a zoning instrument (Been and Infranca, 2013; Renard, 2007). Chiodelli and Moroni (2016) suggested that TDR can be conceived as either part of zoning itself (zoning-integrative) or as an alternative and independent route from zoning (zoning-alternative). This conceptualisation sheds light on the bifurcated relations between zoning and TDR as they can either converge into a single zoning path or work on two different/parallel platforms. Further, it allows exploring the combination of ‘actually existing’ processes (Brenner and Theodore, 2002) of buildings’ obsolescence, the rezoning of financially-underutilised parcels, the monetisation of transferable development rights, and extending the geographical limits of TDR. Taken together, they present a nuanced and down-to-earth path to creative destruction.

Methodology

East Midtown is of great importance to New York City. As a corporate and business ‘heavyweight’, it has been home to numerous office towers, including iconic office buildings such as the Chrysler Building, the Seagram Building, and Lever House. East Midtown is also home for a quarter of a million jobs and more than a dozen Fortune 500 companies’ headquarters which altogether generate 10% of the city’s property tax revenue (East Midtown Steering Committee, 2015; New York City Department of City Planning [NYCDCP], 2012, 2017). In 2015, the rezoning of Vanderbilt Corridor, a five-block section on the western edge of East Midtown was approved; two years later, the rezoning of the entire East Midtown district was approved. The 2017 rezoning encompasses a 78-block area between the east side of Third Avenue and the west side of Madison Avenue, from East 39th Street to East 57th Street (Figure 1).

Figure 1.

East Midtown rezoing map.

This research adopts a qualitative case-study approach which enables fine-grained understanding of the redevelopment process triggered by rezoning and supported by the relaxation of the transferability of unused development rights. Over a period of five years (2012–2017), East Midtown rezoning was extensively reported and discussed in multiple outlets. I utilised three major sources: planning records, documents released by private firms and NGOs, and media coverage. First, I examined six major official records (texts and illustrations) which constitute an important layer in planning research (Beauregard, 2022). These documents provide the background, rationale, meaning, and the objectives of rezoning. Second, rezoning proposals attracted the interest of private firms and NGOs. On the one hand, there were strong proponents: the real estate industry through the Real Estate Board of New York (REBNY) and Regional Plan Association (RPA). On the other hand, not-for-profit organisations (The Municipal Art Society of New York and the City Club of New York) raised critical voices. In addition, I reviewed comments, statements, testimonies, and reports reflecting the different perspectives of stakeholders on rezoning.

Third, I collected media coverage to gain insights on multiple levels: these included informative articles, interviews with stakeholders, editorials, and commentaries. I used numerous articles from three leading New York City-based newspapers: The New York Times, The New York Post, and The Wall Street Journal. In each newspaper, I used the search engine to look for specific keywords: ‘East Midtown rezoning’, ‘Vanderbilt Corridor rezoning’, ‘Air rights East Midtown’, and keywords for specific projects (e.g. One Vanderbilt and 270 Park Avenue). This exploration was supplemented by the search for additional sources which were pointed out explicitly or implicitly in the above documents (similar to the snowballing technique). Apart from information and facts, these articles enabled triangulation of different views of the case study. On the one hand, articles in The New York Times represent the more liberal and critical views and on the other hand, The New York Post and The Wall Street Journal exhibit the conservative-leaning market-led views and the voices of businesses and the real estate industry. In addition, I used similar keywords to explore online local magazines and real estate/planning news websites: The New York Magazine, Crain’s New York Business, Curbed New York, New York YIMBY, and the Real Deal. Rich documentation and the combination of data sources enabled the piecing together of a holistic narrative of rezoning and yielded a fine-grained understanding of rezoning as an essential part in the process of creative destruction.

Forces and logic behind East Midtown rezoning

In the late-20th century New York City launched two rezoning plans aimed at regulating development in midtown Manhattan. As East Midtown was almost fully developed with respect to its transportation infrastructure and the availability of development sites by the early 1980s, the purpose of the 1982 rezoning was to shift development to the west side of Manhattan while suppressing it in the east (Barr, 2016; Sagalyn, 2001). A decade later, the plan for the core of East Midtown, Grand Central Subdistrict, allowed the transfer of unused development rights from the Grand Central Terminal to the surrounding area (New York City Department of City Planning [NYCDCP], 1991). Compared to other Midtown districts (e.g. West Midtown and Hudson Yards), East Midtown had lower as-of-right FAR and smaller available sites for redevelopment (East Midtown Steering Committee, 2015).

During Michael Bloomberg’s term as mayor (2002–2013), 40% of the city was rezoned (Doctoroff, 2017). At the beginning of his term as mayor, Bloomberg argued that in order to exploit its competitive advantages the city needs ‘an aggressive transformation of its physical form’ (Brash, 2011: 121). Rezoning has been responsible for the destruction of older working-class neighbourhoods and the making of space for hyper-gentrification, enhancing profitability in lucrative but under-performing areas and creating the luxury city, thus enhancing creative destruction (Angotti, 2008; Brash, 2011; Busa, 2017). As a CEO mayor, he considered rezoning as an investment for the generation of profit; his approach was shared by city bureaucracy; the director of the city planning department, Amanda Burden, admitted that her purpose was ‘to create value for developers, every single day of my term’ (Satow, 2012). At that time, the city advanced two rezoning plans for commercial districts in midtown Manhattan: Far West Side and East Midtown. In 2005, the City Council approved the rezoning of Hudson Yards on the Far West Side, an area of derelict rail yards, into high-end offices, hotels, and luxury housing (Brash, 2011; Fisher et al., 2023). This rezoning has followed the financial logic of the real estate market ‘by offering up parcels ready to be exploited for maximum profits … [this was] a typical NYC reactionary rezoning, leading to financialized land and development rights, subject to laissez-faire-defined highest and best use’ (Petretta, 2020: 110).

Towards the end of Bloomberg’s third term, he proposed to rezone East Midtown but, unlike the Far West Side, the proposal for East Midtown aimed at enhancing the extraction of value from an already premier office district. For this purpose, the city employed the well-known (or worn-out) rhetoric that links new corporate office space and global competition stressing the real estate industry’s dissatisfaction with existing building stock and its desire to make East Manhattan a more profitable investment arena. The power of the real estate industry in initiating the rezoning plan was crucial: ‘Developers have complained that they can’t make money on building office towers in the area [East Midtown] unless they’re able to pack more space onto scarce and expensive land in Midtown’ (Kusisto and Brown, 2012). Their complaints found an attentive ear in officials in the Bloomberg administration, who expressed their concern about New York’s ability to compete against cities such as London and Tokyo for the world’s leading companies (NYCDCP, 2013).

It seems as if all in New York City agreed that obsolescence was a major impediment to East Midtown retaining its status as a prime business district. The Real Estate Board of New York argued that the city ‘needs to address the problems of its ageing office buildings and of its insufficient office development’ (Real Estate Board of New York [REBNY], 2015) and an executive of the Regional Plan Association, claimed that ‘East Midtown already has several unremarkable and outdated structures … Under current zoning, the district will continue to age and gradually decline … it is far more important to allow the city’s premier office district to modernise and compete with other global centers’ (Regional Plan Association [RPA], 2013). A real estate alliance seeking to promote redevelopment dubbed older buildings as ‘placeholders’ or ‘leftovers’ stressing that keeping such buildings jeopardises New York City’s future (CivicVisions, 2013). A real estate columnist in the New York Post declared authoritatively, ‘It is critical to save the once-premier office district from obsolescence’ (Cuozzo, 2017). A document released by the New York City department of planning agreed with this view,

East Midtown’s office stock is increasingly outdated and doesn’t live up to the needs, in terms of space and amenities, of today’s potential tenants. New construction is necessary to deliver Class A office space. However, there has been limited new office development in recent decades, due in part to few viable sites and the area’s existing zoning framework … Incentives to redevelop are slim … DCP [Department of City Planning] anticipates that, without taking any proactive action, the area’s premier business district status could diminish. (New York City Department of City Planning website).

In late 2013, opposition derailed the project, but only for a short time. Just before obtaining the city council’s approval, the disapproval of community leaders and the lack of city council support resulted in the withdrawal of the rezoning plan. Bill de Blasio, Bloomberg’s successor, relaunched rezoning efforts shortly after assuming office using a well-known mantra, ‘Midtown East should be rezoned to allow the creation of a world-class 21st-century commercial district’ (Bagli, 2013b). Learning from the failure of the previous rezoning attempt, the de Blasio administration first approved a ‘test case’: the rezoning of a five-block section next to the Grand Central Terminal (Vanderbilt Corridor). This rezoning was followed by the formation of a steering committee which consisted of representatives of major public and private stakeholders aimed at a plan to rezone the entire East Midtown district. A key concern was that under current zoning it was highly likely that either redevelopment would be stalled or that residential development would overtake office development in the district; this outcome was undesirable because commercial development generates more jobs and larger tax revenues (East Midtown Steering Committee, 2015).

East Midtown rezoning shows how land-use regulation assists creative destruction by providing the necessary regulatory environment to address three key barriers that had thwarted redevelopment. First, it allowed overbuilt buildings to be rebuilt up to their current development rights on an as-of-right basis. This enabled the overcoming of the inherent inability to reconstruct overbuilt sites according to their existing FAR on an as-of-right basis. In East Midtown, 137 buildings exceed allowable floor area (i.e. overbuilt buildings), primarily those built prior to the 1961 zoning ordinance (East Midtown Steering Committee, 2015). Until the approval of East Midtown rezoning, a building constructed according to the 1916 zoning code and torn down could not be replaced by a structure of the same development rights, due to downzoning of the 1961 zoning ordinance. The existing zoning code had practically barred the demolition of buildings constructed before the 1961 zoning ordinance and their replacement with same-size new development. The only option for demolishing and rebuilding a structure of the same size was through a legal loophole: reconstruction was possible only if at least one quarter of the original structure was preserved; however, this makes redevelopment cumbersome and expensive, thus it has been rarely used.

Second, it allows larger development rights. Under existing zoning, density permitted for commercial uses was 15 FAR along avenues and 12 at mid-block locations. East Midtown rezoning has substantially increased allowable development rights up to 30 FAR in areas around the Grand Central Terminal (27 FAR as-of-right and an additional three FAR can be granted by special permit). Third, rezoning is accompanied by the remaking of the mechanism of transferable development rights. Specifically, it extended the area in which unused development rights could be traded thus extending the space of real estate financialization. Taken altogether, the obsolescence narrative, the ability to rezone, and the capacity to transfer development rights throughout a larger area have enabled creative destruction in practice.

Air rights come into play

New York City is the birthplace of a tool that allows the transfer of unused development rights across adjacent of parcels. As a market-based instrument, transferring development rights is achieved through three major mechanisms: zoning lots merger (ZLM), landmark transfers, and special transfer districts. First, ZLM is achieved by joining two or more adjacent lots into one new lot (this mechanism allows the transfer of rights to a lot across the street or through a chain of ownership) in which development rights are combined, allowing the transfer of rights on an as-of-right basis within the combined lot. Second, a landmark transfer allows the transfer of rights from designated landmarks to adjacent lots; however, it is a costly, lengthy, and uncertain process subject to full public assessment through New York City’s Uniform Land Use Review Procedure (ULURP). Third, in a special transfer district, continuity requirements are eliminated and the transfer of rights is possible throughout a larger area (NYCDCP, 2015).

The potential for transferring unused development rights in New York City is great: an estimate made in 2013 (updated in 2023), found over 340 million m² of unused development rights in the city, equivalent to more than 1300 Empire State Buildings (The Municipal Art Society of New York, 2013). However, the process of making use of air rights is complex, partially due to strict and confined areas and distances in which rights can be transferred (Been and Infranca, 2013). A recent study by the Regional Plan Association pointed out that the New York City Housing Authority (NYCHA) owns seven million m² of unused development rights that cannot be traded while their sale could yield very large proceeds (between $4 and $8 billion). According to this study, if the distance over which development rights could be transferred increased to a half-mile of each sending parcel of land, it would be relevant for 68,000 receiving parcels. But this change requires amendment of the zoning code through an as-of-right framework (RPA, 2019).

For many years, the transfer of unused development rights between adjacent parcels remained an unfulfilled promise as it was practically impossible to sell a major share of unused rights. The main reason for this incapacity was the fact that sending parcels are surrounded by ineligible receiving parcels (e.g. neighbouring sites that had either fully exploited their development rights or they were designated landmarks). In East Midtown, almost 90% of available unused development rights from designated landmarks are landlocked and have ‘nowhere to go due to surrounding development’ (East Midtown Steering Committee, 2015: 29); the inability to cash in on long-dormant air rights resulted in pressure to extend the area over which a transfer is permitted (Sclar, 2021) in order to monetise development rights. East Midtown rezoning demarcated the entire area as a special transfer district. Such a district constitutes an amendment to the zoning bylaw creating a new zoning district with custom-made regulations. In this case, continuity requirements are eliminated and an easier transfer of rights is made possible across the entire district (NYCDCP, 2015).

With a large inventory of unused rights, not-for-profit organisations, namely religious institutions, based in East Midtown became enthusiastic proponents for amending air-rights regulations. They justified their requests to expand the area over which rights could be transferred on the grounds of using the proceeds for the maintenance and renovation of public institutions (Bagli, 2013a). Until the approval of rezoning, religious institutions were unable to sell their unused rights to adjacent sites because these sites were fully built. To convince city officials to allow greater flexibility in the transfer of unused development rights, the Roman Catholic Archdiocese of New York (located at St. Patrick’s Cathedral in East Midtown) hired a consulting firm to advance its petition (Goodman and Neuman, 2017). The director of real estate in the Archdiocese argued that ‘As much flexibility as possible is needed to give these stranded landmarks [St. Patrick’s Cathedral, St. Bartholomew’s Episcopal Church and the Central Synagogue] the opportunity to sell some of their development rights’ (Barbanel, 2015). Understanding the significance of allowing a greater leverage for TDR and the power of these institutions, Mayor de Blasio promised to extend the area over which their unused rights could be traded (Hills and Schleicher, 2020).

In 2015, the Midtown East steering committee recommended extending the area in which unused development rights of designated landmarks could be transferred on an as-of-right basis to the entire area of the 78-block district (Figure 1). This has made a new pool of about 370,000 m² of unusable development rights (worth hundreds of millions of dollars) available for transfer (East Midtown Steering Committee, 2015). The adoption of East Midtown rezoning and the unlocking of unused development rights enabled the ‘opening of floodgates’. JPMorgan Chase bought 63,000 m² of air rights worth $240 million from the owners of the Grand Central Terminal (GCT) for the development of its 423-metre headquarters (Bagli, 2018). Similarly, for the would-be second-tallest tower in Manhattan (175 Park Avenue), rezoning was deemed highly beneficial: it would add 58,000 m² through a district-wide transfer of unused rights (an additional 72,000 m² were awarded as a bonus floor area due to the provision of transit improvements) (Schulz, 2021).

Within the short period following the approval of rezoning, seven major office buildings have been completed, are under construction or have been approved, of which five are taller than 400 metres and in four of them, developers used the TDR mechanism to purchase unused development rights from other properties in the district (Table 1). In comparison, in the first decade of the 21st century only two mid-size office buildings were completed in East Midtown.

Table 1.

Major office projects following the approval of East Midtown rezoning (as of mid-2023).

Building address/name	Status	Height (metres)	Architect	Use of TDR
One Vanderbilt	Completed	427	Kohn Pedersen Fox	No
270 Park Ave	Under construction	423	Foster + Partners	Yes
175 Park Ave	Approved	480	Skidmore, Owings & Merrill	Yes
343 Madison Ave	Approved	365	Kohn Pedersen Fox	No
Tower Fifth	Proposed	472	Gensler	Yes
350 Park Ave	Proposed	411	Foster + Partners	No
415 Madison Ave	Proposed	184	Skidmore, Owings & Merrill	Yes

Source: compiled by the author.

Air rights battles

While beneficial for both buyers and sellers, the transfer of development rights has been a complex undertaking. For years, difficulties that accompany the realisation of the transfer of unused development rights have frustrated landowners and developers. Strict restrictions have either discouraged redevelopment in this district or prompted owners of unused rights to look for loopholes that would enable them to bypass these constraints. The case of Manhattan’s Grand Central Terminal (GCT) is a case in point.

As a New York City designated landmark since 1967, the full development potential atop the Grand Central Terminal building (equal to approximately two Chrysler Buildings) cannot be used in full (Costonis, 1977). In the late 1980s, the GCT owners sought to sell unused rights to a site four blocks away claiming that a chain of ownership, which allows transfer of rights, can exist not only above ground but also below ground. The attorney representing the GCT argued that the company owned an unbroken series of subsurface lots that were just as real and valid as anything on the surface (Dunlap, 1989). This argument was rejected by the city and upheld by a court ruling (Dunlap, 1991; Goldberger, 1986). In 1992, the city approved the formation of the Grand Central Subdistrict in order to allow the transfer of unused development rights of the GCT over a larger area; at that time, it had over 160,000 m² of unused development rights and only one transfer programme had been executed (NYCDCP, 2015). The owner of the GCT approached the city with a proposal to extend the area within which air rights could be transferred; however, the chair of the planning commission dismissed it merely as a ‘real estate proposal’ (Dunlap, 1992).

Prior to East Midtown rezoning, less than 30% of Grand Central’s unused development rights were actually transferred to other properties (NYCDCP, 2015: 22). A new phase in the struggle emerged as the new owners of the GCT wished to sell its large stock of unused development rights to the developer of a tower to be built next to the GCT (One Vanderbilt). The developer, SL Green Realty, preferred the deal of incentive zoning in which it agreed to pay $220 million for public realm and transit infrastructure improvements to get the maximum allowable development rights (Fitzsimmons, 2015). When the owner of the GCT realised that this new development would not require unused development rights from his property, he sued the city and the developer for more than $1.1 billion (Bagli, 2015). The owner claimed that if the developer could obtain the maximum development rights without buying these unused rights, Grand Central’s unused rights would become ‘effectively unsellable and effectively worthless’ (US District Court, Southern District of New York, 2015). Dropping the lawsuit in August 2016 was most likely connected to the unfolding rezoning action which was, at that time, in the public review process, and the prospect of a freer float of development rights throughout the district in sight. The owner of the GCT realised that once East Midtown rezoning was approved, it would allow the selling of unused development rights to a myriad of prospective developers throughout a much larger area; one of the GCT owners noted, ‘It [the proposed rezoning] should provide plenty of new opportunities’ (Bagli, 2016). Eventually, the lawsuit was settled (for an undisclosed sum) and patience was financially rewarding for GCT owners as air rights worth $240 million were sold to JPMorgan Chase (Bagli, 2018).

The case of the Grand Central Terminal embodies connections and frictions within the land-use regulatory framework in which zoning and TDR play a key role. On the one hand, the transfer of development rights may be embedded within the zoning code itself but, on the other hand, it may constitute an alternative to zoning (Chiodelli and Moroni, 2016). In fact, rezoning and TDR are two sides of the same coin: they may be complementary balancing each other, but they may also be at odds. Unsurprisingly, the bottom line reflects the superior position of financial considerations and the availability of options: if the buying of unused development rights is more expensive than paying for incentive zoning, incentive zoning will be selected and vice versa.

The power of land-use regulation

Shortly after the approval of East Midtown rezoning, the US largest bank, JPMorgan Chase, announced its intent to demolish its head-office building in Park Avenue. This decision was announced merely seven years after an extensive renovation had turned this building into a ‘green building’ which earned the highest-possible rating of sustainability (LEED Platinum). At first, this change of mind seemed to be unexpected, but in the real estate capital of the world it is hardly surprising: the logic of demolishing a perfectly viable skyscraper is not seriously challenged if higher profits from the land can be achieved.

This paper examined how two land-use regulatory tools and practices within the realm of urban studies, rezoning plans and the transfer of unused development rights, facilitate redevelopment in a premier CBD, which in real estate terms is considered to be under-performing. While the principle of the highest and best use has been observed, the questions of how it actually works within local contexts and the connection between zoning change and redevelopment have not been sufficiently addressed. In fact, zoning change is often intertwined with the mechanism of transferable development rights which is considered a complementary process (Chiodelli and Moroni, 2016). The significance of this connection has been recently acknowledged by researchers largely in the context of the housing market (Freemark, 2023; Greenaway-McGrevy and Phillips, 2023).

The case of East Midtown rezoning shows the swift and intimate connection between land-use regulatory tools and destruction and reconstruction. In fact, major redevelopment plans were launched not long after the approval of rezoning (Table 1). A well-functioning market needs adequate and stable state-led regulation while changes to regulation are required at times. Recently, the shortage in housing supply has prompted New York City to encourage more flexible conversions of older office buildings into housing. A task force appointed by Mayor Adams stated that a more responsive initiative is needed ‘to provide a regulatory environment that enables market-driven investment’ (New York City, 2023: 5).

Recent urban scholarship (e.g. Chen, 2020; Sclar, 2020, 2021; Shih and Chiang, 2022) has begun to unpack the fungibility of unused development rights. Besides typical stakeholders such as landowners and real estate investors and developers, non-profits have understood the potential of financial benefits of their unrealised landed assets (air rights). However, the ability to take advantage of stored unused development rights remains limited due to regulatory restrictions. A relatively uncomplicated solution to overcome this barrier, at least partly, is through revisiting geographical limits: expanding spatial delineations in which the transfer of unused rights is allowed thus providing an alternative route for redevelopment. Relaxing the requirement for strict limits of proximity between sending and receiving parcels can unlock long-awaited latent capital embedded in under-performing real estate assets. Amenable and variable institutional context is necessary to make creative destruction feasible. Realising the important role of land-use regulatory mechanisms is essential to understand better the work of the restless urban landscape.

Footnotes

Acknowledgements

I would like to thank the anonymous reviewers for their valuable feedback.

Declaration of conflicting interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article.

ORCID iD

Igal Charney

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