On the morning of November 1st, at the Sheraton Times Square, Mayor Bill de Blasio spoke to a diverse business crowd about the ever growing population of our City – trumpeting the fact that at 8.55 million, NYC has never been bigger. The Mayor discussed “diversifying the economy,” including using City resources to incentivize a “five-borough economy” with involvement of the City in encouraging “advanced manufacturing,” real estate development and upcoming rezoning initiatives. The Mayor also spoke about the need to build trust in neighborhoods and stressed efforts being made to inform communities that development isn’t happening to them, “but by them and for them.” He added that many of those who live in these developing neighborhoods look at development “through the prism of past (and not good) experiences” but by building trust through “guaranteeing that developers do what they promised,” their attitudes would be able to change as well.
On Thursday October 27th Mitch Korbey, Chair of Herrick’s Land Use & Zoning Practice, lead a conversation with Shibber Khan (Criterion Group), Seth Pinsky (RXR), Rachel Loeb (World Wide Group), Steve Klein (Brickman) and Elizabeth Lusskin (President, LIC Partnership) on The Stabilization of a “New” Community for Bisnow.
On location in LIC, the panel covered the progress and the challenges of the development of the three distinct sections of the neighborhood. Development of true mixed-use buildings, street art, safety and the walk-ability of the neighborhood were all covered by the excellent speakers. It clear to see that development continues in this ever growing “new” neighborhood. Click here for Bisnow’s full coverage of the event.
On Thursday morning October 27th, Mitch Korbey will be moderating a panel on the State of the Market in LIC at Bisnow’s fall event. Speakers include Shibber Khan (Criterion), Seth Pinsky (RXR), Rachel Loeb (World Wide) and Steve Klein (Brickman).
Bisnow hosted their 4th annual “State of Brooklyn” event at 1 Hanson Place. The former Williamsburgh Savings Bank Tower, one of the borough’s architectural icons, was recently acquired by Madison Realty Capital and has been transformed into retail space that boasts 60-foot vaulted ceilings, an ornate Art Deco interior and impeccable architectural detail throughout. This year’s event boasted over 500 registrants.
Mitch Korbey, Chair of Herrick’s Land Use & Zoning Group, and self-professed “zoning geek” moderated the panel entitled: “How to Succeed in the Face of Tremendous New Development.”
- Ofer Cohen, Founder & President, TerraCRG
- David Kramer, Principal, Hudson Companies
- Ronnie Levine, Senior Managing Director, Meridian Capital Group
- Jason Muss, Principal, Muss Development
- Susi Yu, EVP of Development, Forest City Ratner
Mitch noted that Brooklyn now has 2.5 million residents and that the borough is bigger than Philadelphia by over 1 million people. He asked the panelists, “With Brooklyn being its own city, how do you feel about the current marketplace?”
Ofer Cohen responded, “Brooklyn has been going through a 25-year transformation and I believe we are in the middle of it right now. I don’t think a small economic pick-up can stop this borough now.” David Kramer added, “2003 was our first big project in DUMBO. Using baseball analogies, different areas in Brooklyn are in different innings of the game. Some say Williamsburg is in the 9th inning but we are working on a project there now. Sunset Park is just starting their first inning. It’s a complicated but exciting story.” Susi Yu said, “There is a residential boom in Brooklyn because people want to live where they work. Brooklyn is a 24/7 city where people want to live, work and shop. Manhattan used to be considered ‘the city’ but now Brooklyn is a city on its own.”
In response to Mr. Korbey’s question about supply, demand and saturation in the borough, Jason Muss explained, “We are only now approaching the population Brooklyn had in 1957. If people think there is not enough room in Brooklyn, that is just absurd. Upzoning is what the city is doing to accommodate the population. There is room here. The technology in tall buildings has advanced so dramatically in just the last three years! Brooklyn is its own animal. There is plenty of room for development, even now.” Mr. Korbey agreed, “Density is a good thing. It’s even good for the environment. The taller the buildings the smaller the impact on ground areas and less of the environment is impacted. We have grown accustomed to living in small spaces.” Ronnie Levine added, “I don’t think that it is so much an issue of supply, as it is an issue of affordability.” Ms. Yu then said, “There are very big issues with affordability. We do not want to be faced with middle income families leaving. The diversity of this segment of the market is what makes Brooklyn great. These people are the pulse of Brooklyn.”
On the question of a favorite or most impressive project in Brooklyn, Ms. Yu and Mr. Muss both agreed that Brooklyn Bridge Park is one of Brooklyn’s greatest triumphs. Mr. Cohen chose Industry City and Mr. Levine mentioned the transformation happening in South Williamsburg.
The discussion concluded with a question from the audience about whether Sunset Park would be a good investment. Mr. Cohen responded, “Sunset Park has not gentrified as quickly as Bushwick and Bedstuy and I am not sure why, because transport is quite adequate in the area. I believe though, that Industry City will be a strong catalyst to create new energy in Sunset Park in the next 2 to 3 year cycle.”
Herrick and the Columbia College Fund Development Council hosted a panel discussion on trends in real estate on October 28th. The Columbia College Fund raises unrestricted funds to support undergraduate students in the areas of financial aid, student services, the Core Curriculum, and internship stipends.
Columbia grad and Chief Investment Officer of Pip Alliance, Ted Schweitzer, welcomed everyone to the event. Panelists discussed rising rents in the city, real estate opportunities outside of Manhattan and the effects of affordable housing on the market. Christina Ying, a partner at Herrick, moderated the panel.
- Richard Froehlich CC’85, Chief Operating Officer, EVP and General Counsel, New York Housing Development Corporation
- Eric Wolf CC’86 , Principal and Chief Operating Officer, DW Capital
- Raymond H. Yu CC’89, SEAS’90, President, Yuco Real Estate Company, Inc.
Christina Ying asked panelists whether they believed that rents would level off or continue to rise in 2016. “Generally speaking, the market is in a state of transition. The market peaked in the first quarter of 2015. I really believe we reached the top,” said Raymond Yu, “Williamsburg is overpriced. Renters are fleeing to Bushwick and Sunset Park. The increase in rental is starting to level down.”
“I agree with Raymond. It depends on where you are. We have seen strong rental growth in the last 12 months,” answered Eric Wolf, “just look at Sam Zell’s sale to Starwood this week. I think this sale is very telling of the market.” Richard Froehlich added: “We are seeing a lot of supply. There is also lots of demand. People want to get in to lock in rates. Pricing is incredibly high in affordable housing as well. We are back at levels rivaling 2005, 2006 and 2007. How will this play out? All I can say is there are interesting times ahead. We are optimistic about affordable housing.”
On the question about real estate opportunities outside of Queens, Brooklyn and Manhattan, Mr. Wolf said, “We have 3 projects in Yonkers. There is high disposable income in the area but even these individuals cannot afford to live in Queens, Brooklyn or Manhattan. Their median income is around $116K. These are people in their 20s and 30s with no kids who can live in studios or 1-bedrooms. The pressure of the city is pushing people to Jersey and Westchester which presents a new opportunity. In Westchester, there are apartments close to the Metro North for people who work in the city. Rents began to fall in 2009 but from 2010 to 2013 we have seen strong growth.”
Mr. Yu commented, “We are seeing so much diversity in these areas now […] a big creative community is moving toward the Bronx and we have large players looking at the opportunities along the waterfront.”
”New York is growing dramatically. The Bronx is still the poorest borough out of the 5 but there is a frenzy out there right now in respect to land prices and the value of properties. Homelessness is a challenging topic because people are getting evicted. The market is so hot and buyers are aggressive in wanting a part of it. The administration is working hard in response to the eviction and homelessness issue coming from this activity.” said Mr. Froehlich.
Ms. Ying then delved a bit deeper into affordable housing and asked about the effects on the city, especially considering the recent Stuy Town deal. “The housing plan is addressing the rent burden. As the city becomes a better place, people become fearful about displacement. We are enormously proud of the basic agreement we reached with purchasers on Stuy Town. People are currently protected so they don’t face a rapid rent increase. The sale includes a regulatory agreement with De Blasio’s administration that ensures a block of 5,000 apartments would remain affordable for the next 20 years. If you think about it, Stuy Town was built in the late 1940s so this would ensure rents on an affordable level for almost 100 years once this plays out!” said Mr. Froehlich.
Bisnow hosted the annual “State of the Market” real estate event at 4 Times Square on October 22, 2015. Panelists focused on capital markets, growth across asset classes and New York’s new development pipeline. Herrick’s Real Estate Chair, Belinda Schwartz, moderated the panel entitled: “How are deals getting done? An investment and finance outlook.”
- Ralph Herzka, Chairman & CEO, Meridian Capital Group, LLC
- Michael Nash, Global Head, Real Estate Debt Strategies, Blackstone Group
- Bob Knakal, Chairman, NY Investment Sales, Cushman & Wakefield, Inc.
- Abraham Hidary, CEO, Hidrock Realty, Inc.
Belinda opened the discussion with the statement: “Real estate is one of the hottest investment food groups!” Turning to her panelists, she solicited their insights on deals in the market, how to unlock value in properties and how the capital stack has changed over the years. The panel also explored the pipeline of deals that have yet to hit the market, whether the pace of these deals will stay steady for 2016 and what the factors are in creating this exuberant market.
Abraham Hidary commented, “Debt markets are strong. The market was just exceptional in 2014 but up to now we have been doing really well.” Mike Nash added, “Our largest year for business has been 2015. Real estate as an investment is an excellent vehicle.” Ralph Herzka explained, “Real estate has outperformed everything else. Yields keep going down. It is just a solid investment.”
Mr. Nash pointed out that international investors will go offshore to London, Paris or New York where the market is transparent. He noted, “Real estate is a cyclical business but it pays off. It may be a slow burn but it always pays off.” He also said, “Alternative investment forms are not great. There are so many factors spurring on real estate. Where else can you put money down at 0%?”
Mr. Knakal said, “The reason there is so much activity in the market is because capital is thirsty and makes transactions easy to do. In the boom cycles of the 80’s and early 2000’s, lenders were generous with financing. Geopolitical risk around the world is pushing people to invest in NYC real estate to protect their assets. This is what creates demand for the marketplace.” Mr. Herzka added, “Smart money is what we are seeing in the capital stack. The capital stack can get aggressive but we don’t see a lot of risk in our deals. The key is to manage our clients’ expectations.” Mr. Hidary said, “We are in an efficient marketplace. We have to know the right deals and know exactly what we are looking for. Once we find what we want, we bring in brokers like Ralph. Simplicity is key when riding out a downturn.”
On the subject of what neighborhoods might be the “next big thing,” Mr. Knakal explained: “I am kind of bullish about Jamaica, Queens. It’s a remarkable place. The transport in the area is of the best in the city. Retail does well in this area. The affordable housing agenda is perfect for this part of the city. Creating the right incentives in Jamaica will make this area a diamond in the rough.” Mr. Herzka was a bit broader in his response in saying, “Just like San Francisco or even Ohio, people want the ability to walk to work. People do not want to spend their lives in commuter traffic. If we can make jobs more accessible, any neighborhood can be the next big thing. I saw a development in Delaware recently that had beautiful luxury housing. The housing and development phenomenon is not in New York only and technology is big driver in all of this.” Mr. Hidary said, “Ten years ago I would have told you the Garment District was the next big thing but right now West Chelsea is hot. This area has shown tremendous growth and has gone through 50% gentrification already. There are lifestyle hubs, gyms and restaurants. The area around Barclays in Brooklyn has also shown tremendous growth.”
Mr. Nash concluded the discussion by saying, “Formation of neighborhoods, creating cool spaces, converting something old into something new — these are things that drive growth. Areas like Brooklyn and Queens have already shown how successful doing this can be.”
On October 13th, Herrick partnered with the Office of the Bronx Borough President and The Bronx Overall Economic Development Corporation, to host a trolley tour showcasing some of the new opportunities and development sites available in the Bronx. Commentary was provided by:
- Marlene Cintron, President, The Bronx Overall Economic Development Corporation
- Wilhelm Ronda, Director, Planning & Development at The Office of the Bronx Borough President
- Daniel Donovan, Planner, Bronx Borough President’s Office
- Sam Goodman, Urban Planner, Bronx Borough President’s Office
The tour kicked off at the beautiful Bronx Supreme Court building at 851 Grand Concourse with a view of Yankee Stadium in the distance. The trolley then headed to a large development site that is currently up for grabs on 149th Street. Marlene Cintron expressed the need for mixed-use development in this particular area that is buzzing with shoppers and commuters. Ms. Cintron commented that BJ’s Wholesale Club, JC Penney’s and Target all have stores located in the Bronx that are among their top five performing stores nationwide. Enhancing the fast-developing neighborhood is a 250-room Hampton Inn that is the second hotel on 149th. Ms. Cintron also commented, “The Opera House Hotel has 94% occupancy and is a well-known destination for European tourists. Tourism is up 14% in the Bronx.”
“The Harlem River Waterfront District, which has the Harlem River to the West, East 149th Street to the North and the Major Deegan to the East is of particular interest to developers,” said Wilhelm Ronda who also pointed out that this development lot is near one of the first stops on the 4 train and is considered a “soft site.” Mr. Ronda explained: “Zoning is generous in this area. It is close to bridges and is a major thoroughfare. There are many opportunities here.” The Port Morris area, a primarily industrial neighborhood in the Southwest Bronx, is currently experiencing an extensive revitalization with many factories and manufacturing buildings being converted into lofts. The community has become home to young professionals and artists looking for more reasonable rent price-points outside of Manhattan and Brooklyn. The tour also passed The Grand Concourse Plaza Shopping Center on 161st Street, The Grand Concourse (modeled on the Champs-Elysees in Paris) that was declared a historic district in 2011 from 153rd to 167th Street is dotted with a mix of Art Deco and Art Moderne architecture residential buildings, and the Bruckner Boulevard Corridor that is home to the Clock Tower Building. The building, along with the surrounding area has shown tremendous growth and transformation. Rents have skyrocketed in this area in less than 7 years.
The Kingsbridge National Ice Center will be another triumph for the Bronx. The complex will be housed in the historical building once used as an armory and will feature 9 rinks. It is set to be one of the largest indoor ice-centers in the world and will attract national and international tourism bringing a significant economic boost to the area. NHL great, Mark Messier, is an investor and chief executive on the project.
The Bronx Borough President’s Office expressed enthusiasm about working with developers to continue strengthening the economic development of the Bronx. Borough President Ruben Diaz highlighted the borough’s strong sense of community and its wealth of commodities and character and encouraged those in attendance to explore the area. Investment in the Bronx remains vigorous and has been strong since 2009. Mr. Diaz welcomed developers to the Bronx and urged interested parties to work with his office on current opportunities. “We want to facilitate new development that strengthens neighborhood character and fosters overall growth of the borough.” said Mr. Diaz.
According to Sam Goodman, who was born in the Bronx and is now an Urban Planner in the office of the Bronx Borough President: “The Bronx is not a place to live, it is a place to celebrate life.” With over $7 billion dollars invested in residential, commercial and institutional projects in the borough in the last 6 years, the Bronx is now the new borough of opportunity.
Creating Sports-Oriented Districts – Successes and Long-Term Viability
On Friday, September 25, Herrick hosted the Urban Land Institute of New York (ULI) for a discussion on Sports-Oriented Districts. Speakers included:
- Richard Browne, Managing Partner, Sterling Equities
- Jim Lester, Senior Vice President of Commercial and Residential Development, Forest City Ratner Companies
- Brad Mayne, President and CEO, Metlife Stadium
The panel was moderated by Bill Johnson, Designing Principal at HOK Sports, Recreation and Entertainment and the introduction to the panel was given by Mitch Korbey, Partner and Chair of Herrick’s Land Use & Zoning Group.
The panel focused on the concept of New York is as a home to the greatest concentration of professional sports teams in the country. These sports-districts’ successes and long-term viability are dependent on getting the right mix of uses, critical mass and the most valuable connection to the communities surrounding them.
Bill Johnson stressed the importance of establishing a vision but also of ensuring that a critical mass, correct mix and community connection was present when venturing into the planning and development of these districts.
Richard Browne spoke about the successes and challenges he has faced in the development of Citifield and the surrounding area. As they continue to develop the area to serve the community beyond the stadium, Richard said, “It is important to create critical mass outside of baseball season.” Developers are now focused on building a one-million square-foot shopping mall near Citifield.
Jim Lester commented on the development of Barclays Center in Brooklyn, saying: “Four residential buildings are going up around Barclays, one of which is entirely affordable housing,” This serves the community well because of the $75 million transit hub that opens right by Barclays.” With the Islanders coming to Brooklyn and Nassau Coliseum being completely revamped, opportunities to grow and develop these communities are becoming more commonplace. Nassau Coliseum will be an entertainment hub for the community, focusing the venue on family entertainment, concerts, boxing and even an indoor skydiving arena.
Brad Mayne spoke about a $38 million cleanup of industrial sites to develop areas in Victory Park, Dallas around the American Airlines Center. These massive cleanup efforts for development are what help to foster and build communities around these sports districts. “Never stop searching for new opportunities.” said Mayne, who talked about the upcoming American Dream mall at the Meadowlands. The mall is projected to have an indoor water park, an ice rink and concert hall and amusement rides, and with tenants like Hermes signed on, this development will definitely draw new interest to this district.
While transferring unused development rights can potentially enable construction at otherwise prohibited densities, such transfers often introduce issues that, if unaddressed, can derail a project long after money has changed hands. This article focuses on one such issue, namely that discretionary NYC Boards of Standards and Appeals (BSA) approval is required before transferring unused development rights to, or from, sites benefiting from variances that were previously granted by the BSA. For example, in Bella Vista v. Bennett, 89 N.Y. 2d 565 (1997), the sending site (seller) benefitted from a BSA variance, but the parties purported to effect the transfer without obtaining the necessary BSA approval. The receiving site (purchaser) was later denied a building permit to use the subject development rights, and then sued the City (wherein ultimately, the purported transfer was invalidated, because the required BSA approval was not obtained).
NYC regulates development intensity, including by limiting the square footage of zoning floor area (ZFA) (i.e., so-called “development rights”) permitted without discretionary zoning approval. A site’s maximum ZFA depends on its applicable lot area, which sometimes can be exceeded using ZFA from another, adjacent zoning lot. The most common way is by a zoning lot merger, whereby adjacent zoning lots (with consent from owners, lenders and other interested parties) are combined into an enlarged zoning lot, with a maximum ZFA equaling that of the sum of each of the individual constituent zoning lots. Unused ZFA can be reallocated to a specific site in the new zoning lot that is targeted for future development.
While otherwise not required to transfer unused development rights by “traditional” zoning lot merger, BSA approval is needed where a newly-enlarged zoning lot would include a site that has previously been granted a BSA variance. The appropriate BSA application is to reopen, and amend, the original variance. BSA’s approval is not automatic, but rather a circumstantial inquiry of whether the variance would be undermined. See, e.g., BSA Cal. No. 885-78-BZ (2009) (citing Bella Vista).
Before transferring unused development rights in NYC, confirm whether any relevant site benefits from a BSA variance. If so, review any underlying BSA documentation to evaluate the likelihood of BSA approval. Responsibility should be allocated (between a seller and a purchaser) for pursuing any necessary BSA approval. A well-drafted agreement can establish crucial protections, including deadlines and consequences.
While this article focuses on one discrete issue, there are many considerations in transferring unused development rights in NYC, the failure of which to evaluate could be problematic.