Broadway Theater Owners Stand To Make Less Of A Windfall After Zoning Rule Change

Even the cost of air on Broadway is more expensive now.

In 1998, New York City’s Department of City Planning amended the zoning rules to allow Broadway landlords to sell the rights to the air above their theaters to real estate developers looking to assemble tall towers in the Theater District. Stacking the transferred space on top of other construction sites, new buildings have been able to rise higher than would otherwise be possible.

“All of these new super-towers that are changing the look of the city’s horizon … couldn’t happen without air rights transfers,” observed Robert Von Ancken, a real estate appraiser.

As a part of each air rights deal, the real estate developer must make a contribution to the Theater Subdistrict Fund, which gives grants to support the production of original shows, attract new audiences, and diversify the pipeline of theatre professionals. It has distributed over $10 million from the sale of air rights, and one local politician declared that its use of funds to establish mentorship programs “demonstrate[s] once again that leveraging neighborhood [air] rights to invest in our city’s future is a win-win.”

When the Fund was formed in 1998, the original rate of each contribution was set at $10 per square foot. But, as the market price of air rights shot through the roof, the contribution rate was increased to $14.91 per square foot in 2006, and again to $17.60 per square foot in 2011.

In 2016, the Department of City Planning recommended increasing the contribution rate to either 20 percent of the sale price or 20 percent of $347 per square foot, whichever amount is greater. It would then adjust the floor price of $347 per square foot every three to five years.

“These changes to the methodology will align with the original intent of the 1998 text amendment, which established the ability for listed theaters to transfer [air] rights throughout the subdistrict for a contribution into the newly-created subdistrict fund that was equivalent to 20 percent of the value of the transfer of [air rights],” explained New York City Planning Commission vice chair Kenneth Knuckles.

However, the price for air rights increased much faster than the contribution rates since 1998.

According to one report, the air rights sold after 2007 ranged from $318 per square foot to $692 per square foot after being adjusted for inflation. The average price was $461 per square foot, meaning that the average contribution rate to the Fund was less than four percent of the price per square foot.

Confronting a potential hike in the contribution rate, Broadway theater owners and real estate developers went to war.

“Such a dramatic increase as is being proposed here will undoubtedly chill the market, resulting in few (if any) transactions,” argued Paimaan Lodhi, a vice president at the Real Estate Board of New York. Describing the adjustment as “onerous, excessive, and unfair,” Lodhi continued that the, “at minimum, 400 percent increase overnight treats theater owners differently and unfairly from those who were able to sell their air rights before and those who are subject to this very drastic increase now.”

“We are concerned about having to pay a floor price if the market falls, and also the effect it will have on negotiations,” echoed an attorney representing the theater owners. “Our concern is also theoretical,” the lawyer said, adding that “prices should be determined by the market.”

One member of the New York City Council, who had recently received a $16,000 campaign donation from a Broadway theater owner, attacked the potential increase, and the Department of City Planning withdrew its proposal right before it went to a vote in 2017.

Criticizing New York City Mayor Bill de Blasio’s administration for “taking its marbles and going home,” then-Councilmember Dan Garodnick complained that “it’s disappointing, it’s surprising, and it’s too bad for the cultural institutions that really are the losers here.”

In April, the Department of City Planning under new Mayor Eric Adams revisited the zoning rules, and suggested increasing the contribution rate to $24.65 per square foot. The proposed increase of 40 percent would match the 40 percent increase in the assessed value of total built floor area in the Theater District between 2011, when the contribution rate was last changed, and 2021.

Although community advocates complained that “$24 is pitiful, and, in today’s world at the inflation that we are seeing, you cannot do a lot with $24 per square foot,” the Department went ahead with the proposal, and the new contribution rate was quietly adopted a couple of weeks ago without any press coverage.

If real estate developers do not pay more money for air rights, then Broadway theater owners will end up taking home less money now.