Real Estate Board of New York Testimony before the New York City Planning Commission Public Scoping Meeting for the Greater East Midtown Rezoning CEQR No. 17DCP001M

The Real Estate Board of New York (REBNY) is a trade association with over 17,000 members comprised of owners, brokers, managers, lenders, and other real estate professionals active in New York City.

The East Midtown business district is a tremendous economic driver and is critical to the City’s employment and tax base and its overall economy. REBNY welcomes the City’s rezoning proposal to invigorate development in East Midtown.

After several forums to discuss the proposal, our members raised a number of issues related to the viability of the plan. As a result of these concerns, we think the scope of the EIS should examine a number of development alternatives as well as modifications to where increased floor area should be permitted. These specific suggestions are enumerated below.

Since East Midtown is a mature market area with virtually no vacant sites, new development opportunities will occur slowly over time, if at all, without the rezoning. Leasing circumstances in individual buildings and market conditions in the area will make new development economically feasible only if the allowed FARs in the district are significantly increased above where they are proposed in this rezoning. Therefore, our comments focus on providing as much development certainty, incentive, and flexibility as possible in order to achieve the City’s stated goal of promoting modern, sustainable office development.

In defining the scope of the Environmental Impact Statement, we ask the Department of City Planning to analyze the following possible additions and modifications to the plan:

As-of-Right Development

As the details of the proposal are more widely circulated, our members are identifying alternate ways to revitalize East Midtown in ways not anticipated by the Department or the Steering Committee. We recommend that the scope of work study raising the proposed floor area densities in the proposal, the inclusion of mid-block development without wide street frontage, the enlargement of existing buildings, greater allowance for residential development, and certain tax incentives.

The cost of new construction, especially the cost of buying an income producing property at market value, the lost revenue in making the building ready for demolition, and the carrying cost during demolition, construction and rent up, makes the addition of these proposals necessary to ensure that development occurs in a timely manner and more broadly throughout the district, instead of only on a few selected sites whose economic conditions are unique and favorable to new ground up development.

Given the cost of land, buildings with substantial occupancy on long-term leases require higher floor areas on the avenue and the midblock if the goals of the rezoning are to be achieved in a reasonable time period. The scope should study an increase by ten percent to the new proposed as-of-right FARs throughout the district (with the retention of the 3 FAR bonus) in order to offset that cost.

The scope should also analyze development of mid-block sites, even when they do not have wide street frontage, since in many cases these sites are improved with underutilized and/or functionally obsolete buildings. Buildings such as these would be would be less expensive to acquire than avenue-fronting buildings. This change in economics would make development more likely here with the type of floor area increases proposed in other parts of the district. Mid-block sites without wide street frontage should have access to the same tools to increase floor area that other sites with wide street frontage do under the proposed framework including through the transfer of development rights and transit infrastructure improvements.

To the extent there is concern over how mid-block development will affect the character of East Midtown, we note that the LPC has surveyed, studied, and designated mid-blocks sites throughout the district that provide visual and architectural variety in this urban setting. In addition, LPC is presently considering other low-rise, mid-block buildings which will further preserve the varied scale of the urban setting.

The scope should also analyze the potential for the proposal to result in the enlargement of existing buildings, rather than new buildings. Based on discussion with our members, there appear to be situations where an enlargement of an existing site, while retaining the existing building operations, is the most practical way to add more modern office space.

In addition to these issues, the scope should study making tenant inducement tax benefits available in the district in order to offset the numerous economic burdens in trying to encourage new office construction in a mature, fully built commercial district.

Overbuilt Buildings

The scope, as presently proposed, limits the universe of qualified overbuilt buildings to those constructed before 1961. However, buildings constructed after 1961 and before the downzoning in 1982 would be overbuilt. In the case of these buildings, there should be no contribution into an improvement fund for rebuilding the overbuilt portion of these structures since these conditions were created under FAR controls and caused by government action. Likewise, whether overbuilt or underbuilt, it should be made clear that enlargements of existing structures up to the maximum FARs in the proposal are permitted.

Residential Development

Mixed-use projects are becoming more common in New York and around the country. The growing presence of such projects reflects the continuing diversity of uses we are seeing throughout Manhattan, whether it is Hudson Yards or Lower Manhattan. Residential use can help to address the economic burdens noted above and would not alter the primary character of the district. Current zoning allows for 12 FAR of residential use, but the new proposal restricts residential use in new buildings to 20% of total FAR. Our members are concerned that the twenty percent cap is insufficient to support new commercial development. Due to the challenging economics, the scope of work should study the allowance of the highest as-of-right residential floor area permitted under the zoning resolution for those projects that use the higher floor area allowed under the new program. Allowing for a greater amount of residential development would serve as a catalyst for commercial development.

There is also a lack of clarity about the proposed cap on residential use and the TDRs from landmarks. Materials produced by the Department of City Planning indicate that the proposal would both limit the amount of residential development on a site and prohibit landmark TDRs from being used for residential development (with no mention of such restriction on development rights earned from transit improvements). It is unclear what public purpose is served by prohibiting landmark development rights to be used for residential use. Additionally, how will the City accurately determine whether the transferred development rights were explicitly used for the residential portion of a mixed-use project?

The residential restriction is unnecessary and diminishes the potential value of the development rights and the contribution to the improvement fund. Residential development may be appropriate in many locations throughout the district, including the mid-blocks. Again we urge that the EIS consider allowing for the transfer of development rights to the mid-blocks not located on wide streets and allowing higher FARs there to accommodate them.

Any proposed residential limitation raises the question of whether it will be measured on the basis of the zoning lot as a whole or on the basis of the new building only. The City should provide greater clarity.

Hotels

The scope of work should analyze the economic impact on the City and the hotel industry by requiring that hotels that could be developed under the current as-of-right rules must seek special permit approval. It has been the experience of our members that the requirement of a special permit has been a deterrent to new hotel development, even with increased floor area. REBNY raised this objection when the special permit requirement was applied to the transfer of more than 1 FAR in the Grand Central Subdistrict. In the decades since its adoption, only one hotel project has gone through the special permit process under those rules.

Split Lots

Zoning lots with more than 50% of their lot area within the Subdistrict should be treated as being entirely within the Subdistrict and the Subdistrict regulations should apply to the entirety of the zoning lot. The EIS should analyze all zoning lots with more than 50% of their lot area within the Subdistrict as being entirely within the Subdistrict, and FAR and other regulations of the Subdistrict as applying to the zoning lot as a whole.

Height and Setback Requirements

The scope of work should fully analyze the ability to use all the proposed as-of-right floor area, including allowed bonuses, within the envelopes of the height and setback rules to be proposed for the district. In particular, the study should consider how height and setback requirements on side streets should be appropriately modified to allow for the full use of FAR. The analysis should recognize the mandated safety requirement such as a third stairwell which has made buildings wider while trying to retain economically feasible floor plates.

Boundaries

The scope of work should include study of possible extensions/changes to the district boundaries. The boundaries of the district should be modified to incorporate sites that have a genuine opportunity to benefit from the rezoning and whose redevelopment would achieve the goals of the proposal.

  • The subdistrict boundary south of 42nd Street should, like the boundary north of 42nd Street, be located 200 feet east of Third Avenue rather than down the middle of Third Avenue.

  • The boundary at the northeast corner of the Subdistrict should be squared off so that it extends to 56th Street east of Park Avenue.

In addition to the above boundary changes, the scope of work should analyze increased densities by at least 10 percent in the areas throughout the district and establish higher maximums on the mid-blocks. Among the specific locations and density increases suggested by our members are: (i) the east side of Madison Avenue between 47th and 48th Streets to 25 or 27 FAR and the opposite side of Madison Avenue to 21.6 FAR; (ii) the block between Fifth and Madison Avenues, 54th and 55th Streets to 21.6 FAR; (iii) the east side of Lexington Avenue between 45th and 46th

Infrastructure/Public Realm Contribution

The percentage of the purchase price of the transferred development rights used to fund infrastructure/public realm improvements should be kept as low as possible to facilitate their sale and to generate revenue for the fund sooner rather than later. We think a floor price would impede sales especially in a down market where the floor price could exceed even the range that has been discussed. Also, landmarks should be given a credit against the contribution equal to the total of (i) the amount that they are required to expend on the initial scope of work in the required program of continuing maintenance and (ii) the amount that they are required to set aside as security for the performance of their ongoing maintenance obligations. To require them to pay for both restoration work and infrastructure effectively reduces the net proceeds from the development rights sale and makes it more difficult for an owner to maintain the landmark over the long term.

The scope of work should study an alternative scenario under which the floor price would be removed and the contribution rate to the District Improvement Fund lowered as a means to maximize development opportunities. This would help determine whether the City would be better served from collecting DIF funds sooner rather than over a longer period of time. The scope of work should also study the impact that the required set-aside of transfer funds will have on the ability of landmarks to meet their perpetual maintenance obligations.

Additionally, there are many sites that are encumbered by challenging subsurface conditions and may be required to accommodate entrances for East Side Access, which has not been mentioned in the proposal. Since a key goal of the City’s proposal includes upgrading the area’s transit infrastructure, the scope should study the additional measures necessary to induce development on these sites. As part of this, the height and setback study should take into account and the EIS and scope should allow for the more flexible height and setback controls being developed to be used on buildings incorporating significant pieces of transit infrastructure, such as elements of East Side Access, even if the building is not utilizing the additional floor area mechanisms. This new infrastructure is a vital element of the overall transportation network for East Midtown, but has a significant and adverse impact on the buildings in which it housed by occupying a substantial portion of a buildings base and forcing floor area that would have been located in the base into small, inefficient floor plates on the upper floors that are not conducive to first class, state of the art, office space. Allowing these buildings to use the same height and setback controls being developed for higher FAR buildings would provide a uniform development envelope for all buildings and would promote the East Midtown goals of incentivizing the construction of first class office space and enhancing East Midtown’s transit networks.

Other Critical Issues

  • Street use limitations and closures are more a deterrent to the plan’s success than they are a boon to the public realm. Any proposal to restrict existing streets must go through a comprehensive review process with property owners and any permanent street closures or shared streets should have the approval of impacted property owners which have loading docks or building entrances on the proposed closed or shared streets. The EIS must consider the consequences of the proposed closures and partial closures on traffic, emergency vehicle response time, and the economic impact on the businesses whose doors are located on these streets. In addition, the scope should clarify how, if it all, potential street use limitations and closures will be analyzed as part of the EIS and what processes would be followed to implement them.

  • The criteria for the grant of a bonus for a public concourse should be realistic and achievable. These floor area bonuses should be assumed doable on as many sites as possible both to enhance the public realm and promote the neighborhood’s revitalization. Further, clarification is needed as to whether the existing plaza bonus and the bonus for public concourses can be combined in a single project.

  • A mechanism should be established and analyzed which ensures that transit improvements not currently envisioned as part of the Transit Improvement Zone proposals can be expeditiously approved.

  • The creation and utilization of possible tax incentive benefits should be studied to determine the economic impacts to the City and potential projects.

 In order to enhance and further the public realm goals of the East Midtown proposal, the text should include and the EIS should consider a certification mechanism allowing for owners that have publicly accessible spaces that are underutilized or not optimal because of physical or other constraints to exchange all or a portion of the publicly accessible space for an equivalent or superior public realm improvement. There are examples of publicly accessible spaces throughout Midtown that do not function in an optimal way for the public because of limitations that can’t be readily addressed through design improvements. Some spaces have specific use requirements that are no longer viable; other spaces have oddly configured plaza areas or include multiple levels that don’t attract the public beyond the main space. By allowing owners to replace these underperforming spaces with a public realm contribution, the City’s goals in enhancing the public sphere in Midtown will be achieved.

Conclusion

East Midtown is a key job center in NYC. Its building stock, however, is aging and many buildings are outmoded and lack the floor plate size, slab-to-slab clearances, and design efficiency that tenants require. This rezoning proposal is needed to create opportunities for updated workspaces that will continue to attract companies and employers. It is our hope that the City will study and put forward the strongest plan possible to ensure that East Midtown retains its pre-eminence as a world class office district.