Community Board 1 (CB1) has dealt a setback to a real estate developer seeking a zoning waiver that may be worth up to $60 million. This judgement came about at CB1’s June 28 meeting, when the board considered a resolution that would have supported the request by Macklowe Properties to be excused from complying with a zoning rule that requires office buildings in the Financial District undergoing conversion to residential use to set aside a significant percentage of rooftop space for recreational use by residents.
The developer purchased One Wall Street, a 1931 landmark Art Deco office tower located at the corner of Wall Street and Broadway, for $585 million in 2014. The company has since announced a $1.5 billion plan to convert the 1931 structure into more than 500 apartments, and 95,000 square feet of retail space.
The June 28 discussion began when Jeff Mulligan, a lawyer with the firm Kramer Levin (which represents Macklowe Properties) made a brief presentation, noting that, “we are specifically here tonight to waive the requirement for the roof recreation space, which, as you know, is difficult for early 20th century skyscrapers to comply with given their wedding cake form, which results in small, narrow setbacks that are not suitable for common recreation space.” He added that the request for the waiver was due, “in part, to the use of two roof areas, by a proposed health club that will be open to the general public,” and noted that, “the proposed health club is a vital component of the financial success of the overall project.”
Mr. Mulligan noted that, “One Wall Street will, however, provide extensive tenant amenity space that will be free of charge to all residential tenants of the building and their guests. The amount of indoor amenity space will exceed the required amount of roof recreation space and will include a number of amenities, such as a gym, pool, playrooms and lounges, which will be open year-round, and will not be weather dependent, as is the case in the roof space.”
The narrative was then picked up by Diana Switaj, CB1’s Director of Planning and Land Use, who said, “what the zoning says is that in a conversion of this size, at least 50 percent of the rooftop area needs to be provided for recreation space. The zoning also says that if that can’t be provided at a reasonable cost to the developer, then a minor modification can be made, a waiver can be made.”
Ms. Switaj noted that while the spire of One Wall Street does not have a rooftop suitable for outdoor recreation, the building also has an annex (constructed in 1962) that does have a large, flat roof. This rooftop space is approximately 8,000 square feet.
“There will be a bigger open space on top,” she noted, “but the developers are going to put a gym or spa there, and they are proposing to use the open space for the clients of that establishment. The application states that this is essential to make the project economically feasible.”
“In lieu of the rooftop recreation space,” Ms. Switaj continued, “they’ve proposed in the sub-cellar, a number of community amenities like a bowling alley, a movie theater. Exactly what these are hasn’t been finalized yet.”
“People have concerns about using the rooftop recreation area for a private use by the gym,” Ms. Switaj noted. “Some folks were uncomfortable with that.”
Next to speak was Susan Cole, chair of CB1’s Financial District Committee, which earlier in June had passed a resolution endorsing the request by Macklowe Properties. It was this resolution that was up for consideration by CB1 as a whole on June 28.
Ms. Cole began with a reference to another zoning variance that recently came before CB1, a proposal to convert more than 100,000 square feet of public arcades on Water Street into private retail use. This proposal (which eventually passed) was controversial, because the public space being handed over to landlords was potentially worth more than $100 million. “In the last several weeks,” Ms. Cole began, “we have understood, a lot of us, that there really need to be changes made. Not just for our community, but for other communities.”
She also observed that the developer at One Wall Street has claimed that complying with the zoning law, rather than seeking a waiver, “would be a great cost to them. They said to us the cost would be around $60 million.”
“The issue really is a question of money,” she continued in a reference to the fact that the community was offered no financial compensation in either the Water Street proposal, or in the waiver application for One Wall Street.
Laura Starr, who serves on CB1’s Planning Committee and Financial District Committee, said, “I spoke to Mark Ginsburg, who wrote the zoning text for City Planning and he explained the intent of it to me. It was written specifically for the Financial District because we are so starved for open space. The idea was that as we get denser, as we convert these offices to residential buildings and we don’t have parks, that the developers would be asked to provide 50 percent of their roof space as recreational amenities for the tenants of the building. So when we privatize that and say it’s a club that anybody working on Wall Street can pay a lot of money to join, but the people in the building who need fresh air and open space are sent to the sub-basement to a bowling alley, it’s not comparable.”
Ms. Starr also raised the prospect of, “developers, if they want extra floors, paying in financially to an infrastructure fund. I think if we’re going to let this happen, and it benefits the developer to the tune of $60 million, that some of that should be put into one of this community’s needs — open space, schools, transportation infrastructure, resiliency.” This drew applause from members of the public attending the June 28 meeting.
Ms. Cole voiced a growing consensus among Lower Manhattan leaders that, “there is a problem with all of this. There should be a way to do something. But I don’t know how we have them give money to a fund that doesn’t exist at this time.”
Anthony Notaro, the incoming chair of CB1 asked, somewhat incredulously, “did I hear that without putting a health club on the roof, that the whole business plan for this development is in jeopardy?” (The $60 million value that the developer has assigned to the rooftop waiver amounts to four percent of the overall $1.5 billion value of the One Wall Street conversion project.)
CB1 member Tiffany Winbush said, “that’s what I heard them say. They need to put the gym up there so they can charge people, in order to make it work. I am opposed to this, because they would have the space,” to comply with the rooftop recreation requirement, “if they weren’t putting the gym up there and charging people.”
Tom Berton, member of CB1’s Financial District Committee, asked rhetorically, “they didn’t provide any details about how their delicate financial model falls apart without this one piece, a for-profit gym?” He added, “the level of attention and detail that any business puts toward its plans is quite detailed and exhaustive.” In what may signal a coming shift in CB1’s approach to its relationship with real estate developers seeking special treatment, he added, “we have not done enough as a community, for developers to consider seriously,” the comparative value of benefits that developers ask of the community, and those that they offer in return. “I suggest that we as a community come together and say, ‘sorry, you didn’t do enough homework,’ and that we say, ‘No.'”
When the June 28 discussion concluded, and a vote was called, the resolution supporting the request by Macklowe Properties to be given a waiver from the rooftop recreation space rule at One Wall Street was defeated. In its place, Ms. Cole quickly composed a new resolution, calling upon the City Planning Commission (which has the ultimate decision-making authority over the Macklowe Properties application for a waiver) to reject the proposal. This resolution, which said, “it is the job of the developers to model financially in advance and provide residents fresh air and outdoor space congruent with zoning requirements, passed by a CB1 by a wide margin.
The downsizing of legally required amenities is not unique to the redevelopment of One Wall Street. In 2013, another landmarked structure, the City-owned office building at 346 Broadway, was purchased for $160 million by a group of developers who announced plans to convert the building to residential use. A condition of this sale was their agreement to create a 15,000-square-foot community space on the building’s ground floor. Shortly after filing plans to convert the building to apartments, the developers quietly shrank the size of this facility and moved it to the building’s basement.
Nor is Ms. Starr’s call for a fund (to which developers should be required to contribute) without precedent. In fact, this practice, known as development “impact fees,” is prevalent in almost every other fast-growing area of the United States, urban or suburban. The idea behind the policy is that new building projects should pay at least a portion of the cost of providing additional public services, the need for which would not arise without the development. Some form of impact fees, which are used to pay for services such as schools, police and fire protection, water and sewage infrastructure, and new roads, are is levied in about 60 percent of all U.S. cities with more than 25,000 residents, and almost 40 percent of all metropolitan counties. In California and Florida, the two states that utilize impact fees most extensively, they are assessed by 90 and 83 percent of all cities and counties, respectively.
But not in the largest city in America. For New York, where real estate interests are particularly influential, impact fees are not applied to building projects. The closest New York City comes to anything resembling an impact fee is “inclusionary zoning,” which encourages developers to create affordable housing, in exchange for bonuses like zoning variances, tax abatements, and preferential financing. But these are generally optional in New York City. Outside of New York, planners call these “linkage fees,” and they are usually mandatory.
In April, State Assembly member Deborah Glick introduced a bill that would impose a tax on residential development in New York City, to create a new, dedicated funding stream to build public schools. “It is a school impact fee that would be charged to developers who are either constructing or converting non-senior housing,” Ms. Glick explained. “The fees would be directed to kindergarten-through-12th grade school construction.” This State legislature took no action on this bill, before its term ended in June.