The air up there
The view from the 53rd floor at the Residences at the W Hotel in downtown Manhattan.
There’s a whole business around selling air, or the right to build up into it.
Air rights, and zoning rules, are what gives cities like New York their skylines, lots of little buildings with a few scattered towers. And as our population increases, there’s only one way to build -- up -- and you can guess which direction that drives prices.
Bob Shapiro’s penthouse, across the street from Central Park, and accessible through sliding glass doors from his office, wraps around the roof of his building and has a 360-degree view of the city. Shapiro is a dealer of city views and the popularity of Manhattan panoramas is keeping him busy.
"I’m 77 years old and I’m working 7 days a week, 12 hours a day," he says.
Shapiro is an air rights broker. In New York every building is zoned to be a certain height. If a building doesn’t use its full allotment of vertical space it can sell that right, to build upwards, to another building — thus the name "air rights".
But the sale can only be made to an adjacent building. No trading, even with across the street neighbors, is allowed. And once a building sells its rights it gives up its opportunity to grow. That’s why some buildings are stuck permanently short and squat while others become skinny sky-scraping supermodels. Shapiro is a packager and seller of these air rights. And he says he’s so busy right now because the market for air is sizzling hot.
"It’s sort of like, knocking on someone’s door and telling them they won the lotto. It’s sort of like money out of heaven," he says.
The air up there, notes Shapiro, can be worth tens of millions of dollars. Because in New York right now, the direction developers want to build is up.
Downtown, at the other tip of the city from Shapiro, up is a selling point, too. At the luxury residences at the W Hotel, the windows are higher than most human beings are tall, six- to seven-feet, and the views stretch all the way to the Empire State building in midtown -- half of Manhattan away.
"We have very exciting bathrooms," says Carolyn Sebba, a marketing director with the W residences. "They feature a crocodile tile on the floors and a snakeskin tile on the walls."
There are sub-zero refrigerators in the kitchens, and the gym and the spa are on the 31st floor, but the real star of the building is the view. Starting on the 42nd floor the price for one bedroom apartments like these is around $1.5 million. And the higher you go in the building, the more you pay.
"Absolutely. The view changes everything," says Derek Lee, a partner with LG Fairmont Group, a luxury real estate broker. It’s the view, he says, that’s acting as a magnet for the newly-wealthy from developing countries.
"You have these multi-billion dollar projects, a bit of cronyism and people making fabulous wealth overnight," says Lee. "The second that happens the first place that money goes to is New York City and London."
Lee notes that rich individuals from shaky economies want a safe place to park their cash – think apartment as bank account. But equally important to many buyers, says Lee, is the status that comes with buying a pricey pad. The apartment with the view has become the new collectible for the super rich.
"You see it in the art market too, you see pieces going for $250 million. … It’s a one of a kind piece of art and if you have it, no one else does," he says.
Which brings us back to the air rights that make these views possible. Prices right now are high, about $230 per square foot of air. Robert Von Ancken, chairman of Landauer valuation, a company that values air rights, says today’s high prices aren’t a problem for the developers selling units in luxury towers.
"These air rights were purchased many years ago. And so the developers were able to save money," he says.
Back in 2006, Von Ancken says a square foot of air went for about $100 less. Developers can spend years packaging enough rights together to build one of these towers. After all, you can only buy air rights from your neighbor. But once you do, Von Ancken says the rest of the deals come easier.
"They would come to one property owner and say nobody’s ever going to buy your air rights. except me," he says.
Another selling point for air, sales of the development rights come with a perk. Bob Shapiro, the broker, says the sales qualify for what’s called a 1031 exchange, also known as a tax break.
"You can use the money you got from the air rights to buy another building."
But even though prices for air are sky-high, in cities like New York, dirt is still worth more.