How much does air cost? What's the value of a sunset?
Such existential queries are being posed in earnest by Triangle developers and investors eager to cash in on a new frontier: air.
As the Triangle's downtowns are redeveloped, those who develop office and condominium towers are increasingly aiming higher. They want to sell or buy the sky above buildings and parking decks -- either for more development or to control a view.
Such deals are on the horizon in downtown Raleigh, Durham and Chapel Hill. They are yet another sign that the Triangle's biggest cities are growing up.
"When you see investors buying air rights to stack up on their site, you're seeing the next generation of Raleigh buildings," said Cody Jetton, a Cary appraiser. "We're pushing up. ... That's the only way to get the monsters built."
When you buy a property, you typically get the land, whatever's built on it and the air above it.
Air rights look at a property as a three-dimensional entity. The deals, common in big cities such as New York and Chicago, consider volume of space above a property -- how high something can be built -- instead of just a two-dimensional area of land.
"It's esoteric real estate, that's for sure," said Dan Howe, a Raleigh assistant city manager. "But that's the way deals get done. When something gets in the way, you come up with creative ways to think about them."
In downtown Raleigh, for example, where hundreds of millions of dollars are being spent to revive the downtown, developers have tied up many prime sites. They're banking on being able to profit from people who want to live in high-density areas where they go out to eat, shop and work without getting in a car.
Such speculation and competition for land has dramatically increased the value of some downtown tracts.
When land costs more, developers build taller -- and they start talking air rights.
"Five years ago, nobody was really talking about going higher than two or three or four floors," said Tom Hester, president of Raleigh appraisal company Hester & Co. "It just wasn't an issue. Now, there's a more realistic possibility that somebody will come in and build something similar next door and block the view."
Consider 2 projects
Two projects in downtown Raleigh are feeding off each other. Highwoods Properties is planning 18 stories of parking and offices at the planned RBC Centura headquarters. Highwoods plans to sell the air above those offices to Dominion Realty, which plans 140 residential sky-high condos.
Cater-cornered to the future RBC site, SDB LLC owns a former grocery on 0.10 of an acre. Instead of trying to sell the parcel solo, SDB is trying to buy a tiny print shop on 0.06 of an acre to its east. It then wants to wrangle air rights above a city parking-deck ramp to its north.
If it can pull off those deals, it will have almost half an acre, or enough to build a 20-story tower, said David Beasley, an SDB partner. If he can assemble the tract, Beasley thinks he can get millions more for the site. Without the air rights, a developer's project would probably be limited in scale.
Other developers use air rights defensively. Near the site of Raleigh's new convention center, Empire Properties wants to build a 15-story tower with a boutique hotel and condominiums. And it wants the air rights over a city parking deck to its west.
"What we're selling is the view," said Empire partner Greg Hatem. A building on the deck "would substantially alter what the person bought. They're buying a condo that faces west. It's beautiful when you look west. You get to see the sunset."
Negotiating that deal might prove sticky as the city and other government bodies warm up to the idea of selling air rights. Air rights above a city-owned parking decking could be worth more than parking fees alone.
"Any additional payment is additional value -- particularly to the city if you build a structure that's taxable," Raleigh Mayor Charles Meeker said. "You get more income from the sale of the air rights, plus you get taxes off the new building. Any time you have a parking deck, it makes sense to look at sales of air rights."
In Chapel Hill, officials are working on an agreement with a developer to build above a town parking deck. And Durham boosters are trying to persuade officials to replace surface parking lots with decks, then sell or lease air rights for shops and condos.
"You never want to have a downtown that has vast acres of parking lots," said Bill Kalkhof, president of Downtown Durham Inc. "It's just not the highest and best utilization of property. ... We don't have a lot of open space anymore. We almost necessarily have to go up with our development -- and at the same time, we also need more parking."
Air rights didn't excite
The Triangle has flirted with air rights in the past. But they have never taken off here as they have in larger cities. Just last month, two developers agreed to pay $37 million, or $430 per square foot, for the air above a church and a literary society in New York City to build 35 stories of apartments -- some with views of Central Park.
That's more than twice the going rate for air rights in New York and roughly three times the average price per square foot paid for top Triangle office buildings.
Appraisers in the Triangle, by the way, have no problem figuring the value of Triangle office space or single-family homes.
A square foot of Triangle air is another matter. Property values are calculated based on supply and demand and by analyzing recent sales of comparable properties. The few air-rights or view-value deals that have occurred in the Triangle are either out of date or don't shed enough light on how the value was calculated.
Jetton was recently hired to figure out if there was more value to some of the condos at a proposed Glenwood South project. "I punted on that one," he said. "I just gave up. I tried to decide if there's a premium on a view of downtown. I just didn't have enough data to quantify it."
It will probably be decades at least before there are enough airrights deals to establish any kind of average value. Until then, appraisers will be hard at work.
"It kind of boggles the mind," Jetton said. "But it's fun to think about."
Staff writer Jack Hagel can be reached at 829-8917 or firstname.lastname@example.org.