TRANSFERABLE DEVELOPMENT RIGHTS IN MAJOR US CITIES: HISTORY, ANALYSIS, AND BEST PRACTICES

Matthew L. Steenhoek UAP 5554 Spring 2010

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Table of Contents: I. II. III. IV. V. VI. VII. Introduction………………………………………………………………………………1 Legal History of Transferable Development Rights…..……………2 Overview of TDR Programs in the United States………………….…5 Relevance of TDR Programs to Major US Cities……………………..8 Analytics of TDR Programs in Select Major US Cities……………11 TDR Best Practice Recommendations for Major US Cities.….20 Closing…………………………………………………………………………………….22

VIII. Reference List…………………………………………………………………………24

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TRANSFERABLE DEVELOPMENT RIGHTS IN MAJOR US CITIES
--I. INTRODUCTION -Cities across the nation often struggle with the sometimes conflicting aims of historic preservation and economic development. Transferable Developments Rights (TDRs) programs are a market-based approach that can help to bridge this divide and accomplish both goals. Additionally, innovative TDR programs can be used to achieve other items on a city’s urban agenda. In order to understand how TDR programs can best be utilized by major US cities, this paper will review the legal history of TDRs, provide an overview of TDR programs around the country, discuss the potential relevance of TDR programs to cities, and then consider the analytics of the successful TDR programs in New York, DC, Los Angeles, Seattle and San Francisco. Finally, the paper will conclude with a set of TDR best practice recommendations for major US cities. Transferable Development Rights began as a concept in the early 1960’s through an article that was published for the Urban Land Institute that proposed a modification to the land-use tool known as clustering. Clustering is a technique that allows developers to concentrate development within their site. This is done in order to preserve an environmentally sensitive component within the site, without having a negative impact on the ability to develop the site to the by-right density dictated in the local zoning code. TDRs take this concept of redistributing development rights within one site and allows them to be transferred to another (Pruetz 2003, 34). District of Columbia Municipal Regulations define TDRs as "a method of protecting sensitive land or historic buildings in which the right to develop these properties is transferred to other, less sensitive sites." This definition touches on the core tenets of most TDR programs, which is the preservation of sensitive land and buildings and the ability to transfer foregone development potential to other, more appropriate sites. In essence, TDR programs use the “bundle of rights” concept to extract the unused development potential from the site being preserved, known as the sending site, to sell or transfer it to a receiving site. The bundle of rights concept is core to the legal understanding of real property rights in the United States. It holds that there is a certain inherent “bundle” of land rights which come with the deed and title to a piece of real property, including the right to build upon or use your land for economic purposes, the right to quiet enjoyment of your land, the right to convey your land, and the right to privacy, also known as the power to exclude. The sending site's disposition of one partial component of the bundle—the unrealized right to develop that are being transferred—does not otherwise affect ownership of the land and the other core rights to quiet enjoyment, conveyance, and privacy. In the process of preserving open land, environmentally sensitive habitats, or historically significant structures and neighborhoods, the governing jurisdictions often rely on the use of zoning regulations to reduce or eliminate the ability of a landowner to build upon or modify the property in question. When these development rights are reduced or eliminated, the jurisdiction may be opening up to

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a legal challenge on the grounds of a “regulatory taking.” Unlike a classic taking, where private property is physically taken or occupied through eminent domain and the property owner is entitled to “just compensation,” a regulatory taking deals with cases where the entire property is not taken. Rather, in a regulatory taking, some aspect of the “bundle of rights” is involuntarily stripped from a property owner, and as a result the economic value or reasonable investment backed expectations for the property are diminished significantly or totally wiped out. TDR programs are often instituted by jurisdictions as a way to help mitigate concerns about their vulnerability to regulatory takings claims. There are a number of key court cases that provide precedence for a basic legal framework indicating when regulatory takings claims may have particular merit. Cities looking to establish TDR programs aimed at the preservation of historic structures should carefully consider the implications of the structure of their TDR program within this framework. -- II. LEGAL HISTORY OF TRANSFERABLE DEVELOPMENT RIGHTS -Penn Central vs. New York Foremost among TDR case law is the 1978 Supreme Court landmark takings decision in the Penn Central Transportation Co v. City of New York. In this case, Penn Central Transportation Company was suing the City of New York over the designation of Grand Central Terminal as a landmark and subsequently denying permit for a fiftystory office building in the air rights above the building. Penn Central claimed that the landmark designation of Grand Central had effectively taken their property--the air rights--and that they should be due just compensation according to the Fifth and Fourteenth Amendments. Since Grand Central Station was designated a landmark and subject to further review under the New York Preservation Law, Penn Central Transportation Company was legally entitled to utilize TDRs and transfer the unused air rights above Grand Central to eligible adjacent lots. In Penn Central, the majority opinion ruled that there can in fact be a regulatory taking that is entitled to just compensation: “While the property may be regulated to a certain extent, if the regulation goes too far, it would be recognized as a taking” (Nolan et al. 2008, 1067). However, in the case of Penn Central, the court did not find that the state had gone too far. It was determined that the ability to designate certain structures as landmarks was not discriminatory, or “reverse spot” zoning, and that it was completely within the city’s right to advance the legitimate state interests of preserving architecturally and historically significant structures by way applying Preservation Law to Grand Central Terminal. Further, the court ruled that a taking had not occurred because the terminal was still economically viable as it continued to function as it always had, as a railway station, and therefore did not interfere with sound investment back expectations for the property. In specific regards to the role of TDRs in the court decision, the opinion held that “the rights afforded are valuable” and even though the value of the TDRs may have not constituted “just compensation” had a taking of air-rights occurred, they “nevertheless undoubtedly mitigate whatever financial burden the law has imposed on the appellants and, for that reason, are to be taken into account in considering the impact of regulation.” This ruling is the foundation for the basic defense of TDRs against Fifth and Fourteenth Amendment claims. It is within a jurisdictions constitutional power to limit development of historically or architecturally significant structures and to use TDRs to equalize the situation for

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property owners by mitigating the financial burden that is placed upon them. In this condition, effected building owners are not constitutionally entitled to “just compensation” but the TDR program does help restore some of the lost value to owners (Yaro et al. 1998, 11). Penn Central did not create a clear formula for determining if a regulatory taking had occurred due to the regulation going too far, instead it calls for a balancing test that evaluates the economic impact of the regulation, the extent to which the regulation interferes with distinct investment backed regulations, and the character of the government action. Fourteen years later in the case of Lucas v. South Carolina Coastal Council, the Supreme Court provided a second framework for determining the occurrence of a regulatory taking. For a Lucas taking to occur, the governmental action must wipe-out or destroy all economic value of the property unless the prior interests in the property were a nuisance and restricted by the important background principles of property law. Suitum vs. Tahoe Almost twenty years after the Penn Central decision, the Supreme Court weighed-in again on the issue of Transferable Development Rights in the case of Suitum vs. Tahoe Regional Planning Agency in 1997. Suitum was a TDR case that dealt with the natural resource preservation aspect of TDRs, not the historic preservation aspect focused upon here, but the ruling on the matter is no less relevant. In the case of Suitum, the Tahoe Regional Planning Agency (TRPA) restricted the development of an environmentally sensitive area. When the plaintiff looked to TRPA for relief it was denied and she was told to sell the TDRs that were made available to her instead. Suitum refused to sell her TDRs, preferring instead to take TRPA to court for a regulatory taking where she claimed that all viable economically beneficial use of her property was denied her. The lower courts reviewing the case felt that because Suitum had not exhausted all avenues for relief by refusing to sell the available TDRs, her case was not “ripe for adjudication.” This is the matter around which the Supreme Court’s ruling is centered. They reversed the decisions of the lower courts, stating that the plaintiff did not have to seek the sale of her available TDRs as a condition of pursuing her property rights and the subsequent takings claim. The Supreme Court did not rule on, as Justice Souter wrote in the majority opinion, “the significance of TDRs both to the claim that a taking has occurred and to the constitutional requirement of just compensation.” The court preferred instead to send the case back down for adjudication. However, the Suitum case does weaken the position of jurisdictions looking to rely solely on the existence of Transferable Development Rights in protecting themselves from valid takings claims (Nolan et al. 2008, 704). The understanding of TDRs as valuable use of the land, which can serve to provide “reasonable” mitigation for the impact of regulations on property owners, was further weakened by the concurring opinion written by Justice Scalia and joined by Justice O’Conner and Justice Thomas. In his writing, Justice Scalia opined that, with regards to the determination on TDRs serving as mitigation for restrictive land use regulations, the Penn Central ruling would “deserve to be overturned.” His stance is clearly the side of TDRs being a means by which jurisdictions can provide for “just compensation” with relevance only to the “compensation side of the takings

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analysis.” This stance is an indication that in his opinion a “taking” had indeed occurred (Pruetz 2003, 108). United Artists I & II A couple of years before the Suitum ruling, the cases of United Artists’ Theater Circuit, Inc. v. City of Philadelphia, 1991 (United Artists’ I), and United Artists’ Theater Circuit, Inc. v. City of Philadelphia, 1993 (United Artists’ II) were tried through the Supreme Court of Pennsylvania. Both cases center around the constitutional challenge by the owners of a movie theater that had, despite their protests, been designated a historic building. This designation involved several restrictions and imposed certain obligations on the property owner, including a requirement to review any request to alter or demolish the property with the Philadelphia Historic Commission and the obligation to maintain the interior and exterior of the building in good repair at the threat of jail time or substantial fines. When the Pennsylvania Supreme Court ruled on United Artists’ I, they found that, due to the highly intrusive implications of the historic designation, the property owner was being unjustly forced to bear the individual burden for a public benefit. The court further stated that they do not recognize mere “aesthetic reasons” as a legitimate cause for the use of police power and that the designation was invalid. This case, which shared many similarities to Penn Central, contradicted the Supreme Court’s jurisprudence on the matter and was the first challenge to this understanding of historic preservation “takings” law since Penn Central. The ruling by the Pennsylvania Supreme Court was appealed by the City of Philadelphia and a reargument was granted. In this second decision, the Supreme Court of Pennsylvania reversed its earlier decision. They followed the Penn Central jurisprudence and concluded that the designation of a building as historic, without the owner’s consent, would not be considered a taking and hence not due the payment of “just compensation.” The cases of United Artists’ I & II did not involve the aspect of Transferable Development Rights, as Philadelphia does not have an active TDR program. Nonetheless, United Artists’ is illustrative of the great weight that the Supreme Court’s law holds with all lower courts (Cavarello). There have been several other lower court rulings on TDRs and takings claims that both support and strike them down. Penn Central and Suitum provide the primary Supreme Court precedence for understanding how TDRs currently stand in the legal framework. Within this framework, there are three main constitutional claims that TDR programs must address and jurisdictions must be cognizant of when designing and implementing their programs. These are the takings issue, the due process issue, and the issue of equal protections. The takings issue has been discussed in the review of the Penn Central and Suitum. The due process issue centers on the procedural methods employed to designate buildings as “landmarks” and the avenues made available to property owners to contest such designation. The final issue, “Equal Protections,” a right guaranteed by the 14th Amendment, can be called into question when the owners of these landmark structures feel as though they are the victim of arbitrary “reverse-spot” zoning and are being adversely affected based on the historically significant status of their property.

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-- III. OVERVIEW OF TDR PROGRAMS IN THE UNITED STATES -The first TDR program in the United States was instituted in New York City (NYC) in 1968 as part of their Landmark Preservation Law. Under the TDR program, owners of properties that we designated as historic landmarks, and who were bared from demolition and certain alternations, were permitted to transfer unused development rights to adjacent properties that were under the same ownership as the landmark property. In the more than four decades since the implementation of NYC’s original TDR program, one hundred and eighty-one TDR programs in thirty-three states have been created. The scope and mission of the majority of these programs has differed significantly from the historic preservation model that NYC designed. More than eight-five percent of these programs are primarily focused on either environmental protection or farmland preservation (Pruetz and Pruetz 2007). Most modern TDR programs will fit into one of two general categories: Environmental/Rural Character/Farm Land Protection or Historic Preservation and Urban Revitalization. As indicated above, the vast majority of current TDR programs fall into the first category. Only eight of the thirty largest cities in the US have a TDR program focused Historic Preservation or Urban Revitalization (Fulton et al. 2004, 36). Many of the programs around the country are currently inactive and some have never effectively implemented a successful TDR transfer. Subsequently, these programs have failed to successfully protect any at-risk resources. These failures are often due to the complexities, or perceived complexities, of implementing a TDR program, drastic shifts in the market, or a lack of public support for the new program. Despite these very real challenges, there are many TDR programs that flourish at the regional, county, and city level. New Jersey Pinelands At the regional level, the New Jersey Pinelands program exemplifies how state government can work in concert with individual municipalities to create a flexible and effective TDR program. The Pinelands are an area of approximately one-million acres of environmentally sensitive forests, swamps, lowlands and marshes in southeast New Jersey. This area includes seven counties and fifty-three individual municipalities. The program is run by the state established Pinelands Commission and was established in 1980. The term Pinelands Development Credits (PDCs) is used for their TDR program. The PDCs are equivalent to a single dwelling unit and can be transferred cross-jurisdictionally. The PDC program is a voluntary program where landowners can build on their property at a low-density with a conditional permit. These landowners are encouraged to utilize the PDC program by being granted the right to sell four PDCs for each “by-right” dwelling unit allowed on the sending area. PDCs are allocated to sending sites by the Pinelands Commission at the request of the property owners. The number of PDCs allocated is determined by using a sliding scale based on the environmental characteristics of the sending site. To ensure that a market always exists for property owners who desire to sell their PDCs, the State of New Jersey created the New Jersey Pinelands Development Credit bank. This bank functions as a “buyer of last resort” and sellers of PDCs generally only turn to it when a private market does not exist for the PDCs. In addition to providing this surety to sending site property owners, the Pinelands Development Credit bank also publishes guidelines for the sale and purchase of PDCs, as well as operates a public education program designed to remind property owners of the

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benefits of the PDC program. Much of the success of the PDC program is due to the process of frequently revisiting and making adjustments to the program’s regulations, as well as strong fiscal support at the state level and a comprehensive approach to integrating the PDC program in local land use regulations. This approach keeps the program nimble enough to adapt to the rapidly changing dynamics of the market and the expectations of property owners in both sending and receiving zones. As of 2005, after twenty-five years of the programs existence, the New Jersey Pinelands program had preserved more that forty-two-thousand acres of environmentally sensitive land (Pruetz 2003, 215). King County, WA At the county level, King County in Washington, which includes the city of Seattle, offers another successful TDR program model. King County’s TDR program was developed in response to the passage of Washington’s Growth Management Act in 1990 which required the adoption of an Urban Growth Boundary within the county around urbanized areas. While the current TDR program in King County has only been around since 2001, the county started experimenting with Transferable Development Credits (their name for the TDR program) within a few year of the start of the Growth Management Act (Walls and McConnell 2007, 14). In the early years of the TDC program, the county experimented with various incentives aimed at encouraging participation in the program, developed inter-local agreements between King County and the City of Seattle, and established a county-run TDC bank. Throughout this process, the county pledged significant monies towards establishing the bank, purchasing TDCs, and providing amenities to receiving area jurisdictions. In an effort to encourage local jurisdictions to develop and promote TDC receiving areas, King County uses inter-local agreements and funding for amenities to “sweeten the pot.” In order for a rural credit to be sold and used within an incorporated city, the County and the city must enter into an inter-local agreement. This agreement establishes the provisions for amenity funds and any other particulars about the agreement. For the City of Seattle, its inter-local agreement with the County guaranteed $500,000 in amenity improvements (Pruetz 2003, 187). County authorized “amenity funds” are designed to compensate jurisdictions for the infrastructure burden associated with increased density. The improvements provided through this fund can include public art, cultural or community facilities, parks, open space, trails, roads, parking, landscaping, sidewalks, other streetscape improvements or transit-related improvements (King County Natural Resources and Parks). The King County TDR bank operates under relatively strict guidelines regarding the purchases and sales it is authorized to complete. These restrictions include only being allowed to purchase TDCs from rural, agricultural, or forest production districts and sell to sites in cities or urban unincorporated areas. Further, the bank is obligated to purchase TDCs at not more than fair market values and sell TDCs for not less than fair market value (Pruetz 2003, 189). The bank is not obligated to sell TDCs and has the right to select buyers according to price, volume, and likelihood of achieving the goals of the TDC program. The county also operates a “TDR Exchange”, a website dedicated to the facilitation of purchase and sale of TDRs between TDR certificate holders and buyers looking to obtain TDRs for development. This site acts as a publicly operated private clearinghouse where buyers and sellers

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can post sale and wanted postings to help make potential market connections (King County Natural Resources and Parks). As of February 2007, forty-eight market transactions had occurred which preserved approximately two-thousand acres of land (Walls and McConnell 2007, 14). While this is a significant protection of land, the bulk of TDC purchases in King County have been orchestrated by the TDR bank. The TDR bank purchased nine-hundred and ninety TDCs from an area east of Seattle known as Snoqualmie Forest. This single, twenty-two million dollar purchase protected ninety-thousand acres of forest, an area twice the size of Seattle. Funding for these TDR bank purchases comes from the Conservation Futures Fund, a tax on all real property in King County which is specifically earmarked for open space protection and acquisition. This significant preservation has put King County at the top of the TDR list for most acres protected in the US (Pruetz 2003 – web update). San Francisco, CA San Francisco, CA has another highly successful TDR program that is focused on the preservation of historically significant and contributing buildings within the city. TDRs under the San Francisco plan are calculated by determining the maximum square-footage of building permissible by base zoning and subtracting out the existing square-footage of buildings currently constructed on the Transfer Lot property. These available TDRs are sold at a one-to-one rate to eligible Development Lots. TDR sales between Transfer Lots and Development Lots are restrained to properties within the C-3 zoning district that comprises San Francisco’s downtown core (Yaro et al. 1998). There are two primary factors that affect the relative success of San Francisco’s TDR program. First, it is very difficult to alter or demolish a downtown San Francisco property that has been designated as architecturally significant. This challenge serves as a strong motivator for owners of architecturally significant or contributing structures to sell their TDRs. Although “contributing” structures are not as severely burdened as designated structures, they are still eligible for TDR transfer. San Francisco’s TDR program was implemented in the Downtown Plan of October 1985. This plan also reduced density in the downtown area (Jones 1992, 67). The regulations are coordinated to ensure that TDRs are the only way that developers can exceed the base line 9:1 floor area ratio (FAR) that is allowed by zoning. This coordination of a down-zoning in conjunction with the TDR program creates a strong demand for TDRs in San Francisco’s downtown core. The purchase of TDRs only relieves owners of the FAR restrictions; however the C-3 zoning regulations are designed so that owners of Development Lots infrequently need to request further modifications to accommodate the purchased density (Pruetz 2003, 225). To further facilitate transfers in times of low construction market demand, TDRs are allowed to “float” indefinitely (Jones 1992, 70). This means that TDRs can be purchased by investors and held until a further date for resale back into the market, while allowing the renovation and perpetual maintenance of the architecturally significant buildings to proceed. This aspect of the TDR program helps create a system that can successfully achieve its historic preservation goals despite possible frailties of the real estate market.

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Soon after the 1985 plan was implemented, the City of San Francisco also enacted a three-year limit on high-rise development in the city. This measure greatly limited the effectiveness of the TDR program by essentially eliminating the demand side of the TDR equation. As a result, the first four years of the TDR program only resulted in one transfer (Jones 1992, 67). Since this restriction has been lifted the San Francisco TDR program has become one of the most active and successful program in the United States. This underscores the importance of implementing a TDR program as a cohesive and coordinated part of the overall land-use regulations. Over the years, the use of TDRs in downtown development has become a routine part of the development process. The San Francisco TDR program has proven itself to entail a predictable process which is infrequently subject to delays or disapprovals (Pruetz 2003, 225). The assurance that the program will provide consistent and predictable results for property owners is a major contributing factor in determining how the TDR program will be embraced by the private sector. As demonstrated in these examples, Transferable Development Rights programs can accomplish a variety of goals for a wide range of jurisdictions. In many cases, TDR programs aimed at environmental preservation, maintenance of rural character, and farmland conservation have proven to be a great success and are commonly sited in discussions of TDRs. While TDR programs in major US cities are more likely aimed at historic preservation or urban design and revitalization efforts, the county and regional programs offer valuable lessons on what regulations help to comprise a successful program. -- IV. RELEVANCE OF TDR PROGRAMS TO MAJOR US CITIES -The preservation of architecturally and historically significant buildings has long been a challenge for cities. Historic preservation is desirable for a city because it helps maintain the architectural legacy and uniqueness of the place. This protection is a public good and has consistently been viewed as a valid exercise of police power. These preservation ordinances have in the past been met by opposition from property owners who felt that their property rights had been infringed upon. Transferable Development Rights programs can be used by cities as part of their historic preservation regulation “tool-kit”. As illustrated in the court cases previously discussed, jurisdictions should not rely entirely on TDR programs to protect themselves from takings claims, but rather TDRs should be incorporated into a carefully crafted piece of regulatory policy. In the wake of Suitum, this word of caution is all the more relevant. While the exact roll that TDRs may play in historic preservation regulations may vary, in general they will work to lessen the impact on the affected property owner. Further, when used in a historic preservation context, TDR programs can help to enhance the regulations facial appearance of fairness by providing an avenue for compensation to property owner affected by the restrictions. This compensation may not fully restore the potential value of the development rights that have been restricted by the jurisdiction’s exercise of the police powers, but it should be sufficient enough to alleviate the financial burden associated with properly maintaining a historic building. By providing an avenue that can reduce the direct financial impact felt by property owners, particularly when compared to an unmitigated down-zoning, the inclusion of a TDR program can help to make the

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preservation restrictions less objectionable to property owners and more politically palatable for elected officials. Owners of historic properties may feel the strongest urge to demolish or redevelop their property when the pressures of an active and growing real estate market begin to exert themselves. Fortunately, in a properly structured TDR program, a strong real estate market is when the program can act most effectively in aligning buyers and sellers. This balanced alignment helps to provide sellers with a fair and equitable value for the development rights that they are vacating. By helping to ease the tensions between the often competing desires for economic development and the preservation of historic structures, TDRs are a very relevant, market based tool available to planners. There are other regulatory programs and tools that planners can look to that will obtain similar goals to a TDR program. These tools include Purchase of Development Rights program, Conservation Easements, Development Fees, and Density Transfer Charges. While each of these programs has distinct merit and may be particularly suited for a specific set of circumstances, a well-conceived TDR program can still have distinct advantages over the alternative methods. Purchase of Development Rights (PDR) is a technique that shares many similarities with TDR. In both programs, the unrealized development rights are purchased from the owner of the historic property and the resulting development potential is deedrestricted to ensure protection in perpetuity. However, with PDR the funding for the purchase comes from the city’s coffers and is often fed with local tax dollars. This difference creates both advantages and disadvantages for a PDR program. One advantage for property owners who are selling development rights is that it removes the potential frailties of the market from the equation, as they are no longer reliant on private entities to purchase the rights. Conversely, this means that the funding mechanisms are often subject to voter approval. This creates a separate challenge as voters are often wary of levying an additional tax against themselves to aid the preservation agenda (Pruetz 2003, 83). Conservation Easements, a system with many similarities to PDR, uses voluntary agreements between a city or qualified not-for-profit and private landowners to preserve sensitive land and structures by conveying an interest in the land and recording restrictive easements upon it. When the development rights are purchased by a non-profit, in lieu of the public sector, some of the concerns about public tax support can be mitigated (Nolan et al. 2008, 898). In both Conservation Easements and PDR programs, the retirement of the development rights can further weaken the city’s tax base because, unlike in a TDR program where the development rights that are redistributed on a receiving site, the development potential and its associated taxes are not replenished elsewhere in the tax base. Further, when property owners donate or sell their conservation easement at a reduced value, they are often eligible for additional tax write-offs and savings. While this works as an incentive to property owners it serves to further deplete the incoming tax revenue for a city. A third alternative technique for generating dedicated funds for the preservation of historic buildings and open space is the use of Development Fees. Development Fees are charges assessed to all building projects in a community. The money raised through these fees is then earmarked for use in preservation. The advantages of

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this system are that the general tax payer is not burdened with the expense of preservation and the burden of the system is spread across all building projects in a community instead of coming solely from those in a TDR receiving zone (Pruetz 2003, 84). While Development Fees may face less opposition from the general public because they do not directly impact taxes, they may be difficult to administer due to the often strong political influence of the building and construction lobby that may opposed the fees. Additionally, the true costs of a communities’ land use goals is often significantly higher than what can be reasonably collected through fees if the fees are set at a level that avoids placing an unjust burden upon the developers. While these lower fees may be useful for ensuring that developments are not stalled or avoided due to a prohibitively expensive fee package, this leaves a funding gap that must be filled (Pruetz 2003, 84). The Development Fee program is one that creates disincentives for development in order to raise money to use towards historic preservation goals. A successful TDR program is superior to Development Fees in this regard. In a TDR program, property owners and developers in a receiving zone are incentivized to contribute to the preservation, vis-à-vis the purchase of TDRs, because this allows them to create more profitable developments in the receiving zones while in turn preserving sending zone properties. Finally, a technique called Density Transfer Charges (DTC) can be used by cities to help channel growth away from areas that are desired to be preserved and towards areas more appropriate for development. Again, DTC has many similarities to TDRs. One key difference between the programs is that the use of sending and receiving zones is eliminated. In a DTC program, developers who desire increased density will apply for a zoning modification that permits them to exceed the baseline density. This site-specific increase in density requires the payment of a density transfer charge to the city. These funds are collected and allocated towards the city’s preservation goals to be used to buy historic properties or purchase restrictive easements (Pruetz 2003, 84). An advantage of the DTC program that it shares with TDR, but which separates it from the alternatives discussed above, is that the historic preservation costs are funded by development proceeds in lieu of taxes, and that these development proceeds come from projects that are positively incentivized through the receipt of increased density instead of penalized through a direct development fee. The major disadvantage of a DTC program is that the ability for cities to focus the increased density to where it is most appropriate by way of designating distinct receiving zones is lost. The requirement to review each individual case on an ad hoc basis adds an additional layer of bureaucracy and uncertainty to the process of getting a DTC approved – both of these items can become burdensome enough that they act as a real disincentive for developers who are considering participating in the DTC program. TDR programs can do more for a city than simply support the legality of its historic preservation agenda and provide for a method of conservation that does not negatively impact the city’s tax base or disincentivize other development. They can also be designed to support the development of desired land-uses. Further, TDR programs can be utilized in order to focus development around planned growth corridors and transit relevant locations, or to support other items on a the city’s broader urban agenda.

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The development of preferred land-uses can be achieved by creating a TDR program that allows developers to generate TDRs by way of building a specific use in a designated area of the city. When normal market forces or traditional Euclidian zoning techniques have failed to produce the land use outcome desired by planners, the ability to create and ultimately sell TDRs can help to incentivize private developers to develop the sought after land-uses. An example of a situation where TDRs might be able to be used in this capacity is a city that is trying to promote the development of housing in its downtown. Planners may want to bring housing in to help create a neighborhood that is alive and vibrant after normal business hours. If the market dictates that the highest and best (and accordingly most profitable) economic use for the available downtown properties is office development, then the city may have a hard time convincing a developer to build a residential project, a less profitable use, on the land without providing tax breaks or other incentives that deplete the city’s tax base. The ability to create TDRs, a distinct asset with economic value, by providing the preferred land use can potentially change this equation. These TDRs can provide an alternative revenue stream which helps to close the profitability gap from the “highest and best economic use”, in this example it is the gap between office development and the residential development desired by city planners. The particulars of this equation can vary significantly based on the unique conditions and desires of a city, but this illustrates how TDR programs can be utilized by cities to produce desired land-uses without the expenditure of significant tax dollars. While TDR discussions of historic preservation in cities tends to focus on the sending zone side of the equation, TDRs can also be a very effective tool on the receiving zone side to help to focus development and promote growth patterns that are preferable and sustainable. By focusing TDR receiving zones in areas with adequate infrastructure, most often the downtown or immediately downtown adjacent areas of the city, planners can create a program that encourages dense, transit oriented development. By creating a receiving zone in an area that is prime for more intense development in lieu of simply upzoning the baseline density, planners can create increased demand for the TDRs. This demand for TDRs must be carefully balanced with the TDR supply being provided by the sending zone properties. Finding and maintaining this balance is one of the most challenging aspects of creating a successful TDR program. However, when it is executed correctly, it can be a tool that effectively balances the often competing desires for preservation and economic growth within a community. -- V. ANALYTICS OF TDR PROGRAMS IN SELECT MAJOR US CITIES -There are several key components that are required of all TDR programs utilized in major US cities. First are the regulations that define the sending and receiving zones and which identify how rights can be transferred between them. Second are the regulations that define the ways that TDRs can be generated by sending zones. The next components are the analytics of the actual TDR purchase, sale, and deed recordation process. Finally, there are the various techniques that can be used by cities to create a market for TDRs and to maintain the tenuous balance between sending and receiving zone forces of supply and demand. Active TDR programs from the cities of New York, DC, Los Angeles, Seattle and San Francisco will be evaluated to show the many ways in which these key regulatory components can be achieved to meet the particular goals and demands of each city.

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Sending and Receiving Zone Designation Perhaps the most “classic” TDR sending/receiving relationship is in TDR programs that have distinct and separate sending and receiving zones. Often these zones are not even geographically adjacent to one another. This organization of distinct and separate sending and receiving zones is most commonly utilized by more rural and suburban jurisdictions, due to a desire to focus the pressures of development in geographically different areas than the rural or environmentally sensitive areas that are being protected. However, this pattern of creating distinct and separate sending and receiving zones can be utilized successfully by major cities. This is demonstrated by Washington DC’s TDR program which exhibits some of these traits. In DC’s TDR program, development rights can be transferred from properties within the Downtown Development (DD) Overlay District to other eligible properties within the DD Overlay District or to eligible receiving zone properties in five surrounding areas of the city. These five areas are the New Downtown, Downtown East, North Capitol (more commonly known as NoMa), Southwest, and South Capitol districts (DCMR, 11-1709). Two of these districts, New Downtown and Downtown East, are adjacent to the DD Overlay District. The other three areas are not geographically contiguous with the DD Overlay District and represent areas of DC that are underbuilt and focused for significant redevelopment. The significant amount of redevelopment that has taken place and is planned-for in North Capitol/NoMa is largely due to a coordinated effort by the city to bring the necessary infrastructure, namely a new infill Metrorail station, to a primarily undeveloped, underutilized area and to also designate the area a TDR receiving zone in lieu of simply increasing the base-line zoning. The overlay zoning in place allows by-right development to increase from a floor area ratio (FAR) of six and a half with a height limit of ninety feet to a FAR of ten and a maximum height of one-hundred and thirty feet with the purchase of TDRs. This height is the maximum permissible in the city of Washington under the Act to Regulate the Height of Building in the District of Columbia of 1910. Once these rights are purchased, the property has a new “by-right” zoning and is not burdened with any supplementary design reviews or development conditions outside of those normally stipulated by zoning. This increase of more than fifty percent developable area, coupled with the necessary infrastructure improvements, which were funded by the District government, the Federal government, and local property owners, has allowed North Capitol/NoMa to experience significant growth and investment in recent years. This underscores the importance of integrating TDRs into the city’s comprehensive plan and the ability of a well located and supported receiving zone to generate significant TDR demand. This method of designed sending and receiving zones to be geographically distinct and separate can be particularly useful if trying to maintain the historic character of an entire neighborhood. The TDR program utilized in New York’s South Street Seaport District is of this nature. Development rights for this district have been transferred to a TDR bank. These rights are dedicated for utilization on major office buildings in a nearby receiving area that is planned for redevelopment (Pruetz 2003, 222). By ensuring that more intense development is not located in the midst of a generally low-rise historic neighborhood, this technique can help to ward off the potential detrimental effects on the character of the neighborhood. The restoration of the properties in the South Street Seaport District has allowed the area to develop into an important tourist area for the city. While there are other urban conditions

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where planners may wish to keep the development transfers within the same neighborhood for a number of reasons, this technique can be effective when the separation is desired. New York City’s Theater Subdistrict uses an example of a TDR program that is designed to allow for development rights transfers within the neighborhood. The Theater District is located in the heart of Midtown and is inclusive of Times Square. Article 81-71 General Provisions within the Special Regulations for Theater Subdistrict in Article VIII of the City of New York Zoning Resolution describes the intent of the Theater Subdistrict: “to preserve and protect the character of the Theater Subdistrict as a cultural, theatrical and entertainment showcase as well as to help insure a secure basis for the useful cluster of shops, restaurants and related amusement activities, special incentives and controls are provided for the preservation and rehabilitation of existing theaters…”. TDRs are the primary incentive that is referenced in the regulatory language and they are utilized by New York City to protect and rehabilitate existing theaters. Under this program, listed Broadway theaters that are located within the subdistrict can transfer their excess development rights once they renovate and record a restrictive covenant that ensures the use will remain “legitimate theater” (Pruetz 2006). Clearly, in this urban condition, TDRs were seen as a technique to keep intense and complementary development in the neighborhood while preserving and protecting the historic theaters. Similarly, San Francisco’s TDR program only allows for transfers that are within the same zoning district unless granted a code exception. This zoning district encompasses most of the downtown core and it is desirable to keep high-rise development focused in this part of the city (SFPC, Section 128). There are many TDR programs that are designed to further localize the transfer of development rights. Seattle’s “within-block” TDR program allows for the transfer of rights between properties on the same block within the office and retail districts. This transfer does not place a strain on the infrastructure greater than what could conceivably be built if the zoning envelope was maximized by all property owners. It does however restrict receiving properties to density increases that are “limited to a gain of fifteen percent of the floor area” above base FAR (Seattle Municipal Code). This localized transfer helps to create varied building scale without impacting the net density of the block and the fifteen percent increase limit ensures that no single building is build grossly out of scale with its surroundings. In Los Angeles, the city has established two TDR processes, Floor Area Ratio Averaging and Designated Building Site Ordinance, which allow for the transfer of development rights amongst adjacent or contiguous parcels. Floor Area Ratio Averaging is a TDR approach that is made available to unified developments that are located on contiguous parcels and feature common architectural and landscape elements. Under this program, density can be transferred between the various components so long as the total density permitted by the underlying zoning is not exceeded. LA’s other program, the Designated Building Site Ordinance, is a similar ordinance to the Floor Area Ratio Averaging, but is designed with a focus on

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maintaining city-owned-and-operated historic properties in the central business or Bunker Hill districts. Under this program, once a Designated Building Site is approved by the Planning Commission, it is granted a maximum site FAR of 13:1. Similar to the Floor Area Ratio Averaging, these rights can be reallocated across the Designated Building Site. All properties contained within the designated area are not required to be of the same ownership. This permits the preservation of the historic buildings and allows for other sites within the designated area to greatly exceed the 13 to 1 FAR (Pruetz 2003). This program was originally set up to ensure the protection of the City’s Central Library, and is a good example of how cities can leverage city owned property to ensure conservation, all while stimulating development. Methods of TDR creation Most TDR programs are focused on environmental reasons, rural character, or farm land protection, and generally deal with TDRs in terms of units of housing (i.e. one TDR equals development rights for one additional house). However, TDR programs in cities generally deal with the literal one-to-one transfer of square-footage from sending site to receiving site. This square-footage is either area that is unrealized due to preservation effort or that is created through density bonuses. The basic equation for sending sites to determine their available TDRs is to calculate the full baseline density that by-right zoning allows on the site, and then subtract from it the actual square-footage that is utilized by the building that exists on site. What remains is the amount of TDRs that can be transferred to eligible properties. The amount of density that can be transferred by a receiving zone site can vary based on the particulars of the local land use regulations. In DC, FAR and height are generally adjusted to the maximum that is permitted within the city, and receiving site property owners can purchase and utilize TDRs that allow them to build up to that revised density (Fruehling 2007). San Francisco’s TDR program will only provide an exemption from baseline FAR limitations, but it does not affect the other Euclidian limitations such as height and set-back. However, unlike DC, where the increased FAR could not physically be realized without an increase to the maximum height, the density increase gained through TDRs in San Francisco can generally be accommodated within the original baseline height limit eliminating the need for further exemption (Pruetz 2003, 225). When TDRs are transferred from a historic building to a receiving site, a restrictive covenant is generally placed on the building to ensure that further development or demolition cannot happen to the structure. The covenant will also often require the perpetual maintenance of the historic property. To create further assurances that any necessary historic renovations take place as promised, some cities place additional restrictions on the sale and transfer of the TDRs that apply to both on the sending and receiving side of the TDR equation. In DC, development rights that are transferred from historic buildings within the Downtown Historic District or Pennsylvania Avenue Historic Sites may be transferred once the permit is issued for the renovation work required by the Historic Plan Review Board. These rights may then be used by the receiving site, but they do not fully vest, and the receiving site will not receive its final Certificate of Occupancy until the renovations on the sending site are complete (DCMR 11-1707). This requirement adds a level of private surety to the promised redevelopment, as the timely completion of the work would likely be a requirement stipulated in the purchase and sale agreement for the TDRs. These

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covenants will run with the land in perpetuity and ensure that, even if the historic building was destroyed by arson or an act of god, the density is limited to that in the covenant. In addition to being used to transfer by-right zoning square-footage that is not utilized, TDRs can also be “created” through the development of preferred uses as described in the earlier example. This is a method that DC uses heavily. By developing preferred uses in the designated areas, building owners can generate TDRs that are dictated by the bonus area ratios and based on land-use and location. For instance, a department store in the Downtown Shopping District will generate a bonus ratio of 3 to 1, and a the development of a residential project in an area designated south of Massachusetts Avenue will generate two square feet of additional transferable development rights for every one square-foot of residential development (DCMR, 11-1709). As discussed, this ability to generate a saleable asset can help to offset any lost profitability that may be associated with the development of what is understood to not be the highest and best economic use but which is preferred by the city. Similarly, Seattle’s Housing Bonus Program allows developers to gain additional density for the creation of moderate-income and lowincome housing. Projects that comply with the regulations of this program can have their FAR increased from ten to fourteen (Pruetz 2003, 235). This represents a significant profit opportunity and can act as a strong incentive to build the desired land-uses. For TDR programs that base the transfer or creation of TDRs on other criteria, such as preferred use, the restrictive covenants can be structured to ensure that the property is used in perpetuity or for a predetermined duration. In Seattle for instance, Housing TDRs must include a covenant that runs with the land and assures that for fifty years the housing will be preserved as affordable (City of Seattle, Office of Housing). Seattle also takes a more aggressive approach with their determination of available TDRs by including a penalty for excessive surface parking on a sending lot. Sending lots with accessory surface parking that is larger than one quarter of the total area of the footprints of all structures on the lot will not be able to transfer any of the rights that are derived from the portion of parking that is in excess (Seattle Municipal Code). This approach illustrates another way that creative TDR programs can shape the urban form. Analytics of the TDR purchase, sale, and recordation process As discussed above, the sale of a transferable development right is akin to selling one “stick” from the bundle of rights. There are a number of potential purchasers in the market that may be looking to purchase this “stick” from the sending site property owners. In its most simple form, a TDR is sold from a private property owner of a sending site to a private property owner of a receiving site. The purchasing property owner then utilizes the new development rights to develop a project that is in excess of what is permitted under base-line zoning. Almost all TDR programs facilitate and allow this type of direct owner-to-owner transfer of rights. TDRs can also be sold to private investor groups that will buy and hold the TDRs until a later time. These investors will try to buy in a period of low demand and sell in a period of high demand, betting that the rights will increase in value over time.

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Purchases of this type are good because they provide a private market for TDRs even when direct development demand is low. San Francisco’s TDR plan is designed to accommodate these investor purchases. Under this TDR scheme, development rights are allowed to be purchased and held indefinitely by an investor whose sole purpose in buying the rights is to resell them at a later date instead of putting them towards direct development themselves (Jones 1992, 70). These types of sales may be subject to other regulations as well. In DC for instance, a TDR can be sold between investors and landowners but not between investors and investors. Aside from this restriction, DC has no prohibition on the purchase of TDRs with the intent to resell (DCMR, 11-1709). These regulations help to keep the TDR program’s original intent and integrity intact while allowing TDRs to be purchased from selling sites in times of low development demand. Another critical component of many TDR markets is the publicly operated TDR bank. A TDR bank plays a similar roll to the private investors discussed above in that it can help to provide a market for TDR sales when development pressure wanes. By reselling the TDRs at market rate once the TDR market has resurfaced, the TDR bank can make a marginal profit. This is money that can be reinvested into the TDR program and used to help cover the program’s public operating costs. By functioning as a “buyer of last resort”, the TDR bank helps to create a stable and predictable market in which sending site property owners can be assured that there will always be a market for their TDRs should they chose to liquidate their asset. The state of New Jersey’s TDR bank has a detailed and market-based methodology for determining the fair market value that it can offer for TDRs. Using the appraisal input provided by two independent professional appraisers, the board of the TDR bank makes a recommendation and certifies the fair market value. The appraisals are completed under a strict set of standards dictated by the state to ensure quality and consistency. To complete their evaluation and ultimately certify the TDR value, the bank may use either appraisal independently, municipal averaging based upon appraisal data, or a formula supported by appraisal data. This certified market value is then offered to the property owner of the sending site who has thirty days to accept or reject the banks offer (State of New Jersey Department of Agriculture). Real estate cycles, which ultimately determine the market for TDRs, can take a long time to make the transition from a market with very low development activity to an active market that is ripe with private market TDR demand. Because of this, sending site owners may be restricted to the option of selling their TDRs to either a private investor or state run bank for an extended duration while the real estate market goes through its cycle. In Seattle, the city was the sole purchaser of TDRs for twelve years before private purchases began. During this time, the city amassed nearly four million dollars worth of development rights from eight separate sites. By the time that the real estate market eventually came through its natural cycle and development pressure began to pick back up, the TDR bank had accrued large enough amount of TDRs to be very attractive to major developers. The bank eventually made bulk sales of TDRs that were in excess of one hundred-thousand square-feet in a single transaction (Massachusetts Executive Office of Energy and Environmental Affairs). This illustrates the important function of a TDR bank as an aggregator of smaller individual TDR sellers to help facilitate eventual transfers of development rights to purchases who are looking to purchase significant TDRs in a single transaction.

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In addition to these functions, a TDR bank can work as the nerve center of the entire TDR program by being the core source of information about the TDR program. By facilitating the process and keeping records of all TDR sales in the city, the TDR bank can provide vital information to planners that is used to reevaluate the status of the TDR program and its various successes and failures. This information allows planners to make necessary adjustments to the TDR program to help it remain relevant and successful. The TDR bank for King County, WA, which includes the City of Seattle and was discussed above, maintains an active directory of all TDR sellers and potential buyers (King County Natural Resources and Parks). These transactions do not necessarily flow through the bank, but helping to facilitate these transactions promotes the general health of the TDR program by encouraging more of the core “private-to-private” transactions around which the TDR concept is founded. Despite the many clear benefits to a public TDR bank, there are many programs that do not utilize them. Often in the smaller the TDR programs, that are established in more rural areas, the demand and transfer frequency may simply not be great enough to justify the creation of a TDR bank. In other cases, such as in San Francisco, the TDR program was developed deliberately without a public TDR bank so that the market forces would control the TDR transfers without interference or influence (Pruetz 2003, 225). DC also does not have a publicly run TDR bank. While this has not created an unsuccessful TDR program per se, it has created a program that is hard to quantifiably describe its successes because there is no accurate accounting of the TDRs created, utilized, or held by private companies (Fruehling 2007). This failure to maintain an accurate accounting system of all TDRs available can make adjustments to a faltering TDR program very difficult to successfully implement. A TDR program does involve more rigorous administration than typical land-use controls such as zoning. Accordingly, there is an administrative burden to TDR programs that must be accounted for. Some of the earlier alternative programs discussed above, namely PDR and Conservation Easements, require the same administrative requirements in addition to the costs associated with the actual purchase of development rights. TDR banks, while certainly having administrative costs, can be designed to help further mitigate the costs borne by the city. The TDR bank will require an outlay of capitol funds to purchase development rights. This is again very similar to the public funding required by PDR and Conservation Easement program, however with the TDR bank these funds will eventually be replenished once the TDRs are resold to private developers in receiving sites. In this way the outlay of funds becomes of cash flow management issue rather than pure expenditure for the city. If these rights are managed appropriately, the sale will also create a profit for the city which can go towards covering the administrative burden of the city. In order to further lighten the daily burden of administering the TDR program, these responsibilities can be given to a non-profit organization. This system is used by San Luis Obispo County, CA where the Land Conservancy of San Luis Obispo County runs the operation of the TDR program (Pruetz 2003, 77). Funding for the non-profit administration of the TDR program come from the taxes or fees levied in the sale of TDRs. Jurisdictions vary on whether TDRs should be taxed as income or real property. Either way, the tax on TDRs could be used as a source of funding to cover the administration of the TDR program.

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TDR Market Creation and Maintenance The final component of urban TDR programs are the methods and techniques used to create a market and maintain the balance between TDRs available in sending site and the market demand for those rights. Many of the regulatory items and components previously discussed play a critical roll in this process. The first issue to be addressed when implementing a TDR program is deciding if the TDR program will be voluntary or mandatory. This is particularly important for TDR programs that focus on historic preservation. The TDR program associated with NYC Landmark Preservation Law is the classic example of a mandatory TDR program. Under these regulations, buildings that were designated as landmarks were significantly restricted from making building modifications that would permit density up to the maximum by-right density normally applied to the site. In this condition, the choice of selling TDRs as opposed to building the equivalent developable squarefeet on site was essentially mandated when the permit was denied. It should be noted that the Landmark Preservation Law did not flatly refuse any development proposals, rather only those that affected the historic architectural integrity of the building in question. Many mandatory TDR programs act in this way, by permitting some reasonable modifications. For example, in DC’s historic preservation, regulation requirements are drafted “so as to allow maximum design flexibility for the massing and sculpting of the restricted building mass in relationship to the scale and character of affected historic buildings…” (DCMR 11-1707). Voluntary TDR programs are ones where additional development restrictions are not placed upon the sending zone sites. These act in a similar fashion to the way Conservation Easements are utilized, whereas an interested historic property owner voluntarily sells the development rights that are not being utilized. In order to entice property owners to sell their development rights without regulatory restrictions, a city may use tax benefits or other incentives in conjunction with the TDR program. Another example of voluntary TDR programs is Seattle’s “within-block” TDR program. In this program, there are no development restrictions set on individual properties. Owners of the properties, both historic and not, can voluntarily transfer the rights to another site within the same block and record a restrictive easement against their property. This is a process that may be preferred by a property owner who does not have an interest in further developing their property but is interested in capitalizing on the unutilized development rights. Further, the supply side of the TDR equation can be stimulated through attractive TDR bonus ratio programs such as that used in DC. These programs work by incentivizing sending site property owners to create desired land-uses in exchange for the creation of TDRs which may then be sold to property owners in receiving zones. In using this mechanism to create TDR supply, the city also achieves a part of its complementary urban land-use agenda. In order to create a level of demand which counterbalances the TDR supply which has been generated, cities must work to carefully integrate the TDR program into the master plan for the city. When San Francisco created its TDR program, it accompanied the new regulations with a down-zoning in the receiving zone. This is a technique that somewhat artificially inflates the apparent demand for TDRs because it requires the purchase of TDRs in order for property owners to get back to what

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was once baseline by-right zoning. Regardless of this distortion, it is a highly effective method of generating TDR demand, but also one that may be controversial and unpopular with owners of the down-zoned properties that are not already built up to the previous FAR maximum. The San Francisco TDR program also offers an example of how TDR programs can fail when they are not carefully integrated into the overall regulatory framework of the city. As discussed earlier, San Francisco instituted a high-rise building ban downtown for a few years soon after the TDR program was initialized. This effectively constrained the receiving side of the TDR equation so significantly that private transfers were all but eliminated. Again, this underscores the importance of integrating TDR programs into the greater regulatory framework when trying to build market demand. Infrastructure support in TDR receiving zones is another tool that cities can use to help build market demand for TDRs. By providing the necessary infrastructure to a developing area of town, the city makes the area more desirable to developers and shows a commitment to development in that part of the city. When this infrastructure support is coupled with TDR overlay zoning, it can create a highly desirable location for development and, accordingly, a strong demand for TDRs. Such is the case of NoMa in Washington, DC, where a new metro station was added in the same area that a TDR receiving zone was overlaid. This has resulted in the neighborhood seeing unprecedented development and investment. Additionally, the demand for TDRs is sustained in the San Francisco program because the regulations are coordinated so that the only way for development in the downtown to exceed the down-zoned limits is through the purchase of TDRs. By ensuring that TDRs are the only tool available for increased density, the San Francisco program further reinforced the value and demand for TDRs. Conversely, the Landmark Preservation TDR process in New York City has been rendered somewhat ineffective due to the many alternate paths available to developers who wish to increase density and the complexities and restrictions placed on the program. These alternative measures can include density bonuses given in return for incorporating on-site amenities, such as public plazas and arcades, into the development (Pruetz 2003, 223). While these amenity-based density bonuses do create desirable results they do not help to supplement the strength of the TDR market. As illustrated in the earlier discussion on TDR banks, these institutions can be used to help create, supply, and maintain a healthy TDR program. TDR banks will purchase TDRs from sending zone properties in times of low direct developer purchasing interest. This can be critical for programs that utilize mandatory TDR programs because it can sometimes represent the only viable TDR sales outlet available. Additionally, a city run TDR bank can provide a certain stability to the overall TDR market. By acting as an aggregator of available TDRs, the TDR bank can also stimulate the receiving side of the TDR equation by offering a single purchasing point for private developers interested in a significant TDR purchase as illustrated in the discussion of Seattle’s TDR bank. Further, TDR banks can be used to help with the marketing and promotion of the TDR program. This helps to enhance the popularity of the program and works to ensure that all property owners in the sending and receiving zones have a good understanding of the potential opportunities present for them under the TDR program. Another aspect of the outreach capacity of TDR banks is their potential

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role as a TDR information database. This can work to help connect private buyers and sellers, as is the case with King County’s “TDR Exchange.” The type of sales and transfer information tracked by the TDR bank can also be used by city planners to evaluate and adjust the TDR program to achieve a desirable TDR balance. -- VI. TDR BEST PRACTICE RECOMMENDATIONS FOR MAJOR US CITIES -TDR programs in major cities should use square-footage as the medium for the transfer of rights from a sending site to a receiving site. Unlike TDR programs utilized in more rural settings, which often use a system based on one TDR equaling one housing unit, the zoning used in cities is typically more heavily reliant on floor area ratios then strictly units of housing. Using this methodology is particularly useful for transferring rights out of areas that are not zoned residential or into projects that are not intended for residential use because it deals strictly with the areas being transferred, not the intended use of the TDRs. In defining sending and receiving zones, cities should always work carefully and thoroughly to map all defined areas. These mapped zones should be clear and accessible to all property owners. This helps to eliminate any potential confusion about what properties are affected by the overlay zoning. These zones should be determined utilizing defensible and sound logic. The use of overly subjective and selective zones could open up the potential for complaints about TDR zone “gerrymandering.” In order to maximize the ability to effectively preserve architecturally or historically important structures, cities should consider instituting mandatory historic preservation TDR programs or adding the TDR component to their existing historic preservation programs. Sending zone properties affected should be identified and listed by a nationally-recognized preservation group, such as the National Registry of Historic Places, or a locally-based historic preservation group. Using a respected third-party to identify sending zone properties will help to give the designation more legitimacy in the eyes of the public and a stronger more defensible methodology for the city. Owners of these historic properties, or any other property that is affected by the mandatory TDR program, should be given full and sufficient ability to appeal the designation based on hardship exemptions. Providing a feasible way for affected property owners to dispute the designation can help to protect cities from a Due Process claim and ensure property owners of their rights. Property owners of historically “contributing” buildings should be allowed to voluntarily become certified as an approved TDR sending site. This will allow for more of the historic urban fabric to be preserved without mandating TDRs on a wider collection of properties. Cities should also carefully evaluate what other urban goals can be achieved through creative utilization of TDRs. This can include density bonuses for preferred landuses, transfer penalties for undesirable land uses, or making TDRs available for the preservation of desired cultural institutions. By thinking creatively about how TDR programs can be constructed, cities can craft a program that fulfils their specific urban agenda. Innovative tools, such as Floor Area Averaging, should also be evaluated to see if these methods fit within the existing land use and zoning context. When creating receiving zones, cities must carefully analyze the ability of the area to absorb the additional density. In addition to understanding how transportation and infrastructure components will be affected by the increased density, cities should

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respect the social equity issue that is raised regarding the effects of increased density on existing residents within the TDR receiving zone. This potential increase in density in their neighborhood can have very real impacts on the residents and should be respected and accommodated (Yaro et al. 1998, 38). Concerns about receiving zone capacity highlight the need for a comprehensive review of the TDR program and the importance of its wholesale integration into the city’s master plan. Further, TDR receiving zones will work best when the use of TDRs are the only available option for exceeding the underlying zoning (Yaro et al. 1998, 11). If other programs for density enlargements already exist, a TDR program should attempt to be structured so that it will provide the most inexpensive, most expedient, and most predictable option for enhancing density. If property owners in receiving zones have other easier and cheaper options to enhance baseline density, they will tend to use those methods. This undercuts the effectiveness of the TDR program in achieving any of its sending site goals. When setting the supply and demand balance, cities should aim to provide a sufficient supply of TDRs, but should strive to keep the demand for TDRs slightly ahead of the supply. This will help create a level of demand that will encourage more eligible sending properties to contribute their TDRs, while ensuring a fair market value for these TDRs. This balance must be carefully monitored to avoid constraining the market so much that potential purchasers are disincentivized due to the potential risk of not being able to find adequate TDRs available at a fair market price. Other techniques, such as offering increased incentives to property owners that sell their TDRs by a certain date can be used to help jump start a TDR program. Also, allowing the brokerage community to participate in the TDR program can help to promote participation in the program as the brokers will work to connect complementary parties (Jones 1992). As TDRs are transferred away from a sending site, cities should require guarantees that ensure that the sending site is preserved as intended. These remedies should ensure that properties are renovated as agreed and that the owner of the historic property has made enough from the TDR sale to cover the costs the costs of proper maintenance. TDR banks can ensure that the funds raised are sufficient to cover the maintenance costs for perpetuity by only buying TDRs or approving TDR sales at an amount high enough to cover the anticipated costs (Jones 1992). Once the TDRs have been transferred to a receiving lot, the TDR program should be set up as such that the development is now treated as functioning under a new “byright” zoning code (Walls and McConnell 2007, 10). These developments should not be subject to any new or additional reviews that would be outside of the typical zoning approval, provided that they are in full compliance with the overlay TDR zoning. This is an assurance that will help to make the TDR program more attractive and palatable to private developers who often shy way from processes that entail additional reviews and approvals. Also, as noted above, the approval of TDR transfer from a historic sending site to a receiving site should only be limited by a reasonable cost floor as determined by the costs of maintenance. All TDR programs in major US cities should include a TDR bank as a central component of their program. TDR banks should function as a “buyer of last resort” for sending site property owners looking to sell their TDRs. TDR banks should also assign a clear minimum dollar value to the rights. This minimum value can be tied

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back to the costs of properly maintaining a historic building. Having these set values and the assurance that the TDR bank will always be available to purchase TDRs at this rate will help to disable a Suitum challenge (Yaro et al. 1998, 32). The sale of TDRs to the bank should never be required of property owners, but it should always be an option available to them. In addition to aggregating TDRs and repackaging them in bundles that are attractive to large development projects, TDR banks should aggregate sales information and keep an active list of available TDRs on the market. This function of the TDR bank is needed in order for planning departments to critically evaluate the success of the TDR program and make necessary adjustments. In making adjustments to the TDR program it would behoove cities to recognize that timeliness and certainty in the program are the two aspects of the program most desired by the private development community (Yaro et al. 1998, 32) To help limit the public burden of administering a TDR program and running a TDR bank, taxes and fees levied upon the TDRs should be partitioned off to help cover the public expense of administering the program. An alternative to this is to contract the administration of the TDR program out to a non-profit third party. Farming out the administrative side of the TDR program to a non-profit can take some of the personnel burden off of the city. The TDR bank, while requiring an initial capital outlay, will also be a source of revenue for the city. The profits from this bank can be reinvested in the TDR program to help cover the expenses, as well as to enhance marketing and promotion of the program. To help minimize administrative burden and keep the program as equitable as possible, the underlying rules and TDR calculations should be kept as simple as possible (Yaro et al. 1998, 37). Additional layers of complexity will never satisfy all affected parties and only serve to further complicate the administration of the program. --VII. CLOSING-As demonstrated, TDRs can provide a potentially powerful market-based technique that cities can use to achieve a variety of urban agendas. However, despite its many advantages, only a quarter of the top thirty largest American cities utilize TDR programs. According to a survey that was mailed to every city, town, and county with a population of 15,000 or more, the top five reasons for not using a TDR program were: we have not given TDR much consideration, we rely primarily on zoning and development restrictions to achieve land use goals, our property owners are reluctant to agree to a process that is unknown or untested, we preferred to use outright purchase to acquire land, easements or other development rights, and our community considers TDR to be a legally complex and logistically burdensome (Pruetz 2003, 85). At the scale of a major US city, each of the concerns can be easily addressed by a properly designed TDR program. TDR educational outreach in a major city is the key to addressing many of these concerns for the public and government leaders. By illustrating the proven track record of successful TDR programs and showing how TDR can help to save the city money by reducing the outright purchases necessary, governmental leaders can start to see TDR as a viable tool available to them and seriously consider its use. Further, the complex land-use problems of major US cities require new and flexible land-use techniques that go beyond typical zoning and development restrictions. Understanding the many creative uses for TDRs will help

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cities better understand how they can be adapted to suit their individual challenges and achieve their goals. Lastly, as described in the best practices section, the implementation of a well scoped TDR program does not have to be any more complex or burdensome than other comparable land-use tools. This may be a particularly valid concern for small towns and more rural areas with smaller planning departments, but major US cities should be equipped with the planning sophistication needed to efficiently implement a TDR program. As the pressures of economic development and expansion continue to conflict with the aims of historic preservation and cities face increasingly complex issues in their greater urban agenda, hopefully more major US cities will begin to turn to TDRs as a viable part of the solution.

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-- VIII. REFERENCE LIST --

Cavarello, Daniel T., 1995. From Penn Central to United Artists’ I &II: The Rise to Immunity of Historic Preservation Designation from Successful Takings Challenges. Boston: Boston College Law School City of Seattle, Office of Housing. Transferable Development Rights (TDR) Program. http://www.cityofseattle.net/housing/incentives/TDRbonus.htm D.C. Municipal Regulations (DCMR). 2000. 11-1709: Transferable Development Rights. DC: Office of Documents and Administrative Issuances D.C. Municipal Regulations (DCMR). 2001. 11-1707: Historic Preservation. DC: Office of Documents and Administrative Issuances Fruehling, Douglas. 2007. TDR 101. Washington Business Journal, August 17, 2007 Fulton, William, Jan Mazurek, Rick Pruetz, Chris Williamson. 2004. TDRs and Other Market-Based Land Mechanisms: How They Work and Their Role in Shaping Metropolitan Growth. DC: The Brookings Institution Center on Urban and Metropolitan Policy Jones, James Morse. 1992. The Transfer of Development Rights in Center City Philadelphia. Thesis, University of Pennsylvania King County Natural Resources and Parks. Sustainable Building: Transfer of Development Rights Bank. Seattle: Sustainable Building Massachusetts Executive Office of Energy and Environmental Affairs. Transfer of Development Rights (TDR) Case Study: Seattle, WA. http://www.mass.gov/envir/smart_growth_toolkit/pages/CS-tdr-seattle.html Nolon, John R., Patricia E. Salkin, and Morton Gitelman. 2008. Land Use and Community Development: Cases and Materials, 7th Edition. St. Paul, MN: Thomson/West Pruetz, Rick. 2003. Beyond Takings and Givings. Marina Del Rey, California: Arje Press Pruetz, Rick. 2006. Beyond Takings and Givings: TDR Case Studies Updates: New York City, New York. http://www.beyondtakingsandgivings.com/nyc_ny.htm Pruetz, Rick, and Erica Pruetz. 2007. Transfer of Development Rights Turns 40. American Planning Association Planning and Environmental Law, Vol. 59, No. 6 San Francisco Planning Code (SFPC). Sec. 128. – Transfer of Development Rights in C-3 Districts. http://library.municode.com/HTML/14139/level2/A1.2_s128.html Seattle Municipal Code. SMC 23.49.014: Transfer of development rights (TDR). http://clerk.ci.seattle.wa.us/~scripts/nphUAP 5554 M. Steenhoek 24

brs.exe?s1=23.49.014&s2=&S3=&Sect4=AND&l=20&Sect3=PLURON&Sect5= CODE1&d=CODE&p=1&u=/~public/code1.htm&r=1&Sect6=HITOFF&f=G State of New Jersey Department of Agriculture. Chapter 77: Transfer of Development Rights. http://www.state.nj.us/agriculture/sadc/tdr/tdrbank/tdrrule277.pdf Walls, Margaret, and Virginia McConnell. 2007. Transfer of Development Rights in U.S. Communitites: Evaluating Program Design, Implementation, and Outcomes. DC: Resources for the Future. Yaro, Robert. D., Robert N. Lane, Rober Pirani, Names Nicholas, H. James Brown, Rosalind Greenstein. 1998. Transfer of Development Rights for Balanced Development. Final Report from the Lincoln Institute of Land Policy /Regional Plan Association TDR Conference at the Lincoln Institute in October of 1997.

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