New York’s Air might be the next best investment rivalling Gold. In jest. Maybe not.

It so happened that a lawyer colleague of mine from New York was visiting me for business and on our way to Gurgaon from the Airport, we both struck up a very interesting conversation that I would love to share. ?

The fame of the Manhattan skyline needs no introduction of its own. The glitz, the glam and the prestige attached to it has a reputation that exceeds itself. But in the buzzing heart of Manhattan, legal battles over the rights of the air of the city itself are a common phenomena! In today’s world where we advocate for our own rights even more vehemently than before, ‘Air’ also has its own rights.

So, what are Air Rights?

A concept with which most of the world is not familiar with, ‘Air Rights’ refer to the rights a real estate developer needs to acquire in order to add floors to their development in New York. It quite literally translates to buying/developing the New York Skyline.

Surpassing materials, compliance, labour, etc., air rights stand at the pinnacle making up for almost a majority of the cost of any project in New York. But why?

While our conversation stretched on as we went back and forth with opinions, ideas, and our legal analyses, here’s what it broadly revolved around:

• Real estate has multiple concepts of determining the price of a certain space including the square footage, development date, design, purpose, prestige, accessibility, and the property’s capacity.
• In 2024, New York real estate experts suggest that the skyline is running on a dearth of space for new developments.
• Yet buyers keep flocking to New York because it checks all the boxes and has an extreme prestige value associated with it.

Hence, the return on investment in New York is ABSOLUTE.

• But as New York experiences a crunch of lateral space, the new area of development where most are foraying is in vertical development.
• Increasing altitude plays a crucial role in driving home exceptional prestige. Thus, high prices for air rights are just a natural side effect.

At this point we were well along the course of the conversation and I told my friend, “While the thought of owning air as a financial investment sounds incredible, there’s several legal obstacles riddling the course of such an investment. Which begs the question is it really worth it?”

As fellow legal minds, neither of us backs down from a debate and that’s what ensued hence forth. The conversation we had next was riddled with legal jargon and we discussed a thesis worth of details, but here’s the crux of it.

• New York’s zoning regulations play an incredibly pivotal role in new developments. But at the same time, they are incredibly contradictory.?
• For instance, The New York zoning regulations outline a metric called the Floor Area Ratio, colloquially known as FAR. Another pivotal rule is building height restrictions. These two very often end up contradicting each other.
• If for example, a lot has a FAR of 20 and the total size is of 20,000 sq.ft., the developer technically has the right to build up to 400,000 sq. ft.
• But here’s where building height restrictions may contradict with the FAR and restrict the development space. Building height restrictions in certain zones of New York are imposed to safeguard the community surrounding an area, preserving the skyline, maintaining environmental compliance, and several other factors.
• If we go back to our example, while you may have a FAR of 20 allowing you to build 20 floors, the building height restriction for that specific zone may be 10. This forces you to redesign your building and make it wider/bulkier to simply justify your effective area. Such elements significantly affect the expected ROI of your project while putting pressure on you with additional cost for re-engineering and redesigning your project while also keeping environmental and other compliance legislations in mind.
• Even if that doesn't sound like too much, another legislation called setback requirements may kick in. Setback requirements require developers to leave a percentage of space from the line of the property. It is imposed for several reasons, one of them being letting sufficient light and air pass through to the neighboring buildings.?
• And if that sounds easy too, further regulations like historical district regulations, inclusionary housing, transfer disputes and more await around the corner.

In the end, only one question remains - do you think ’Air’ will be costlier than Gold some day in New York? My friend sincerely seems to believe so. ??