TDR 3.0: Transfer of Proximity Rights

A workable beginning to this week’s edition is Norman Ralph Augustine’s observation that?“acronyms and abbreviations should be used to the maximum extent possible to make trivial ideas profound ... Q.E.D.”

Mr. Augustine’s thoughts on acronyms lead well into a discussion of TDRs which then leads us to Transfer of Proximity Rights, whose profoundness is enhanced by use of the acronym “TPR”.

A Transfer of Development Rights (TDR) is a growth management technique pursuant to which landowners are able to retain legal title to their land, but sell its development rights for use on other properties.[i] ?A TDR is based on the concept that the bundle of rights that comes with land ?ownership includes ?the right to develop the land.[ii] A TDR allows the owner to disconnect the right to develop the property from the property itself and sell or transfer it for use on a different parcel of land in the community. The development potential is removed from the parent (sending) parcel and legally transferred to the receiving parcel whereby additional incremental development is allowed.[iii] The buyer of the development rights is then permitted to exceed the maximum height or density restrictions set forth in the local zoning regulations when using the transferred rights.[iv]

A buzzword and related acronym of late is Transit Oriented Development. (TOD profundity enhanced). Transit Oriented Development includes a mix of commercial, residential, office and entertainment centered around or located near a transit station.[v] Dense, walkable, mixed-use development near transit attracts people and adds to vibrant, connected communities.[vi]

As noted by the Federal Transit Administration, focusing growth around transit stations capitalizes on public investments in transit and provides many benefits, including:

• increased ridership and associated revenue gains for transit systems
• incorporation of public and private sector engagement and investment
• revitalization of neighborhoods
• a larger supply of affordable housing
• economic returns to surrounding landowners and businesses
• congestion relief and associated environmental benefits
• improved safety for pedestrians and cyclists through?non-motorized infrastructure[vii]

An example of legislation that creates a?TOD Zone is Article XA of the Town of Hempstead (NY) Building Zone Ordinance.[viii].

The recognized benefit of Transit-Oriented Development is codified in Article XA:

It is in the public interest for the Town to utilize its zoning authority to solve a long-existing problematic use and at the same time provide higher density housing near a popular railroad station and bus route. It is envisioned that such proximate housing will increase ridership of trains and buses in the vicinity. Moreover, by enacting controls ensuring proper space for pedestrian walkways, accessory uses and landscaped or recreational areas, the Town will be able to ensure that this higher-density housing will be developed in a manner that is aesthetically pleasing and protects surrounding area character from the adverse effects of overcrowding or undue development…[ix]

The TOD Zone is a floating zone[x] that allows for greater density for multi-family uses. It is allowed only on land that meets all of the following criteria: (i) the land is located adjacent to a railroad station or railroad tracks adjoining the platform of such railroad station; (ii) the land is located along a county or state roadway; (iii) the land is located along a bus route; and (iv) the land is located a minimum of 200 feet away from any property situated within a residential zoning district.[xi]

In order to be considered for redesignation as a TOD (CA-S) zone, the land must meet the bulk, area and location requirements of Article XA and the Town Board of Hempstead must make a finding that the land is located in a blighted area which includes significant criminal activity and is in need of redevelopment and that the incentive to increase density is in the best interest of the community in order to encourage redevelopment and thereby eliminate such blighted use or improve such blighted area.[xii]

As mentioned above, the TOD Zone allows for greater density. The allowable density in the TOD zone is 55 families per acre.[xiii] In order to realize the increased density yield, numerous conditions must be met. Height is limited to 4 ? stories and sixty feet;[xiv] Building area is limited to 60% of the lot area;[xv] minimum lot size is 2.5 acres[xvi] and there is a 5:3 parking space to unit ratio.[xvii]

Although the benefits of Transit Oriented Development are well recognized and codified in the Town of Hempstead Zoning Ordinance, the density cap is a disincentive to developers needing to make hurdle rates in this difficult economy.

Enter Transfer Proximity Rights, referred to as TPRs by those desperately striving to be counted ?among the illuminati.

TPRs can be used to provide greater density and yield to a Developer while providing ?tax relief to residential homeowners. To do this, we recognize development rights in the single-family parcels located along the railroad tracks in the community (TPR). These proximity rights are then bundled by the governmental stakeholders and sold to a developer of a TOD development. This will be monetized and implemented as follows:

·????????The proximity ?rights will grant the developer of a TOD ?a combination of greater density, greater height, a greater lot coverage ratio and a less stringent parking requirement.

·?????????In exchange for these rights, the governmental stakeholders will receive a payment of ?a predetermined amount, which shall then be allocated to the stakeholders in the same proportion that property taxes are allocated. .

·????????The owners of the single-family residential housing will receive a 15-year credit against their property taxes, at no cost to them.

The tax credits will run with the land and result in lower property taxes for purchasers of the single-family home. After 15 years, the property taxes will be restored in full but the single-family property will then be eligible to transfer ?a new bundle of Proximity Rights to a developer of a different TOD project.

The ?TOD project site is analogous to a receiving site eligible to receive Transfer Development Rights mentioned in the beginning of this Article. The eligible receiving site will be a parcel that qualifies as a TOD site under existing legislation. The pool of eligible single-family homes to transfer their rights ?will be based on several factors including proximity to the TOD site, desire of the homeowner to participate and availability of the rights at the single-family property.

By way of example, let us walk through a simplified model. Assume that a developer desires to purchase Proximity Rights from 100 eligible single-family houses along a railway. Each house has a Proximity Right valued at $20,000. The Developer pays the Governmental Stakeholders $2,000,000 ($20,000 * 100). The homeowners receive a $1,333.33 credit against their property taxes for 15 years. Assuming that each house is identically assessed and have equal assessed values, each house would contribute $9,000 annually in aggregate property taxes. Assume that property taxes rise at 2.0% per year and the appropriate discount rate is 3.5% for net present value purposes.

Without the TPRs, the Governmental stakeholders will receive $3.11MM ($ 2.359MM NPV) in taxes as follows:

Year???Taxes ??????????????????????Houses??????????Total ????????????????????????PV

1????????? $9,000.00 ?????????????20????????????????? $180,000.00 ???????????$173,913.04

2????????? $9,180.00 ??????????????20?????? ??????????$183,600.00 ???????????$171,392.56

3????????? $9,363.60 ??????????????20?????? ??????????$187,272.00 ???????????$168,908.61

4????????? $9,550.87 ??????????????20?????? ??????????$191,017.44 ????????????$166,460.66

5????????? $9,741.89 ???????????????20????????????????? $194,837.79 ???????????$164,048.19

6????????? $9,936.73 ??????????????20????????????????? $198,734.54 ???????????$161,670.68

7????????? $10,135.46 ?????????????20????????????????? $202,709.24 ???????????$159,327.63

8????????? $10,338.17 ?????????????20?????? ??????????$206,763.42 ???????????$157,018.53

9????????? $10,544.93 ????????????20?????? ??????????$210,898.69 ????????????$154,742.90

10??????? $10,755.83 ?????????????20?????? ??????????$215,116.66 ????????????$152,500.25

11???????? $10,970.95 ????????????20?????? ??????????$219,419.00 ???????????$150,290.10

12??????? $11,190.37 ??????????????20?????? ??????????$223,807.38 ???????????$148,111.98

13??????? $11,414.18 ??????????????20?????? ??????????$228,283.52 ????????????$145,965.43

14??????? $11,642.46 ?????????????20?????? ??????????$232,849.19 ???????????$143,849.99

15??????? $11,875.31 ??????????????20?????? ??????????$237,506.18 ???????????$141,765.21

??????????????????????????????????????????????????????????????????????$3,112,815.04 ???????????$2,359,965.78

With the TPR Model, the governmental stakeholders receive $4.712MM ($3.985 NPV) in property taxes and the homeowners will pay approximately $400M less in property taxes over the 15-year period, at no cost to the homeowner. The model is as follows:

Yr??????Taxes?????????????????Houses?????????????????Total???????????????????????????PV

1????????? $7,666.67 ??????????????20?????? ??????????$2,153,333.40 ?????????$2,080,515.36

2????????? $7,846.67 ??????????????20?????? ??????????$156,933.40 ????????????$146,499.01

3????????? $8,030.27 ??????????????20?????? ??????????$160,605.40 ????????????$144,856.87

4????????? $8,217.54 ???????????????20?????? ??????????$164,350.84 ????????????$143,222.26

5????????? $8,408.56 ??????????????20?????? ??????????$168,171.19 ??????????????$141,595.63

6????????? $8,603.40 ??????????????20?????? ??????????$172,067.94 ???????????$139,977.38

7????????? $8,802.13 ??????????????20?????? ??????????$176,042.64 ????????????$138,367.92

8????????? $9,004.84 ??????????????20?????? ??????????$180,096.82 ???????????$136,767.61

9????????? $9,211.60 ???????????????20?????? ??????????$184,232.09 ????????????$135,176.79

10??????? $9,422.50 ??????????????20?????? ??????????$188,450.06 ???????????$133,595.79

11???????? $9,637.62 ??????????????20?????? ??????????$192,752.40 ???????????$132,024.93

12??????? $9,857.04 ??????????????20?????? ??????????$197,140.78 ????????????$130,464.47

13??????? $10,080.85 ????????????20????????????????? $201,616.92 ????????????$128,914.70

14??????? $10,309.13 ?????????????20?????? ??????????$206,182.59 ????????????$127,375.85

15??????? $10,541.98 ?????????????20?????? ??????????$210,839.58 ???????????$125,848.17

???????????????????????????????????????????????????????????????????????$4,712,816.04 ??????????$3,985,202.74

Thus, use of the ?TPR gives a tax break of approximately $400,000 to 20 homeowners, increases the tax base by $1,600,000 at no cost to the homeowner and gives the developer of the TOD a better yield which will allow the development of a new income producing building that will generate higher taxes and inject revenue into the community ?because of the spending by its residents. In short, a potential win for all parties. .

With all due deference to Norman Ralph Augustine, maybe this TPR idea is not that trivial despite the acronym.

[i] NYS Division of Local Government Services, “Transfer of Development Rights: James A. Coon Local Government Technical Series” September, 2021 https://dos.ny.gov/system/files/documents/2021/09/transfer-of-development-rights.pdf.

[ii] NYS Division of Local Government Services, “Transfer of Development Rights: James A. Coon Local Government Technical Series” September, 2021 https://dos.ny.gov/system/files/documents/2021/09/transfer-of-development-rights.pdf.

[iii] NYS Division of Local Government Services, “Transfer of Development Rights: James A. Coon Local Government Technical Series” September, 2021 https://dos.ny.gov/system/files/documents/2021/09/transfer-of-development-rights.pdf.

[iv] NYS Division of Local Government Services, “Transfer of Development Rights: James A. Coon Local Government Technical Series” September, 2021 https://dos.ny.gov/system/files/documents/2021/09/transfer-of-development-rights.pdf.

[v] Federal Transit Administration, “Transit-Oriented Development”, https://www.transit.dot.gov/TOD.

[vi] Federal Transit Administration, “Transit-Oriented Development”, https://www.transit.dot.gov/TOD.

[vii] Federal Transit Administration, “Transit-Oriented Development”, https://www.transit.dot.gov/TOD.

[viii] Town of Hempstead Building Zone Ordinance Article XA , “CA-S Residence Districts (CA-S)” §§ 108.1-108.16.

[ix] Town of Hempstead Building Zone Ordinance Article XA , “CA-S Residence Districts (CA-S)” § 108.1.

[x] Town of Hempstead Building Zone Ordinance Article XA , “CA-S Residence Districts (CA-S)” § 108.16.

[xi] Town of Hempstead Building Zone Ordinance Article XA , “CA-S Residence Districts (CA-S)” § 108.15.

[xii] Town of Hempstead Building Zone Ordinance Article XA , “CA-S Residence Districts (CA-S)” § 108.16.

[xiii] Town of Hempstead Building Zone Ordinance Article XA , “CA-S Residence Districts (CA-S)” § 108.12.

[xiv] Town of Hempstead Building Zone Ordinance Article XA , “CA-S Residence Districts (CA-S)” § 108.3.

[xv] Town of Hempstead Building Zone Ordinance Article XA , “CA-S Residence Districts (CA-S)” § 108.4.

[xvi] Town of Hempstead Building Zone Ordinance Article XA , “CA-S Residence Districts (CA-S)” § 108.8.

[xvii] Town of Hempstead Building Zone Ordinance Article XA , “CA-S Residence Districts (CA-S)” § 108.11. There are additional parking requirements for the commercial portion of the development.?