Playbook #120: Air Rights
🖼️ The Big Picture
For those who are fans of “thinking outside the box” - especially with real estate... Here's a new opportunity to think “above” it by getting creative with air rights.
Air rights refer to the space above a property that is legally available for development or use. It actually goes all the way back to the 13th century with a graphic description fitting of the times: “whoever owns the soil, it is theirs up to the heavens and down to hell.”
Today, with zoning rights and the need to accommodate modern aircraft, you can’t quite build to the heavens. Naturally, each county and city has regulations on how high you can build - but what you probably didn’t know is that if you’re zoned to build up to 20-stories high and you’ve only built 10… you can actually sell or lease the remaining 10 to someone else.
There’s different criteria depending on where you are, but generally they’ll have to be in the same zoning area as your building.
We’ve seen this play out in some of the biggest cities in the world (where available land space is rare and crowded) from Sydney to London and New York - where air rights trade can trade for up to ~50% (though this varies widely) of what the land would sell for… and they are a serious value for developers trying to either build higher or preserve views (yep, your neighbor’s air rights can be bought and not used in order to maintain a view, making your building more valuable).
From a “retail investor” perspective, you may not be interested in developing massive apartment buildings stories high in major metro cities. However, if you’re involved in real estate in any way, you never know when the foundational knowledge of “air rights” you’re about to gain could come in handy - especially considering the disruption that’s coming for commercial real estate and offices in particular. The more tools you have in your toolbelt - especially during market shifts - the better.