Madison Realty, Maddd Equities, among firms with plans to buy a portion of the agency’s estimated 80M sf of unused development potential
By Adam Pincus
Developers including Madison Realty Capital, Maddd Equities and Real Estate Equities Corporation are seeking to buy some of New York City Housing Authority’s estimated 80 million square feet of air rights, city lobbying records reveal.
The firms are reaching out to the agency, spending thousands of dollar a month or more to lobby, in an effort to buy development rights for private projects in Alphabet City, Chelsea and Fort Greene, despite the challenges inherent in negotiating development deals with the city.
This hunt is related to Mayor de Blasio’s announcement in December 2018 of NYCHA 2.0, a plan to raise $24 billion to repair aging buildings. The plan included the initiative Transfer to Preserve, which seeks to raise $1 billion for repairs through the sale of a portion of NYCHA’s 80 million square feet of unused air rights to private developers on private land.
These early efforts may provide a roadmap for subsequent buyers, who are now or will be pouring over maps of NYCHA complexes, trying to figure out who owns which parcels and how much they’d have to pay the city to make a deal viable.
The ongoing deals highlight the complexity in dealing with the city, because at least one air rights sale does not appear to be following the city’s publicly announced process, and top NYCHA public statements have contradicted agency disclosures. A spokesperson for NYCHA did not respond to a request for comment.
In January, Madison Realty Capital hired one of the city’s most active government lobbying firms, Capalino+Company, to approach NYCHA on the developer’s behalf, to buy air rights for a project at 644 East 14th Street, at Avenue C.
Madison Realty is not the fee owner, but the lender on the project. The property owner, Shulamit and Shaya Prager’s Opal Realty, purchased 644 East 14th Street for $23 million in 2016, from the Rabsky Group. At the same time, Opal borrowed $52 million from Madison Realty Capital.
How the firm will obtain air rights from NYCHA for its site is not clear, however, because the adjacent NYCHA development, Campos Plaza II, has no available residential air rights, according to a PincusCo Media analysis of city land use records.
That said, Madison Realty almost certainly has a legitimate strategy to obtain air rights. The firm may be seeking an upzoning on the NYCHA parcel, which would make air rights available.
Or alternately, the developers may be seeking a lot merger with two other tax lots co-owned by NYCHA that have more than 300,000 square feet of community facility space available. That would allow the developers to build, for example, a college dormitory space for students. Scores of New York University students live in apartments across the street at Stuyvesant Town. Madison Realty did not respond to a request for comment.
“A project for student, faculty, or senior housing could unlock some of the potential extra community facility square footage even though the immediate NYCHA lot looks to be overbuilt,” said Brian Strout, a broker with City Center Real Estate, who focuses on air rights. He is not involved in the 644 East 14th Street project.
Campos Plaza II needs $32 million in work over the next five years, according to NYCHA’s 2017 need assessment analysis, or $144,000 per unit.
When Opal acquired the site, it came with plans later revised to build a 15-story residential building with 50 residential units. However, the project is currently frozen, as the new building permits expired in December 2018, a review of DOB records found.
That stall may be intentional. With additional air rights, the project could presumably be larger.
While Madison Realty only started its hunt for air rights in January, other developers have been trying for years.
In Chelsea, Real Estate Equites Corp. controls a four-parcel assemblage across the street from the High Line, through a long-term lease and purchase contracts. It filed plans in December 2018 to build an 86,615-square-foot office building with an address of 118 10th Avenue, between 17th and 18th streets.
But REEC, led by Brandon Miller and Mark Seigel, may have more ambitious plans. The firm has been lobbying NYCHA since the third quarter of 2017, city records show, to obtain development rights from the Fulton Houses, which are spread across 11 buildings on four separate tax blocks fronting Ninth Avenue from 16th Street to 20th Street.
PincusCo estimates that NYCHA has 286,924 square feet of residential development rights on the block between 17th and 18th streets. Overall, the Fulton Houses complex has more than 727,000 square feet of residential air rights combined, PincusCo estimates. The complex had a five-year needs assessment totaling more than $168 million, or about $178,000 per unit.
REEC has paid Capalino+Company $138,750 from mid-2017 through February to present their case to the agency and other city officials.
REEC’s case may be impacted by NYCHA’s proposal to partner with a private developer and demolish two buildings and construct others on agency land at Fulton Houses, as Politico reported, but that article did not disclose which block or blocks the work would be on.
Jorge Madruga’s Maddd Equities and Eli Weiss’s Joy Construction purchased 202 Tillary Street in Fort Greene for $30 million in August 2018, and told The Real Deal at the time that with NYCHA air rights, it could develop a building up to 400,000 square feet.
Maddd Equities began its effort to buy air rights in the first half of 2017, hiring the law firm Akerman, city lobbying records show. It may be the first one to close a deal. The city said in a release in December that the Ingersoll Houses would be the first project to sell development rights, in a deal likely to be completed in “mid-2019.”
The 1826-unit Ingersoll Houses complex needs $159 million over the next five years, but that equates to just $87,258 per unit. That’s one of the lowest needs per unit in the city, PincusCo found. Maddd did not respond to a request for comment.
The air rights sale process disclosed as part of the Transfer to Preserve initiative does not match up with the process as it appears to have been rolled out in these early deals. And public statements by a top NYCHA official have run contrary to official statements.
For example, in the NYCHA 2.0 plan, the transfer process would begin with the city
analyzing its portfolio to determine sites with viable opportunities to transfer development rights. Then the city would “issue requests for expressions of interest to transfer air rights at high-value sites,” the NYCHA 2.0 document says. However, a search within the City Record Online, which publishes requests for expressions of interest, finds no such requests.
And as of March 22, three months after NYCHA 2.0 was unveiled, NYCHA had not completed an analysis of the portfolio, according to Kathryn Garcia, NYCHA’s interim chair and CEO.
“We have not developed the list of sites,” Garcia said, during City Council budget testimony.
In addition, Garcia said there were no development rights deals underway, even as the city said three months earlier that it expected the Fort Greene deal to be completed in mid-2019. Maddd’s lobbying records show it continued to lobby through February, the latest figures available.
“We have had people who have expressed interest, we have not engaged in a deal yet,” Garcia said at the hearing.
She also alluded to the complex balancing act the agency will have to perform, to strike a deal.
“The concept here is we have a menu, and not everybody likes everything on the menu. But we are trying to figure out what is the most effective menu for each development,” to complete much-needed repairs, she said.