Conjuring Wealth out of Thin Air

Proposed air rights project in Boston.

by James A. Bacon

The Massachusetts Department of Transportation generated $40 million  from the lease of air rights over state transportation assets in FY 2011. Earlier this month, the state built upon that revenue stream by designating AG Scotia II as developer of air rights over two parcels above and along Interstate 90 in Boston. The 99-year lease agreement will yield the state a net present value of $18.5 million in rent.

Massachusetts is far ahead of Virginia in recognizing that the development of property above highways and rail lines is a win-win-win proposition. Air rights can generate lease revenue for the state, attract private investment, build the local property tax base and restore walkability to an urban fabric ripped apart by the highway or rail line. According to the Massachusetts DOT, here are the numbers for the AG Scotia project: 230 residential units, a 270-room hotel, 50,000 square feet of office space and $360 million in investment.

Virginia may be slow to learn, but it does learn. Last year the Office of Transportation Public-Private Partnerships (OTP3) began studying the use of air rights in connection with the Rail-to-Dulles project, with a particular focus on the four stations in Tysons.

States a OTP3 project screening report:

The vision is to transform Tysons Corner from suburban office park and activity center to an urban center that could include 200,000 jobs and 100,000 residents. The vision also calls for 75% of all development to be located within an easy walk (1/2 mile) of Metro. Such transit oriented development (TOD) might include a combination of commercial, office and/or residential projects as well as public amenities such as parks and green areas. The transportation benefits of the potential project will address travel demand management, vehicle trip reduction and improve mobility by building livable and sustainable communities.

A public-private partnership would net revenues to VDOT that could be used to fund other transportation projects in the region. Upgrading Routes 7 and 123 to accommodate the surge in traffic in and out of Tysons created by the massive increase in density there could cost billions of dollars.

A public-private partnership, states the OTP3 report, would “transfer the risk of engineering, design, construction, operations and maintenance to the private sector. The most likely scenario will be that VDOT collects royalties or payments for granting such leases.”

On the positive side, building offices, apartments and a hotel directly on top of a Metro station will encourage use of the Metro, which will need all the fare revenue it can generate in order to minimize ongoing subsidies. Because the train line is elevated, it is less clear to me what impact air rights would have upon walkability in Tysons, but the potential surely exists to improve the situation. A potential downside is that creating air rights would add to the potential glut of development rights in Tysons.

If I have any criticism, it’s that revenue from the air rights should have been applied to directly the project that made them possible — the Metro Silver Line — and the revenues used to offset the cost of that project to the public. But if air rights work in Tysons, they might work in Reston and other stops. Perhaps revenue from those stations could be used to buy down Dulles Toll Road tolls that will be used to finance Phase 2.

Northern Virginia isn’t the only place where air rights might apply. Two structures have been built over the Downtown Expressway in Richmond. Why not more?

The McDonnell administration deserves credit for looking into the idea. Now, let’s hurry things along. Let’s make the most of the opportunity.

Hat tip: Bob Bruhns. Bob, relax. This can be a very good thing… as long as the revenues aren’t co-opted by someone with no rightful claim to them.


Share this article


(comments below)


(comments below)


21 responses to “Conjuring Wealth out of Thin Air”

  1. reed fawell III Avatar
    reed fawell III

    It’s remarkable that Virginia has yet to use its air rights to finance projects. My law firm put together the air rights financing for the Air Rights Building in the center of Bethesda Maryland back in mid 1960s. I refinanced that project’s new twin towers in the 1970s.

    RE Tyson’s Corner. It looks to me that there is a substantial risk that those transit oriented development (TOD) zones in Tyson’s Corner will not get anywhere near the residential development they need to thrive. (Despite footnotes to the comp. plan.) So Jim’s suggestion of air rights construction there, if feasible, might be limited to residential to help solve that issue.

  2. Peter Galuszka Avatar
    Peter Galuszka

    Jim’ I know nothing about air rights but I believe the concept has been around since the dawn of mankind. I also know of the building Reed Fawell mentions — think it is right at Wisconsin Ave. near the old movie theater.

  3. this is the wrong thread but I want to put a marker here…

    listening to Reed comparing Arlington with Fairfax and the disparate approaches to the mix of residential and commercial.

    and I’m think Reed is correct. The more Fairfax favors commercial development – the worse the traffic is going to become because what they are doing is creating commuters… not residents.

    I wonder if TMT agrees.

    1. Been out of town – New York. A bit more density there.

      Tysons and residential development within the TOD areas. Fairfax County has been encouraging it. The Comp Plan does not include residential in the initial development cap. But, that must be footnoted by the inclusion of residential in the 84 msf total cap.

      There is some significant residential construction proposed in the rezoning cases. Much of this is only conceptual development, but there are a number of FDP for residential.

      I think office is included in the TODs for several reasons – that will encourage workers to take rail and walk to and from their business employer. Investors are more comfortable with what is known, and, for Tysons, this is commercial. Finally, Fairfax County has a goal of receiving 25% of its real estate tax revenue from commercial.

      1. reed fawell III Avatar
        reed fawell III

        TMT – I just saw your two comments above. You may have missed my last comment to Jim’s article last week titled “What Arlington County is doing Right”. Those comments were in part a reply to our earlier dialogue on differences between Tyson’s Corner and R/B Corridor.

  4. reed fawell III Avatar
    reed fawell III

    Peter – Air rights have been around a very long time but not commonly so. As I recall the first major commercial use of the technique was in New York and Chicago back in the early 2oth century. Over rail yards and the like.

    The air rights over the railroad tracks through Bethesda were purchased in 1954. It took the owners 12 years to get financing for the first tower, given the legal novelty of the security in the middle Atlantic states at that time. The lender was a very large national institution familiar with complexities, including density transfers, air rights, etc. The first tower was built in 1964, the second in 1976, the third in 1980. They total some 710,000 square feet, built mostly over the railroad track right of way, plus 1200 car garage.

    You’re right, Peter. Its two blocks south of Old Hiser Movie Theater, on other side of Wisconsin Ave., across from historic hardware store. In late 70’s I had a top floor office in second tower looking east over what appeared to be a forest all the way to Silver Spring some 4 miles distant. These were first towers built in Bethesda. The two guys who bought the air rights in 1954 and build the buildings over air for next 26 years were visionaries. In 1954, the Bethesda tallest building a 3 story bank building.

  5. A good spot for air rights in NOVA is at Fair Oaks Mall/Fairfax Corner
    This could be implemented with a new Metro Rail Station at this location.

  6. reed fawell III Avatar
    reed fawell III

    If I were young again, I get into the air rights business. The opportunities for building creative solutions to urban problems here are endless. For example, its a wonderful way for strapped local and state governments, and mass transit authorities, to access untapped heretofore wasted assets by outright sales, sale leasebacks, or long term air rights leases, while renewing and jump starting neighborhoods as if conjuring them out of thin air.

    What’s required is imagination, vision, good lawyers and good business sense by all involved. Then the sky is the limit. Putting it together shouldn’t be hard. Unfortunately it often is.

    Today’s leaders need to change their mindset. Open up their thinking. Better understand creative business can build for all society.

    1. reed fawell III Avatar
      reed fawell III

      Correction: Better understand that creative business can build great things and results for all of society, and everyone in it.

    2. reed fawell III Avatar
      reed fawell III

      Ps – Air rights can also be used to build over private owned mega malls, so as drain off much of their demand for auto borne shoppers, thus clearing interstates and other roads for other more appropriate users.

  7. just curious here…. are “air rights” over top of govt-paid-for-infrastructure different from air-rights over private property?

    for instance, if someone built a mall… what advantage would there be to a subsequent investor to try to build over top of the mall instead of just a regular building elsewhere?

    how would that be any kind of advantage over a single investor multi-story structure?

    my thinking here is that air-rights are probably mostly a govt thing… not a private investor thing – in general – or else the private investor would have just gone ahead and build a multi-level structure to start with.

    clue me in here.. give me some examples of private sector air rights….

  8. This is just a way to citify the area by dazzling us with unfamiliar terms like ‘air rights’.

    My problem with citification is that there is never any economy of scale; in fact, Fairfax County always gets the reverse: taxes per capita simply increase with density. There _should_ be an economy of scale with increasing density – but the fact that there never is, warns us that a really huge ripoff is going on. So that is my Objection Number One.

    My Objection Number Two is the mad stupidity that I expect to see, based on past performance of these so-called ‘leaders’ of ours.

    Here around the Dulles Rail / Silver line, that’s MWAA on the Dulles Toll Road and Dulles Access Road, and apparently VDOT on Rt 7 and Rt 23, where we paid a king’s ransom to make a dog-leg to bring Rail to Tysons Corner.

    So MWAA will make money so they can overpay for something else now (they love doing that), and VDOT might bring in some money to help Virginia with the $20 Billion hole in its VRS. Some people in Fairfax County government were grasping at the straw that they might cash in on these rights – but I don’t think that will happen, because they don’t own them. And here is the core of my second objection: we will get New York City South, congestion will not be reduced, and per-capita taxes will only rise.

    And here is another worry on air rights, and it is a big one. Given the dimbulbs on the BOS here, we might see the County fall all over itself to buy the air rights from their buddies at MWAA. If that happens, my advice is to get out of here before taxes reflect this blunder, because these rights will not sell anywhere but in Tysons Corner, and the County will then proceed to give away the store to get _something_ built, in order to conceal their Really Stupid Mistake.

    1. Basically, there are two levels of analysis.

      (1) Are air rights a good idea? Will they generate funds to help offset the cost of building transportation infrastructure, will they help improve the connectivity/walkability of Tysons, and will they help lift the value of neighboring properties?

      (2) Do we trust the Fairfax BoS, VDOT or other public bodies to get it right?

      I hear you expressing skepticism that the Fairfax BoS will do the right thing. That’s fine. That’s a political assessment that I, as someone residing outside Fairfax, am unable to make.

      But I do think it’s important not to dismiss the idea out of hand simply on the grounds that the BoS, VDOT, whomever will screw it up. If leasing the air rights would be beneficial, it’s up to us as citizens to urge the BoS, VDOT et al to do get it right.

  9. reed fawell III Avatar
    reed fawell III

    First to answer Larry’s question. Yes, unused vested air rights permitted under a lot’s zoning can be conveyed by the owners of that lot to other private interests, subject to other applicable laws and codes. Thus local authorities are often involved in such transfers, whether they involve building new structures overhead existing improvements, or otherwise.

    And Jim, you are on target here. Air rights, done properly, can be highly beneficial to all concerned. Thus, we must get over the knee jerk notion that density is always bad. In fact, it’s the reverse. Increased density done right and thoughtfully is almost always good. And its often far better than the alternative which far too often becomes suburban sprawl. Thus the former is not only good in itself, but it is a valuable tool that can be deployed to ameliorate and indeed prevent the latter (sprawl). Hence the term Smart Growth (unfortunately now a somewhat loaded term).

    To explain above that statement at its most basic level consider my comment of Jim’s recent article “What Arlington Is Doing Right.” Its base assumption is that: either a business or person will reside in a dense mixed use urban center or in a suburban area. One of the two will happen. And history is showing us that in many regions such as northern Virginia it is far better traffic, revenue, benefit and efficiency wise for that business or person to chose to reside in well designed built out urban center.

    Thus, the use of air rights can become a powerful tool in making these urban centers even more efficient and beneficial to all concerned. Creating better and more affordable housing is only one of many examples.

    Here’s another example to chew on. Transfers can take many forms. Often the rights inherent to a larger parcel can be swapped around smaller lots when those lots are subdivided out of that larger parcel and conveyed to others who then seek a height exception to accommodate the increased density of transferred to the new lot that may or may not adjoin the older lot whose owner sold his right to built higher over his remaining ground.

    For a classic example see This involved a 1970s DC transaction wherein some 94,000 square feet of rights were transferred by Columbia Historical Society (among others) to save and preserve the Christian Huerich Mansion, a National Landmark DC building that headquartered to Society. My law firm was involved.

    1. reed fawell III Avatar
      reed fawell III

      Clarification to 2nd to last paragraph above:

      “Here’s another example to chew on. Transfers can take many forms. Often the rights inherent to a larger parcel can be swapped around smaller lots when those lots are subdivided out of that larger parcel and sold. New owners can then or simultaneously seek a height exception to accommodate the increased density transferred to their new lot that may or may not adjoin the older lot whose owner is selling to the new lot his original right to built higher over his remaining ground. All of this is often being done to generate benefits that are otherwise not possible. Benefits to save a historic building, benefits to save the city’s historical society, benefits to make the subway for efficient access wise and use wise. All of these benefits were gained in the Christian Huerich Mansion example cited above. See for a fuller explanation.”

    2. re: non-govt “air rights”.

      devil’s advocate question: what kind of structure would be worth keeping and going through the extra trouble and expense of putting something on top of it ?

      in the private sector, wouldn’t it almost always be cheaper to tear down the original structure and build a new multi-level on the same site rather than trying to add on – on top?

      Can you give an example of a private sector structure where it’s more advantageous to build “on top” of it rather than tear-down – build new?

      1. reed fawell III Avatar
        reed fawell III

        You’ll find cantilevered examples in NYC where air rights in somewhat of a rage now. This is for a variety of reasons – architectural, aesthetics, views, light and air, and economics tax, risk, and ownership preferences. The important fact lies in the variety of techniques available even within multiple or single projects. The more options, the better the solutions tend to be. Thus, air rights can be involved is a tear down rebuilt scenario. Indeed, a condo ownership building is nothing more than a variant of air rights within a structure, as opposed to outside of it.

  10. there is a concept called “internal trip capture” and you can google it but basically ” Internal trip capture is the portion of trips generated by a mixed-use development that both begin and end within the development. The importance of internal trip capture is that those trips satisfy a portion of the total development’s trip generation and they do so without using the
    external road system. As a result, a mixed-use development that generates a given number of total trips creates less demand on the external road system than single-use developments generating the same number of trips. ”

    a simple example is a multi-story building where the first floor has commercial retail to serve the people in the building.

    with smart growth – you might have multiple residential and multiple commercial retail within walking/biking or short car trip proximity.

    Fairfax builds in such a way that it purposely attracts external traffic – for jobs and regional malls that attract regional traffic and they do so in the belief (perhaps valid) that in doing so they generate more tax revenues than they would only capturing internally-generated revenues.

    but it comes at a significant cost to the transportation infrastructure.

  11. reed fawell III Avatar
    reed fawell III

    Internal trip capture is a key concept.

    Arlington claims that many multifamily buildings in R/B corridor average only one auto trip daily in and out per SIX residential units. Extremely low office generated trips are also claimed. Plus the growing majority of daily work commutes to and from Corridor, and within it, are non auto. Plus the numbers increase as options grow and habits form, so gift keeps on growing and giving. Three fact patterns emerge with efficient urban development.

    1/ More and more people live, work, and recreate within the same walk about, bike about, bus about place.
    2/ More and more workers who reside outside R/B Corridor use mass transit to go to and from their work within the R/B Corridor.
    3/ More and more workers who reside within R/B Corridor use mass transit to go to and from their work outside R/B Corridor.

    The result: Huge volumes of daily traffic is sucked out of entire region. So everyone everywhere benefits. This is reverse of suburban sprawl where everyone everywhere suffers for the sins of others however distant.

  12. The R/B Corridor seems to have reached a sweet spot in its life. It has been able to take advantage of many things, including the following: 1) an open planning process with involvement from ordinary residents of Arlington; 2) an existing grid of streets to move traffic more efficiently and effectively; 3) five underground Metrorail stations; 4) a largely developed county that did not need to build substantial amounts of infrastructure; 4) a set of relatively blighted neighborhoods that were ripe for redevelopment; 5) a good set of chemical reactions between work, live and play that attracted both residents and businesses; and 6) closeness to D.C. and Fairfax County, both strong economic engines. I also think the slow economy, especially in wage growth, has had a substantial negative impact on the formation of families and has made the child-free lifestyle years last much longer for many individuals.

    1. reed fawell III Avatar
      reed fawell III

      TMT – these are insightful comments. Let me added a few nuances. The blight of Arlington downtown was deeper than most imagine today. That blight was the direct result of Fairfax County’s success. The Washington Beltway drained the affluence out of downtown Arlington and sent it spilling out over the banks of the I-95 beltway across the width of northern Virginia. (Remember I-95 essentially replaced Glebe Road as Northern Virginia’s beltway.)

      Besides its subway opportunity and close-in location, Arlington’s strength was its highly competent urban population, government and business community. Arlington thought URBAN, because Arlington had lived urban. Fairfax thought suburban because it had lived suburban and farm. Arlington had learned lesson of Roslyn. Fairfax had lessons to learn.

      You said “a substantial negative impact on the formation of families and has made the child-free lifestyle years last much longer for many individuals.” Excellent insight. Few saw it but Arlington did. So Arlington R/B corridor was at the right place at the right time to fulfill demand. Something the county understood since it and adjoining Alexandria had been doing it since influx of young singles during and after the Second World War.

Leave a Reply