How About a New Bonus Program in the Hudson Yards?


Zoning changes are important tools that the City Planning Commission uses to shape neighborhoods and stimulate economic development. These changes are meant to provide incentives for certain types of development to occur in each area that is rezoned.

One of the largest and most dramatic rezonings that City Planning implemented in recent memory was within the Hudson Yards district. Here, blocks generally containing several large parcels saw their floor-to-area ratios (FAR) increased from low- to mid-density, to high- to super-high density. For example, density can grow from a base of 10 to 21.6, 24 and (in one area) 33 times the land area. These increased FARs can be achieved by purchasing bonus development rights from the city.

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There are two bonus programs available in the Yards. The first is the so-called District Improvement Bonus (DIB) where additional square footage can be purchased at a price that was established years ago—$100 per square foot. That price has been indexed and today the cost is approximately $127 per square foot. The second program is to purchase Eastern Rail Yards rights (ERY), the cost of which is determined by a mechanism in which the site’s land value is appraised and the cost of the ERYs are set at 65 percent of that appraised value, provided the cost is not lower than the DIB price which acts as a floor. These two programs are available in different relative proportions based upon the zoning designation.

In a recent conversation with some market participants, they came to a unanimous conclusion that the rezoning of the Hudson Yards was well done and has been a complete success. While I agree that the Yards will eventually be one of the most dynamic and exciting neighborhoods in the city, there may need to be some modifications to the zoning to allow for the maximum results from a development perspective.

My team and I spend a great deal of time focusing on sales in the Hudson Yards district. We have been active in this area for more than 15 years now and, just within the past few years, have sold over 5 million buildable square feet of development sites in the Yards having a market value in excess of $1.5 billion. I bring this up only because it validates the feedback I have received from developers who are looking at sites in the area and are purchasing them. Increasingly, developers are becoming concerned with what to do with the commercial components of their sites.

To understand their concerns, it is important to understand the way the zoning throughout most of the district works. There are many different types of zonings in the area and some blocks even have multiple zoning designations on different portions of the block. Because City Planning wanted to create a mainly commercial district, many of the new zoning designations permit some residential use but mainly allow commercial uses. In a majority of these areas, the residential component is only approximately one-quarter of the total buildable space and that residential space is not permitted to be constructed until the commercial space is constructed. Retail space will be on most ground floors, leaving hotel or office as the uses for the balance of the commercial space. Office building developers are reluctant to compete with the big boys who have had large sites tied up for many years at a cost basis well below where land values are today. This makes it nearly impossible for sites with smaller floor plates to compete in the office sector. This leaves hotel as the primary use for the commercial component of the majority of these sites.

Hotel developers are becoming concerned with the number of hotel rooms that are planned for the area. Clearly, there will always be room for new concept hotels or hotels which are geared toward a specific target audience. However, can every new development in the Yards with floor plates of 15,000 square feet or less have a significant hotel component? Probably not.

I suggest that City Planning create a new bonus program for the Hudson Yards district whereby developers can purchase a conversion of the commercial component of their sites to residential use. The city could achieve two key objectives with this type of program. The first is that it would raise greatly needed revenue to enhance the infrastructure within the area and potentially fund Phase 3 of the Hudson Boulevard project or other amenities for the area. The second is that it could help the administration achieve its goal of creating more affordable housing as a component of the program. Given the many projects that are under construction and the dozens that are planned, it is clear that tens of millions of square feet of commercial space are going to be created in this district. To allow residential conversion within developments with smaller floor plates would result in more feasible development moving forward could help the city achieve important objectives.