Air rights needed for Rock West

Real Estate Weekly, Feb 19, 1997 by Lois Weiss

When the real estate investment trust (REIT) assets were bought out by the Goldman Sachs/Tishman Speyer group, the package included a major - yet largely unknown - asset: about 2.1 million develop-able feet of air rights, including over 450,000 needed to construct the long-stalled project.

Rockefeller Center Development Corp., the West Center's owners, are currently in negotiations for the new tower with several prospective tenants, including Bear Stearns, which would need taller trading floors than what was called for in the original design. The Galbreath/Tishman team representing the Reuters consolidation project is also considering the new building as one possibility, sources say.

The original project called for a 700,000 square-foot building, although that was expanded a few years ago to meet projected tenants requirements. Today, an "ideal" building, sources say, would require 1.5 million square feet and would necessitate the acquisition of 400,000 of the developable feet.

A real estate executive familiar with the transaction says a paper subsidiary of the Rockefeller Group still owns a portion of the land under Rock Center as the mechanism to transfer the air rights. Developable rights must have a nexus to the property they are being transferred to, and they are able to use the underground retail concourse, which of course, connects all of the properties.

Some rights may be used to flesh out the development over the Center's own parking garage, as was reported in PEW August 28, 1996. That may also end up as a retail base for Christie's auction house.

So far, there is no price tag on the rights. "At the bankruptcy it was one of the gazillion things that were negotiated and would be talked about at a later date," said the source, familiar with the proceedings.

The Chairman of Eastern Consolidated Properties, Peter Hauspurg, who has recently represented clients in the purchase of air rights, estimated their value at about $20 a foot. He said residential air fights on the East Side of Manhattan have been selling for about $40 a foot, plus or minus 10 percent. But he noted that commercial rights are simply worth less, just as commercial land is less valuable than residential.

If so, the 2.1 million feet of air rights is worth approximately $42 million.

The existence of the valuable air fights was not revealed during the bankruptcy, but those conducting due diligence quickly uncovered them. Some were in fact referred to in the fine print of the original offering memorandum for the stock. The need for some of the air fights for this long-planned - for tower, however, is also giving former stockholders pause.

Sharon Locatell, a state certified appraiser who worked on Rockefeller Center appraisals with Abram Barkan when both were at Douglas Elliman, said the appraisals conducted for the REIT did not include the value of the air rights, as those were not considered collateral for the mortgage. As for what they might be worth, Locatell said it depended on how badly someone needed the rights. "400,000 square feet can certainly change the entire face of what you are developing," she said.

A lawsuit has already been filed by stockholders that believe the REIT should have been the beneficiaries of NBC's purchase of its condominium space at 30 Rockefeller Center and that the sale would have provided enough capital to keep the REIT operations afloat, just as it now does for the now ownership.

Any new Rockefeller Center West building also has to face a theater requirement that was agreed to with the community about eight years ago. At the time, plans called for a dance studio, but in the intervening years that need apparently has been met. "They couldn't wait. The show must go on," said one source. Now, the community and Rockefeller Center West will have to figure out what else they can do.