“Air Rights” also known as the developmental rights refer to the amount of air-space that you own above and around your property, the exact square footage of your airspace is designated by your local government zoning laws. For example, when a building can be up to thirty-two stories high but it is only six stories high this empty airspace is referred to as a building’s “unused potential” and a nearby building or development could tap into that potential. To explain using another example: if Building A is “underbuilt” according to the neighborhood’s zoning code, the developer of a nearby Building B can acquire Building A’s unused airspace and add it to Building B’s site’s allotment to ultimately construct a taller building. The developer of Building B is acquiring and transferring the airspace of Building A’s unused potential. This transfer of air rights process ensures that the neighborhoods that are the sites of new development are also the neighborhoods that currently have underbuilt lots that can pass on their unused air rights to a new development. In the grand scheme of things, this helps to ensure that the whole neighborhood doesn’t get overdeveloped and become too dense.

Floor-to-Area Ratio (aka FAR)

One of the most critical factors regulating the height of a new development is a building’s floor-to-area ratio (FAR). FAR is the maximum number of square feet that can be built on a site relative to the square footage of the lot. A building’s FAR, however, can vary depending on the location of the lot (i.e., its zoning district or whether it faces a wide street or a narrow street), the use of the building (commercial, residential, community or manufacturing) and whether the building offers a benefit to the public (i.e., public outdoor space or affordable housing units).

Over the past 55 years, New York City has developed a system of transferring air rights in order to achieve both broad and specific urban planning goals. Broadly speaking, real estate developers are motivated to build taller buildings because higher floor units command higher prices since buyers are willing to pay a premium for views and light.

But developers are not allowed to build as high as they’d like, unfettered by zoning regulations. If they did, quality of life would decline since the city would be a whole lot denser, a whole lot darker and a whole lot more congested. To prevent the over saturation of the city with tall buildings sardined next to each other, the city overhauled its zoning regulations in 1961 and placed some restrictions on developers. These restrictions were intended to ensure that the new construction buildings would not degrade the quality of life while allowing for the development of new commercial, residential and public property.

Formally referred to as ”Transferable Development Rights”, TDRs originated with the 1961 revamping of the city’s zoning laws. In essence, if a building adjacent to a construction site is lower than a neighborhood’s height restriction, the zoning laws allow the developer to acquire that building’s unused airspace, add it to his or her project, and erect a taller building than would otherwise be allowed. Since the upper floors of a building fetch higher prices, developers consider height to be a prime asset.

If you are wondering about the valuation of your air rights, as a rule of thumb, air rights sell for a bit more than half as much as the land beneath them.

As anyone who has ever walked through SoHo on a Saturday knows, New York City is one of the densest and most expensive cities in the world. It should come as no surprise then, that air can be just as coveted and costly as land. As a result, owning and selling air rights can be hugely lucrative. There are three primary ways this transfer process occurs.

1. Zoning lot mergers are the most common form of air rights transfer and primarily occur in Manhattan, south of Central Park. In a typical zoning lot merger, the owner of an underbuilt property with unused development rights decides to link his property with the developer of an adjacent property or lot so that the developer can build a taller building than would otherwise be allowed by his property’s FAR. The city does not have to approve this kind of transfer and the owner of the unused development rights can receive a huge profit from the sale of this right. In terms of urban planning goals, zoning lot mergers help to ensure that the neighborhoods receiving the newest development are also the neighborhoods that have historically been the most underbuilt.
2. Special purpose district transfers are another form of air rights transfers. These types of transfers occur in areas deemed by the city to be ‘special purpose districts’ and allow air rights to be exchanged between granting and receiving sites that are not contiguous. The city allows for these sorts of transfers in special cases when there is a particular zoning goal targeting the area. Examples of special purpose districts include the Special West Chelsea district near the High Line and Special Hudson Yards District.
3. Landmark transfers are another form of exchanging air rights and involve properties and sites that have been deemed historically or culturally significant by the Landmarks Preservation Commission. In these types of transfers, the New York City zoning code allows the exchange of air rights between an LPC-designated landmark and other properties wishing to develop the land. The two properties do not necessarily have to be contiguous and in many cases are across the street from each other or even down the block from one another. The underlying principle behind landmark transfers is that new construction occurs in neighborhoods that are less dense due to the unused air rights of underbuilt landmarks. An additional advantage to these types of transfers is that destitute landmarks do not have to sell off property to generate revenue but rather can sell off unused air rights.