(Bloomberg)—A five-year effort to spur development of new skyscrapers in midtown Manhattan is set to clear its final hurdle. But don’t expect a building boom anytime soon.
The New York City Council’s zoning subcommittee on Thursday approved an ordinance that would rezone 78 blocks between East 39th and East 57th streets to allow for bigger and taller buildings. Its land-use committee is scheduled to vote on it later in the day. The full council, which usually adheres to the committees’ decision and the local councilman’s wishes, is scheduled to take up the final vote on Aug. 9.
The plan could pave the way for more than 6 million square feet (560,000 square meters) of new office towers and rejuvenate an area with an aging stock of buildings, helping New York stay competitive with financial capitals such as London and Shanghai. Yet the complexity of buying sites and constructing tall skyscrapers -- along with competition from massive projects under way on Manhattan’s far west side and at the World Trade Center site -- means it may take years for redevelopment to come to fruition.
“It’s going to take a while,” John Banks III, president of the Real Estate Board of New York, the trade organization for the city’s powerful real estate industry, said before the vote. “What the rezoning does is remove some of the economic obstacles that prevent building. Assuming it gets done in large measure the way we would like it, we think it will unleash the potential for development, but not an immediate bunch of shovels going into the ground.”
The area, mostly between Madison and Third avenues, has more than 60 million square feet of offices and more than a quarter-million workers, according to the city. Anchored by Grand Central Terminal, it’s home to companies such as JPMorgan Chase & Co., Blackstone Group LP and MetLife Inc. But the average Midtown building is more than 60 years old, according to CBRE Group Inc., and employers including Boston Consulting Group and Wells Fargo & Co. are decamping to newer towers in the burgeoning Hudson Yards area.
Under current Midtown East zoning, which dates back to 1982, landlords are boxed into more-restrictive limits. In some cases, existing buildings are actually larger than what is permitted under the current code, meaning a developer would actually have to construct a smaller building if they sought to replace it. Former Mayor Michael Bloomberg began a push to rezone the area during his final term, with his successor Bill de Blasio picking up the initiative after an initial effort failed in 2013. Bloomberg is the founder and majority owner of Bloomberg LP, parent company of Bloomberg News.
“Today the zoning rules for east Midtown are outdated and serve as an obstacle for new commercial development,” Councilman Dan Garodnick, whose district includes Midtown East, said before the vote. “As a result the area has gotten less competitive with other office districts around the world. This is New York’s premier office district and we want it to maintain its edge.”
Garodnick, along with Manhattan Borough President Gale Brewer, has served as an architect of the rezoning proposal.
The new rules would generally allow owners to build as much as 18 to 27 times the area of their site, requiring them to buy air rights to achieve the maximums under the law. They can acquire air rights primarily from two sources: the unused development rights of the many landmarked buildings in the area, or by contributing to a fund to pay for mass-transit improvements at Grand Central Terminal and other subway stations affected by the anticipated higher densities.
It was under similar rules that SL Green Realty Corp., the city’s largest office landlord, received the entitlements it needed to build 1 Vanderbilt, a 1,401-foot (427-meter) tower that is scheduled for completion in 2020. The de Blasio administration agreed to rezone five blocks along Vanderbilt Avenue, across from the western side of Grand Central, after SL Green pledged to provide $225 million of transit upgrades to enhance access to the terminal.
One of the first towers expected to follow SL Green’s is at the former Metropolitan Transportation Authority headquarters at 343 Madison Ave., two blocks north of 1 Vanderbilt. Boston Properties Inc. last year was designated the developer of that site, where it plans a 900,000-square-foot building. In an April 2016 conference call, Chief Executive Officer Owen Thomas described the project as “likely several years out.”
The area probably won’t have completed buildings tied to the rezoning until at least 2027, said Robert Knakal, chairman of New York investment sales at brokerage Cushman & Wakefield Inc. Of the 16 spots the city has called “projected development sites,” nine have multiple owners, meaning a developer would first have to buy them all out, a time-consuming process called an assemblage. In the past, that has taken as many as 10 years, Knakal said.
Some of those sites have between 20 and 40 tenants, meaning landlords would have to do many buyouts or wait out lease expirations, according to Knakal. He said that leaves three sites, and one of those, the InterContinental New York Barclay hotel, just completed a $180 million renovation last year. The other two are the W Hotel at 541 Lexington Ave. and Pfizer Inc.’s headquarters at Second Avenue and 42nd Street, which Knakal is helping to sell. A block of the new zone extends to that area.
Neil Hirsch, a spokesman for InterContinental Hotels Group Plc, said, “as you can imagine, we have no plans to redevelop” the Barclay site after the renovation. “It’s doing incredibly well.”
The Pfizer building may be a more likely opportunity. The age of the building and the fact that it has only one occupant makes “the potential for redevelopment easier,” Joan Campion, a spokeswoman for the pharmaceutical giant, said in an email. The company intends to sell and vacate the property because its infrastructure is outdated and “not conducive to an evolving, more-efficient workplace,” she said.
A spokesman for Host Hotels & Resorts Inc., the owner of the W property, didn’t return two phone calls seeking comment.
The zoning committee on Thursday made changes to the minimum costs for air rights. There also was an amendment to require developers to create privately owned public spaces -- plazas open to anyone -- on sites larger than 30,000 square feet, and require a lot to have a minimum of 75 feet of street frontage to take advantage of the zoning. Proposed changes must still be approved by the Department of City Planning.
Garodnick said he’s fine if it takes years for much of the anticipated office construction to occur.
“These things take time, and that is expected,” he said. “The purpose is to “create some flexibility for the development world and some certainty for the public, and then get out of the way.”
To contact the reporter on this story: David M. Levitt in New York at [email protected] To contact the editors responsible for this story: Daniel Taub at [email protected] Kara Wetzel, Christine Maurus
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