Air rights case headed for Supreme Ct. review.

After a tortuous legal process that began nearly 20 years ago, the contractual owner of over a million square feet of air rights from Grand Central terminal may yet get his day in the U.S. Supreme Court.

In fact, the case arose because the Beaux-Arts Terminal itself was designated a landmark by the City of New York. The decision to uphold the landmarking of the Terminal and not permit a 53-story tower to be built above it was affirmed by that very court in July of 1978, leading to the current legal battle.

In making its landmark designation, the city allowed transferable development rights (TDRs) that could be sold to adjacent landowners to help defray maintenance costs, but Penn Central contested the scheme as not being good enough, saying the landmark designation amounted to a "taking" of the property.

The Supreme Court decision in Penn Central Transportation Co. vs. City of New York upheld the city's landmarks law, with the majority insisting the landmarking and denial of permission to build a tower wasn't a taking because the city provided a way to transfer development rights and did not impede existing uses or prevent a reasonable return on investment.

That ruling carried far reaching implications for municipalities and developers across the country.

Case Would Be Back

The current TDR contract vendee, G. Ware Travelstead, said that in his dissent at that time, then Associate Justice William H. Rehnquist predicted the matter would find its way back to the Supreme Court in the future because cities have a way of foiling promises. Justice Rehnquist is now the Chief Justice and his dissent was joined by then Chief Justice Warren E. Burger and Associate Justice John Paul Stevens.

It was a portion of these TDRs - sometimes referred to as air rights - that Travelstead contracted to purchase in 1986 from Penn Central in order to transfer them to the nearby 383 Madison Avenue, which he wanted to raze and replace with a 74-story tower. New York's City Planning Commission ruled against the transfer on several grounds.

Travel stead appealed the City Planning ruling, which said the Terminal could not use the underground railroad tracks as its nexus to transfer 787,335 square feet of development rights. Planning argued that during the bankruptcy period of the railroad, when adjoining parcels including the Yale Club and the Roosevelt Hotel site were sold, while the Terminal had retained the subsurface rights, it wasn't sufficient to meet a requirement for a chain of tax lots under common ownership. That chain was broken.

"That's why we're in court," Travelstead said. "That's part of the $410 million lawsuit." At the time he contracted for the TDRs, the price was to be determined by an escalating contract beginning at $44 million and rising to "much more than that now," according to a Penn Central official. Travelstead declined to comment on the price.

Special District Created

In the intervening years, since Travelstead began the appeals process through the court system, the City Planning Commission created a special district, effectively enlarging the number of buildings to 21 to which air rights could be transferred by a variety of special permits.

The new area encompasses many parcels not directly adjacent to the Terminal, including 383 Madison. The planners did, however, cap the resultant Floor Area Ration (FAR) to 21.6 FAR. Because there is still an ability to build on the 383 Madison site, "There is not a taking and no denial of due process," said Virginia Waters, an assistant corporation counsel in the city who tried the current matter, 383 Madison Associates vs. City of New York et al., in the lower courts.

According to legal documents provided by Waters, the Travelstead building would have been a 33.1 FAR, 74-story, 1,029-foot high office building with 1.437 million square feet of space, and would replace the existing 13-story office building.

That structure is obsolete and totally empty and recently came under a contract to be purchased from current owners the First Boston Corp., by the British developer Howard P. Ronson. Scheduled to close in September, the deal would result in an as-of-right brand new office tower that is permitted just under 650,000 zoning square feet.

"Zoning floor area is smaller than rentable," explained Larry J. Wyman, president of HRO International in New York.

The building is in a zoning Floor Area Ratio area of 15 and would comprise 799,000 square feet in total. Wyman said about 780,000 square feet would be office space, while there would be 20,000 square feet of retail.

To obtain the permitted building's square footage, one multiplies the size of the lot (say a lot of 100 x 500 = 50,000 square feet), and then multiplies the product by the FAR (50,000 x 15= 750,000). Certain unrentable elements are not counted towards the square footage, explained Wyman, who said the building size was calculated by the architects.

To contrast the proposed 24-story building with Travelstead's longed for skyscraper, Wyman noted that now, "there is a question of whether or not the bigger building is necessarily the better building. In the Eighties, the theory was always bigger is better."

Because the new building will be constructed on what amounts to a shelf over the Penn Central tracks, Wyman said its construction and design is more complicated, with loads and wind resistance having to be taken into consideration.

The current squat grey-granite building takes up the entire block between 45th and 47th Streets, Madison and Vanderbilt. It was originally a warehouse and weighs about the same as the taller structure HRO is proposing, Wyman noted. It's most distinctive feature is a mosaic of the city's skyline over the former entrance to the Manhattan Savings Bank on the Madison Avenue side.

Wyman said they are working with the Real Estate Board of New York to convince the city to extend the Industrial and Commercial Incentive Program (ICIP) and amend it to include new Midtown construction. The current Manhattan renovation program expires on June 30th.

"Without that ICIP, [the project] certainly becomes less likely than more likely," Wyman said. "It will have a positive influence on our ability to go forward with this thing."

He declined to comment, however, on any exit contingencies in the purchase contract with First Boston, due to a confidentiality agreement.

Travelstead said when his former partner, First Boston Corp., was being taken over by the Swiss, they basically exchanged assets on a number of parcels and he no longer has any financial interest in 383 Madison.

"When First Boston went private we swapped assets and parted ways. I had different views, and so did they," he explained.

On April 15, the City of New York was due to respond to Travelstead's legal papers and in a few months, the U.S. Supreme Court justices will decide whether or not to grant a hearing on the matter in its Washington, D.C. courtroom.

Travelstead's option for these air rights expires one year after the last court decision.

Penn Central Not a Party To Suit

Robert W. Olson, senior vice president and general counsel to the former Penn Central Corp., known as American Premier Underwriters since March, said they elected in 1989 not to join in the 383 Madison Associates case against the city.

"We won't put in a brief," said Olson, referring to the U.S. Supreme Court arguments. "The damages that are claimed in the suit would accrue to the plaintiff," he said, referring to Travelstead's $410 mill ion damage request.

Case History

According to Ronald Sternberg, the city's assistant corporation counsel who entered the case at the First Appellate level, the Landmarks Commission submitted a report to the City Planning Commission on various aspects of the original 383 Madison application for the transfer of air rights.

"The report was not favorable to the application," said Sternberg. He said the City Planning Commission denied the application on four or five grounds and all of those grounds were sustained by the trial court.

The Appellate Division then rejected most of the grounds, but sustained two and sustained the denial of the application. One of the sustained grounds was the requirement that the receiving lot be adjacent to the landmarked lot as defined in the zoning resolution, and the court also confirmed the finding by the City Planning Commission that the proposed building was simply too big.

Sternberg said the State Court of Appeals rejected hearing the case as of right, and a motion for leave to appeal was also denied in January 1994.

In February, Travelstead's attorneys, the powerful and politically connected O'Melvny & Meyers of Washington, D.C., filed a petition for certiorari with the U.S. Supreme Court. Deborah Valentine, the attorney in charge of the matter, declined to discuss her client's case.

In order to accept the appeal, the U.S. Supreme Court has to make a finding that there is a federal question involved, explained Sternberg. "The Federal question is whether or not there was a violation of the Fifth Amendment and the Fourteenth," he explained.

The Fifth Amendment says no person shall "be deprived of.... property, without due process of law; nor shall private property be taken for public use without just compensation." The Fourteenth reiterates the due process clause, and insists on equal protection, among other topics.

"When it gets into the Federal court system, it will be a different story," proclaimed Travelstead, who dismissed as "politics as usual" the earlier decisions against his proposed air rights transfer and development.

Meanwhile, no matter what happens in court, the city will most likely end up with a completely new office building at 383 Madison Avenue.