New York Times: Office Tower’s Owners May Profit From Plan to Allow Sale of Landmarks’ Air Rights

 

August 2, 2013 : By Charles V. Bagli

Despite its modest size, the Lever House, a slim, blue-green glass tower that seems to hover over Park Avenue, created a sensation when it opened in 1952 as a modernist symbol of corporate America.

Six decades later, the 21-story office building, which commands some of the highest rents in Manhattan, is a potential windfall beneficiary of the Bloomberg administration’s plan to allow bigger, taller new skyscrapers in the area surrounding Grand Central Terminal.

The fate of Lever House and the city’s proposal, which has generated support from many in the real estate industry and criticism from community groups as it moves through the approval process, illustrate how arcane zoning changes can not only reshape the city’s skyline but enrich lucky property owners.

In the administration’s latest proposal, historic landmarks like Lever House, as well as St. Patrick’s Cathedral and St. Bartholomew’s Church, would be able to sell and transfer their unused development rights to an expanded swath of development sites so that other builders can erect taller towers than would otherwise be allowed. The reason given is that the extra money would allow the owners of landmarks, which cannot be demolished, to pay for the preservation of the aging structures. But unlike St. Patrick’s or St. Bart’s, the estimated $75 million in proceeds from the sale of development rights from Lever House would not go back into the building.

The money instead would go to the private landowner, the Korein family, whose portfolio of valuable properties stretches across Manhattan, from 120 Broadway downtown to the Delmonico Hotel on Park Avenue at 59th Street.

The Korein family, the Archdiocese of New York and the Real Estate Board of New York were thrilled that the Bloomberg administration included the landmarks in their plan. But critics like State Senator Brad Hoylman contend the situation at Lever House is an example of “the slapdash nature of the proposal.”

“This exception undermines the intention of the air rights transfers for historic properties,” Mr. Hoylman said. “The beneficiaries in this case don’t have an obligation to invest the proceeds in the preservation of the landmark.”

The potential windfall for the Korein family is an unintended consequence of the city’s decision to address the complaints of religious institutions like St. Patrick’s, which lobbied for the right to transfer its unused air rights to a wider selection of sites to raise needed funds for the upkeep of buildings. But, an official noted, the city could not treat the landmark Lever House differently than the religious institutions.

The Bloomberg administration says revised zoning is needed to encourage modern towers to replace the area’s aging buildings so the district can continue to attract top corporate tenants. The rezoning will produce a handful of new skyscrapers, officials say, not an avalanche of new development. It remains to be seen whether anyone will purchase the unused development rights.

“The transfer of air rights by landmarked buildings is just one way that the rezoning will improve East Midtown,” said Julie Wood, a spokeswoman for Mayor Michael R. Bloomberg. “Value will be created not only for property owners but for workers and residents, who will be the beneficiaries of improvements to the streets and public spaces.”

Critics of the city’s initiative, which include elected officials, four community boards, preservationists and some real estate executives, contend that the administration has rushed a flawed proposal through the review process with unusual speed because officials want it approved before the mayor leaves office in December.

The rezoning, they say, would allow developers to overwhelm the neighborhood with towers twice the size permitted now, casting shadows over the nearby Chrysler Building and the Waldorf-Astoria Hotel and further stressing public transportation.

In a two-step process, developers would pay the city a “district improvement bonus” for a tower to rise 20 percent above existing limits. On certain sites, a developer could buy additional development rights from the city or from certain historic landmarks.

The city’s initial proposal allowed for the purchase of unused development rights from Grand Central Terminal. But St. Patrick’s (with an estimated one million square feet of unused development rights), St. Bart’s and Central Synagogue lobbied city officials to be included. So did James Korein, chief executive of Omnispective Management, which owns the land beneath Lever House.

City officials rejected those entreaties until July 17, when officials announced several revisions that gave the owners what they wanted. Cardinal Timothy M. Dolan and Rabbi Peter J. Rubenstein of the Central Synagogue promptly sent a letter to members of the City Council urging adoption of the rezoning, now that they could use the proceeds to “invest in the needs of our congregations” and “provide for the good repair of our historic buildings.”

It remains to be seen whether anyone will buy some or all of the development rights. But regardless the money would not flow to Aby Rosen, principal of RFR Holding, which operates Lever House under a 99-year lease with the Korein family and spent $70 million rehabilitating the building in 2000. When Mr. Rosen signed the lease he was required to refurbish the building’s crumbling facade. He did that and more. Lever House now has a high-end restaurant, hedge funds pay top-dollar rents and celebrated works of art adorn the lobby.

“We turned it into a gem that everybody loves,” Mr. Rosen said.

Mr. Korein said he was heartened by the city’s reversal. He did not deny that his family would benefit.

“We believe it can be worked out in a way that’s beneficial for everybody,” he said. “The specifics are out in the future.”