(Economic) Heart Trouble
More than 30 years after its last major zoning change, the economic heart of New York City merits a checkup. According to City planners, the prognosis for East Midtown is not good: an aging office stock, a congested pedestrian network, global competition, and the lack of new office development threaten to undermine the economic competitiveness of the City. The cure, proposed by the Bloomberg Administration, is a rezoning of 78 blocks of East Midtown centered around Grand Central Terminal and generally bounded by Fifth and Third Avenues, East 57th and East 39th Streets.
The proposed East Midtown Rezoning seeks to incentivize the development of state-of-the-art office buildings by allowing for an increase in the permitted floor area ratio. The proposed FAR varies throughout the rezoning area, although the highest densities are reserved for large sites with full avenue frontage that surround Grand Central Terminal. These select properties, of which the City has identified four as potential development sites, could achieve a FAR of 24 on an-as-of right basis and up to 30 FAR with a special permit. Sites slightly further from Grand Central Terminal would be allowed a FAR of 21.6 as-of-right, while certain properties along Park Avenue could achieve 21.6 FAR as-of-right or up to 24 FAR through a special permit.
The proposal would allow qualifying sites to achieve the higher FAR in two ways. The first would slightly expand the existing opportunities for floor area transfers from Grand Central Terminal. The second involves the creation of a District Improvement Bonus (DIB), whereby higher FARs would be permitted through cash contributions to a fund dedicated to above- and below-grade pedestrian network improvements within East Midtown. Development rights would be available pursuant to the DIB at an initial contribution rate of $250 per square foot, subject to adjustment by the City.
What Goes Around Comes Around
The 1980s were a boom time for East Midtown. So much so, that in the 1982 Special Midtown District, most of East Midtown was designated as a “Stabilization Area” where commercial development was discouraged. New development was steered to the West Midtown “Growth Area” (Times Square and environs) through the establishment of higher FARs in this area.
Picking up where the Midtown Special District left off, the City in 2005 approved the Hudson Yards Special District encompassing Midtown’s Far West Side (Eighth Avenue to the River). Building upon the Midtown Zoning, Hudson Yards sought to facilitate new Class A office buildings, but with even larger footprints. Now, the City has returned its attention to East Midtown.
You Can’t Always Get What You Want
The East Midtown Rezoning would be the last major City-sponsored rezoning under the current Administration, which seeks to have the proposal approved before the Mayor leaves office at the end of 2013. However, with the proposal first released to the public in July 2012, the expedited timeline has been criticized by some as inadequate. Landmarks preservation groups also have voiced concern that the increase in permitted density would encourage the demolition of some of the area’s architecturally noteworthy but non-landmarked buildings. Many of the buildings sought to be protected also contribute to prime development sites and one of the open issues at this time is how many of these buildings will be designated as landmarks, effectively cancelling out the new zoning.
At the opposite end of the conversation, developers and owners have voiced concern over different aspects of the proposal. Following the 1982 rezoning, many of East Midtown’s buildings became non-complying, meaning that they are larger than allowed under the new zoning. These buildings may be reconstructed only up to the current FAR. Under the proposed East Midtown Rezoning, qualifying overbuilt sites may be reconstructed in their entirety by paying a discounted DIB rate for the overbuilt floor area. At a proposed rate of $125 per square foot (slightly more than the current DIB contribution rate in the Hudson Yards), developers have questioned the economic viability of this approach, pointing out that this amounts to paying twice for the same floor area — once upon initial construction and again upon reconstruction.
Landmark properties may also have grounds to object, as the government-controlled DIB mechanism may compete with and undercut the price of development rights purchased from landmarked sites. The Zoning Resolution has historically sought to facilitate landmark transfers to compensate for the difficulty or impossibility of developing a landmarked site; a zoning amendment that reduces the marketability of landmark development rights arguably defeats this purpose.
Finally, the proposed East Midtown Rezoning represents a continuation of the City’s policy, embedded in the Special Hudson Yards District, of granting additional development rights in exchange for cash contributions for area-wide infrastructure improvements. For many years, the City Planning Commission resisted the exchange of additional density for cash, requiring bonusable amenities such as plazas and subway improvements to be constructed on or adjacent to the development site. The policy of allowing cash contributions for district-wide improvements raises a number of legal and planning issues, including whether this amounts to “zoning for sale.”
A Work in Progress
The East Midtown Rezoning is a necessary undertaking and the Administration should be applauded for its efforts. However, as with any major land use initiative in our fair City, there are a multiplicity of interests and concerns. It will be interesting to see what emerges at the end of 2013, and the shape of East Midtown in the years to come.
Howard Goldman is a partner at GoldmanHarris LLC, a New York City land use firm. Eugene Travers is an associate at the firm.