transferable development rights in major us cities - history, analysis, and best practices

7/29/2019 Transferable Development Rights in Major US Cities - History, Analysis, and Best Practices

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UAP 5554 M. Steenhoek i

TRANSFERABLE DEVELOPMENT RI GHTSI N MAJORUSCI TI ES:

H I STORY, ANALYSIS , AND BEST PRACTI CES

Matthew L. Steenhoek

UAP 5554

Spring 2010


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UAP 5554 M. Steenhoek ii

Table of Contents:

I. Introduction1II. Legal History of Transferable Development Rights..2III. Overview of TDR Programs in the United States.5IV. Relevance of TDR Programs to Major US Cities..8V. Analytics of TDR Programs in Select Major US Cities11VI. TDR Best Practice Recommendations for Major US Cities..20VII. Closing.22VIII. Reference List24


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UAP 5554 M. Steenhoek 1

TRANSFERABLE DEVELOPMENT RI GHTS I N MAJOR US CI TI ES

- - I . I NTRODUCTI ON - -

Cities across the nation often struggle with the sometimes conflicting aims of historicpreservation and economic development. Transferable Developments Rights (TDRs)programs are a market-based approach that can help to bridge this divide andaccomplish both goals. Additionally, innovative TDR programs can be used toachieve other items on a citys urban agenda. In order to understand how TDRprograms can best be utilized by major US cities, this paper will review the legalhistory of TDRs, provide an overview of TDR programs around the country, discussthe potential relevance of TDR programs to cities, and then consider the analytics ofthe successful TDR programs in New York, DC, Los Angeles, Seattle and SanFrancisco. Finally, the paper will conclude with a set of TDR best practicerecommendations for major US cities.

Transferable Development Rights began as a concept in the early 1960s through anarticle that was published for the Urban Land Institute that proposed a modificationto the land-use tool known as clustering. Clustering is a technique that allowsdevelopers to concentrate development within their site. This is done in order topreserve an environmentally sensitive component within the site, without having anegative impact on the ability to develop the site to the by-right density dictated inthe local zoning code. TDRs take this concept of redistributing development rightswithin one site and allows them to be transferred to another (Pruetz 2003, 34).

District of Columbia Municipal Regulations define TDRs as "a method of protectingsensitive land or historic buildings in which the right to develop these properties istransferred 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 andthe ability to transfer foregone development potential to other, more appropriatesites.

In essence, TDR programs use the bundle of rights concept to extract the unuseddevelopment potential from the site being preserved, known as the sending site, tosell or transfer it to a receiving site. The bundle of rights concept is core to the legalunderstanding of real property rights in the United States. It holds that there is acertain inherent bundle of land rights which come with the deed and title to a pieceof real property, including the right to build upon or use your land for economicpurposes, 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'sdisposition of one partial component of the bundlethe unrealized right to developthat are being transferreddoes not otherwise affect ownership of the land and theother core rights to quiet enjoyment, conveyance, and privacy.

In the process of preserving open land, environmentally sensitive habitats, orhistorically significant structures and neighborhoods, the governing jurisdictionsoften rely on the use of zoning regulations to reduce or eliminate the ability of alandowner to build upon or modify the property in question. When thesedevelopment rights are reduced or eliminated, the jurisdiction may be opening up to


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property owners by mitigating the financial burden that is placed upon them. In thiscondition, effected building owners are not constitutionally entitled to justcompensation but the TDR program does help restore some of the lost value toowners (Yaro et al. 1998, 11).

Penn Cent raldid 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 thatevaluates the economic impact of the regulation, the extent to which the regulationinterferes with distinct investment backed regulations, and the character of thegovernment action. Fourteen years later in the case ofLucas v. South CarolinaCoastal Council, the Supreme Court provided a second framework for determiningthe occurrence of a regulatory taking. For a Lucastaking to occur, the governmentalaction must wipe-out or destroy all economic value of the property unless the priorinterests in the property were a nuisance and restricted by the important backgroundprinciples of property law.

Suitum vs. Tahoe

Almost twenty years after the Penn Centr aldecision, the Supreme Court weighed-inagain on the issue of Transferable Development Rights in the case ofSuitum vs.Tahoe Regional Planning Agency in 1997. Suitumwas a TDR case that dealt with thenatural resource preservation aspect of TDRs, not the historic preservation aspectfocused upon here, but the ruling on the matter is no less relevant. In the caseofSuitum, the Tahoe Regional Planning Agency (TRPA) restricted the development ofan environmentally sensitive area. When the plaintiff looked to TRPA for relief it wasdenied 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 aregulatory taking where she claimed that all viable economically beneficial use of herproperty was denied her.

The lower courts reviewing the case felt that because Suitum had not exhausted allavenues for relief by refusing to sell the available TDRs, her case was not ripe foradjudication. This is the matter around which the Supreme Courts ruling iscentered. They reversed the decisions of the lower courts, stating that the plaintiffdid not have to seek the sale of her available TDRs as a condition of pursuing herproperty rights and the subsequent takings claim. The Supreme Court did not ruleon, as Justice Souter wrote in the majority opinion, the significance of TDRs both tothe claim that a taking has occurred and to the constitutional requirement of justcompensation. The court preferred instead to send the case back down foradjudication. However, the Suitumcase does weaken the position of jurisdictionslooking to rely solely on the existence of Transferable Development Rights inprotecting themselves from valid takings claims (Nolan et al. 2008, 704).

The understanding of TDRs as valuable use of the land, which can serve to providereasonable mitigation for the impact of regulations on property owners, was furtherweakened by the concurring opinion written by Justice Scalia and joined by JusticeOConner and Justice Thomas. In his writing, Justice Scalia opined that, with regardsto the determination on TDRs serving as mitigation for restrictive land useregulations, the Penn Centr alruling would deserve to be overturned. His stance isclearly the side of TDRs being a means by which jurisdictions can provide for justcompensation 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 indeedoccurred (Pruetz 2003, 108).

United Artists I & I I

A couple of years before the Suitum ruling, the cases ofUnited Artists Theater

Circuit, Inc. v. City of Philadelphia, 1991 (United Artists I) , and United ArtistsTheater Circuit, Inc. v. City of Philadelphia, 1993 (United Artists II) were triedthrough the Supreme Court of Pennsylvania. Both cases center around theconstitutional challenge by the owners of a movie theater that had, despite theirprotests, been designated a historic building. This designation involved severalrestrictions and imposed certain obligations on the property owner, including arequirement to review any request to alter or demolish the property with thePhiladelphia Historic Commission and the obligation to maintain the interior andexterior 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 alegitimate cause for the use of police power and that the designation was invalid.This case, which shared many similarities to Penn Centr al, contradicted the SupremeCourts jurisprudence on the matter and was the first challenge to this understandingof historic preservation takings law since Penn Cent ral. The ruling by thePennsylvania Supreme Court was appealed by the City of Philadelphia and areargument was granted. In this second decision, the Supreme Court ofPennsylvania reversed its earlier decision. They followed the Penn Centr aljurisprudence and concluded that the designation of a building as historic, withoutthe owners consent, would not be considered a taking and hence not due thepayment of just compensation. The cases ofUnited Artists I & I Idid not involvethe aspect of Transferable Development Rights, as Philadelphia does not have an

active TDR program. Nonetheless, United Artistsis illustrative of the great weightthat the Supreme Courts law holds with all lower courts (Cavarello).

There have been several other lower court rulings on TDRs and takings claims thatboth support and strike them down. Penn Centr aland Suitumprovide the primarySupreme Court precedence for understanding how TDRs currently stand in the legalframework. Within this framework, there are three main constitutional claims thatTDR programs must address and jurisdictions must be cognizant of when designingand implementing their programs. These are the takings issue, the due processissue, and the issue of equal protections. The takings issue has been discussed inthe review of the Penn Cent raland Suitum. The due process issue centers on theprocedural methods employed to designate buildings as landmarks and the

avenues made available to property owners to contest such designation. The finalissue, Equal Protections, a right guaranteed by the 14th Amendment, can be calledinto question when the owners of these landmark structures feel as though they arethe victim of arbitrary reverse-spot zoning and are being adversely affected basedon the historically significant status of their property.


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- - I I I . OVERVI EW OF TDR PROGRAMS I N THE UNI TED STATES - -

The first TDR program in the United States was instituted in New York City (NYC) in1968 as part of their Landmark Preservation Law. Under the TDR program, ownersof properties that we designated as historic landmarks, and who were bared fromdemolition and certain alternations, were permitted to transfer unused development

rights to adjacent properties that were under the same ownership as the landmarkproperty. In the more than four decades since the implementation of NYCs originalTDR program, one hundred and eighty-one TDR programs in thirty-three states havebeen created. The scope and mission of the majority of these programs has differedsignificantly from the historic preservation model that NYC designed. More thaneight-five percent of these programs are primarily focused on either environmentalprotection 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 andUrban Revitalization. As indicated above, the vast majority of current TDR programsfall 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 andsome have never effectively implemented a successful TDR transfer. Subsequently,these programs have failed to successfully protect any at-risk resources. Thesefailures are often due to the complexities, or perceived complexities, of implementinga TDR program, drastic shifts in the market, or a lack of public support for the newprogram. Despite these very real challenges, there are many TDR programs thatflourish at the regional, county, and city level.

New Jersey Pinelands

At the regional level, the New Jersey Pinelands program exemplifies how stategovernment can work in concert with individual municipalities to create a flexible andeffective TDR program. The Pinelands are an area of approximately one-millionacres of environmentally sensitive forests, swamps, lowlands and marshes insoutheast New Jersey. This area includes seven counties and fifty-three individualmunicipalities. The program is run by the state established Pinelands Commissionand was established in 1980. The term Pinelands Development Credits (PDCs) isused for their TDR program. The PDCs are equivalent to a single dwelling unit andcan be transferred cross-jurisdictionally. The PDC program is a voluntary programwhere landowners can build on their property at a low-density with a conditionalpermit. These landowners are encouraged to utilize the PDC program by beinggranted the right to sell four PDCs for each by-right dwelling unit allowed on thesending area. PDCs are allocated to sending sites by the Pinelands Commission atthe 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 theirPDCs, the State of New Jersey created the New Jersey Pinelands Development Creditbank. This bank functions as a buyer of last resort and sellers of PDCs generallyonly turn to it when a private market does not exist for the PDCs. In addition toproviding this surety to sending site property owners, the Pinelands DevelopmentCredit bank also publishes guidelines for the sale and purchase of PDCs, as well asoperates 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 theprocess of frequently revisiting and making adjustments to the programsregulations, as well as strong fiscal support at the state level and a comprehensiveapproach to integrating the PDC program in local land use regulations. Thisapproach keeps the program nimble enough to adapt to the rapidly changingdynamics 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, theNew Jersey Pinelands program had preserved more that forty-two-thousand acres ofenvironmentally 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 Countys TDR program wasdeveloped in response to the passage of Washingtons Growth Management Act in1990 which required the adoption of an Urban Growth Boundary within the countyaround urbanized areas. While the current TDR program in King County has onlybeen around since 2001, the county started experimenting with Transferable

Development Credits (their name for the TDR program) within a few year of the startof the Growth Management Act (Walls and McConnell 2007, 14). In the early yearsof the TDC program, the county experimented with various incentives aimed atencouraging participation in the program, developed inter-local agreements betweenKing County and the City of Seattle, and established a county-run TDC bank.Throughout this process, the county pledged significant monies towards establishingthe bank, purchasing TDCs, and providing amenities to receiving area jurisdictions.

In an effort to encourage local jurisdictions to develop and promote TDC receivingareas, King County uses inter-local agreements and funding for amenities tosweeten the pot. In order for a rural credit to be sold and used within anincorporated 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 agreementwith the County guaranteed $500,000 in amenity improvements (Pruetz 2003, 187).County authorized amenity funds are designed to compensate jurisdictions for theinfrastructure burden associated with increased density. The improvements providedthrough this fund can include public art, cultural or community facilities, parks, openspace, trails, roads, parking, landscaping, sidewalks, other streetscapeimprovements or transit-related improvements (King County Natural Resources andParks).

The King County TDR bank operates under relatively strict guidelines regarding thepurchases and sales it is authorized to complete. These restrictions include onlybeing allowed to purchase TDCs from rural, agricultural, or forest production districts

and sell to sites in cities or urban unincorporated areas. Further, the bank isobligated to purchase TDCs at not more than fair market values and sell TDCs for notless than fair market value (Pruetz 2003, 189). The bank is not obligated to sellTDCs and has the right to select buyers according to price, volume, and likelihood ofachieving the goals of the TDC program. The county also operates a TDRExchange, a website dedicated to the facilitation of purchase and sale of TDRsbetween 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 (KingCounty Natural Resources and Parks).

As of February 2007, forty-eight market transactions had occurred which preservedapproximately two-thousand acres of land (Walls and McConnell 2007, 14). Whilethis 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 andninety TDCs from an area east of Seattle known as Snoqualmie Forest. This single,twenty-two million dollar purchase protected ninety-thousand acres of forest, anarea twice the size of Seattle. Funding for these TDR bank purchases comes fromthe Conservation Futures Fund, a tax on all real property in King County which isspecifically earmarked for open space protection and acquisition. This significantpreservation has put King County at the top of the TDR list for most acres protectedin 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 maximumsquare-footage of building permissible by base zoning and subtracting out theexisting square-footage of buildings currently constructed on the Transfer Lotproperty. These available TDRs are sold at a one-to-one rate to eligibleDevelopment Lots. TDR sales between Transfer Lots and Development Lots arerestrained to properties within the C-3 zoning district that comprises San Franciscosdowntown core (Yaro et al. 1998).

There are two primary factors that affect the relative success of San Franciscos TDRprogram. First, it is very difficult to alter or demolish a downtown San Franciscoproperty that has been designated as architecturally significant. This challengeserves as a strong motivator for owners of architecturally significant or contributingstructures to sell their TDRs. Although contributing structures are not as severelyburdened as designated structures, they are still eligible for TDR transfer. SanFranciscos TDR program was implemented in the Downtown Plan of October 1985.This plan also reduced density in the downtown area (Jones 1992, 67). Theregulations are coordinated to ensure that TDRs are the only way that developerscan exceed the base line 9:1 floor area ratio (FAR) that is allowed by zoning. Thiscoordination of a down-zoning in conjunction with the TDR program creates a strongdemand for TDRs in San Franciscos downtown core. The purchase of TDRs onlyrelieves owners of the FAR restrictions; however the C-3 zoning regulations aredesigned so that owners of Development Lots infrequently need to request furthermodifications to accommodate the purchased density (Pruetz 2003, 225).

To further facilitate transfers in times of low construction market demand, TDRs areallowed to float indefinitely (Jones 1992, 70). This means that TDRs can bepurchased by investors and held until a further date for resale back into the market,while allowing the renovation and perpetual maintenance of the architecturallysignificant buildings to proceed. This aspect of the TDR program helps create asystem that can successfully achieve its historic preservation goals despite possiblefrailties of the real estate market.


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Soon after the 1985 plan was implemented, the City of San Francisco also enacted athree-year limit on high-rise development in the city. This measure greatly limitedthe effectiveness of the TDR program by essentially eliminating the demand side ofthe TDR equation. As a result, the first four years of the TDR program only resultedin one transfer (Jones 1992, 67). Since this restriction has been lifted the SanFrancisco TDR program has become one of the most active and successful program

in the United States. This underscores the importance of implementing a TDRprogram 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 routinepart of the development process. The San Francisco TDR program has proven itselfto entail a predictable process which is infrequently subject to delays or disapprovals(Pruetz 2003, 225). The assurance that the program will provide consistent andpredictable results for property owners is a major contributing factor in determininghow the TDR program will be embraced by the private sector.

As demonstrated in these examples, Transferable Development Rights programs canaccomplish a variety of goals for a wide range of jurisdictions. In many cases, TDR

programs aimed at environmental preservation, maintenance of rural character, andfarmland conservation have proven to be a great success and are commonly sited indiscussions of TDRs. While TDR programs in major US cities are more likely aimed athistoric preservation or urban design and revitalization efforts, the county andregional programs offer valuable lessons on what regulations help to comprise asuccessful program.

-- I V. RELEVAN CE OF TDR PROGRAMS TO MAJOR US CI TI ES --

The preservation of architecturally and historically significant buildings has long beena challenge for cities. Historic preservation is desirable for a city because it helpsmaintain the architectural legacy and uniqueness of the place. This protection is apublic good and has consistently been viewed as a valid exercise of police power.These preservation ordinances have in the past been met by opposition fromproperty owners who felt that their property rights had been infringed upon.Transferable Development Rights programs can be used by cities as part of theirhistoric preservation regulation tool-kit. As illustrated in the court cases previouslydiscussed, jurisdictions should not rely entirely on TDR programs to protectthemselves from takings claims, but rather TDRs should be incorporated into acarefully crafted piece of regulatory policy. In the wake ofSuitum, this word ofcaution is all the more relevant.

While the exact roll that TDRs may play in historic preservation regulations mayvary, 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 forcompensation to property owner affected by the restrictions. This compensationmay not fully restore the potential value of the development rights that have beenrestricted by the jurisdictions exercise of the police powers, but it should besufficient enough to alleviate the financial burden associated with properlymaintaining a historic building. By providing an avenue that can reduce the directfinancial impact felt by property owners, particularly when compared to anunmitigated 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 politicallypalatable for elected officials.

Owners of historic properties may feel the strongest urge to demolish or redeveloptheir property when the pressures of an active and growing real estate market beginto exert themselves. Fortunately, in a properly structured TDR program, a strong

real estate market is when the program can act most effectively in aligning buyersand sellers. This balanced alignment helps to provide sellers with a fair andequitable value for the development rights that they are vacating. By helping toease the tensions between the often competing desires for economic developmentand the preservation of historic structures, TDRs are a very relevant, market basedtool available to planners.

There are other regulatory programs and tools that planners can look to that willobtain similar goals to a TDR program. These tools include Purchase of DevelopmentRights program, Conservation Easements, Development Fees, and Density TransferCharges. While each of these programs has distinct merit and may be particularlysuited 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 similaritieswith TDR. In both programs, the unrealized development rights are purchased fromthe owner of the historic property and the resulting development potential is deed-restricted to ensure protection in perpetuity. However, with PDR the funding for thepurchase comes from the citys coffers and is often fed with local tax dollars. Thisdifference creates both advantages and disadvantages for a PDR program. Oneadvantage for property owners who are selling development rights is that it removesthe potential frailties of the market from the equation, as they are no longer relianton private entities to purchase the rights. Conversely, this means that the fundingmechanisms are often subject to voter approval. This creates a separate challengeas 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 voluntaryagreements between a city or qualified not-for-profit and private landowners topreserve sensitive land and structures by conveying an interest in the land andrecording restrictive easements upon it. When the development rights arepurchased by a non-profit, in lieu of the public sector, some of the concerns aboutpublic tax support can be mitigated (Nolan et al. 2008, 898). In both ConservationEasements and PDR programs, the retirement of the development rights can furtherweaken the citys tax base because, unlike in a TDR program where the developmentrights that are redistributed on a receiving site, the development potential and itsassociated taxes are not replenished elsewhere in the tax base. Further, when

property owners donate or sell their conservation easement at a reduced value, theyare often eligible for additional tax write-offs and savings. While this works as anincentive to property owners it serves to further deplete the incoming tax revenuefor a city.

A third alternative technique for generating dedicated funds for the preservation ofhistoric buildings and open space is the use of Development Fees. DevelopmentFees are charges assessed to all building projects in a community. The money raisedthrough 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 ofpreservation and the burden of the system is spread across all building projects in acommunity instead of coming solely from those in a TDR receiving zone (Pruetz2003, 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 oftenstrong political influence of the building and construction lobby that may opposed thefees. Additionally, the true costs of a communities land use goals is oftensignificantly higher than what can be reasonably collected through fees if the feesare set at a level that avoids placing an unjust burden upon the developers. Whilethese lower fees may be useful for ensuring that developments are not stalled oravoided due to a prohibitively expensive fee package, this leaves a funding gap thatmust be filled (Pruetz 2003, 84). The Development Fee program is one that createsdisincentives for development in order to raise money to use towards historicpreservation goals. A successful TDR program is superior to Development Fees inthis regard. In a TDR program, property owners and developers in a receiving zoneare incentivized to contribute to the preservation, vis--vis the purchase of TDRs,because this allows them to create more profitable developments in the receivingzones while in turn preserving sending zone properties.

Finally, a technique called Density Transfer Charges (DTC) can be used by cities tohelp channel growth away from areas that are desired to be preserved and towardsareas more appropriate for development. Again, DTC has many similarities to TDRs.One key difference between the programs is that the use of sending and receivingzones is eliminated. In a DTC program, developers who desire increased density willapply for a zoning modification that permits them to exceed the baseline density.This site-specific increase in density requires the payment of a density transfercharge to the city. These funds are collected and allocated towards the cityspreservation goals to be used to buy historic properties or purchase restrictiveeasements (Pruetz 2003, 84).

An advantage of the DTC program that it shares with TDR, but which separates itfrom the alternatives discussed above, is that the historic preservation costs arefunded by development proceeds in lieu of taxes, and that these developmentproceeds come from projects that are positively incentivized through the receipt ofincreased density instead of penalized through a direct development fee. The majordisadvantage of a DTC program is that the ability for cities to focus the increaseddensity to where it is most appropriate by way of designating distinct receiving zonesis lost. The requirement to review each individual case on an ad hoc basis adds anadditional layer of bureaucracy and uncertainty to the process of getting a DTCapproved both of these items can become burdensome enough that they act as areal 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 historicpreservation agenda and provide for a method of conservation that does notnegatively impact the citys tax base or disincentivize other development. They canalso be designed to support the development of desired land-uses. Further, TDRprograms can be utilized in order to focus development around planned growthcorridors and transit relevant locations, or to support other items on a the citysbroader urban agenda.


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The development of preferred land-uses can be achieved by creating a TDR programthat allows developers to generate TDRs by way of building a specific use in adesignated area of the city. When normal market forces or traditional Euclidianzoning techniques have failed to produce the land use outcome desired by planners,the ability to create and ultimately sell TDRs can help to incentivize privatedevelopers 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 thedevelopment of housing in its downtown. Planners may want to bring housing in tohelp create a neighborhood that is alive and vibrant after normal business hours. Ifthe market dictates that the highest and best (and accordingly most profitable)economic use for the available downtown properties is office development, then thecity may have a hard time convincing a developer to build a residential project, aless profitable use, on the land without providing tax breaks or other incentives thatdeplete the citys tax base.

The ability to create TDRs, a distinct asset with economic value, by providing thepreferred land use can potentially change this equation. These TDRs can provide analternative revenue stream which helps to close the profitability gap from thehighest and best economic use, in this example it is the gap between officedevelopment and the residential development desired by city planners. Theparticulars of this equation can vary significantly based on the unique conditions anddesires of a city, but this illustrates how TDR programs can be utilized by cities toproduce desired land-uses without the expenditure of significant tax dollars.

While TDR discussions of historic preservation in cities tends to focus on the sendingzone side of the equation, TDRs can also be a very effective tool on the receivingzone side to help to focus development and promote growth patterns that arepreferable and sustainable. By focusing TDR receiving zones in areas with adequateinfrastructure, most often the downtown or immediately downtown adjacent areas ofthe city, planners can create a program that encourages dense, transit orienteddevelopment. 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 createincreased demand for the TDRs. This demand for TDRs must be carefully balancedwith the TDR supply being provided by the sending zone properties. Finding andmaintaining this balance is one of the most challenging aspects of creating asuccessful TDR program. However, when it is executed correctly, it can be a toolthat effectively balances the often competing desires for preservation and economicgrowth within a community.

-- V. ANA LYTI CS OF TDR PROGRAMS I N SELECT MAJOR US CI TI ES --

There are several key components that are required of all TDR programs utilized inmajor 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 theregulations that define the ways that TDRs can be generated by sending zones. Thenext components are the analytics of the actual TDR purchase, sale, and deedrecordation process. Finally, there are the various techniques that can be used bycities to create a market for TDRs and to maintain the tenuous balance betweensending and receiving zone forces of supply and demand. Active TDR programs fromthe cities of New York, DC, Los Angeles, Seattle and San Francisco will be evaluatedto show the many ways in which these key regulatory components can be achievedto 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 programsthat have distinct and separate sending and receiving zones. Often these zones arenot even geographically adjacent to one another. This organization of distinct andseparate sending and receiving zones is most commonly utilized by more rural and

suburban jurisdictions, due to a desire to focus the pressures of development ingeographically different areas than the rural or environmentally sensitive areas thatare being protected. However, this pattern of creating distinct and separate sendingand receiving zones can be utilized successfully by major cities. This is demonstratedby Washington DCs TDR program which exhibits some of these traits.

In DCs TDR program, development rights can be transferred from properties withinthe Downtown Development (DD) Overlay District to other eligible properties withinthe DD Overlay District or to eligible receiving zone properties in five surroundingareas of the city. These five areas are the New Downtown, Downtown East, NorthCapitol (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 geographicallycontiguous with the DD Overlay District and represent areas of DC that are under-built and focused for significant redevelopment.

The significant amount of redevelopment that has taken place and is planned-for inNorth Capitol/NoMa is largely due to a coordinated effort by the city to bring thenecessary infrastructure, namely a new infill Metrorail station, to a primarilyundeveloped, underutilized area and to also designate the area a TDR receiving zonein lieu of simply increasing the base-line zoning. The overlay zoning in place allowsby-right development to increase from a floor area ratio (FAR) of six and a half witha height limit of ninety feet to a FAR of ten and a maximum height of one-hundredand thirty feet with the purchase of TDRs. This height is the maximum permissiblein 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 anew by-right zoning and is not burdened with any supplementary design reviews ordevelopment conditions outside of those normally stipulated by zoning. Thisincrease of more than fifty percent developable area, coupled with the necessaryinfrastructure improvements, which were funded by the District government, theFederal government, and local property owners, has allowed North Capitol/NoMa toexperience significant growth and investment in recent years. This underscores theimportance of integrating TDRs into the citys comprehensive plan and the ability of awell located and supported receiving zone to generate significant TDR demand.

This method of designed sending and receiving zones to be geographically distinctand separate can be particularly useful if trying to maintain the historic character of

an entire neighborhood. The TDR program utilized in New Yorks South StreetSeaport District is of this nature. Development rights for this district have beentransferred to a TDR bank. These rights are dedicated for utilization on major officebuildings 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 agenerally low-rise historic neighborhood, this technique can help to ward off thepotential detrimental effects on the character of the neighborhood. The restorationof the properties in the South Street Seaport District has allowed the area to developinto 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 sameneighborhood for a number of reasons, this technique can be effective when theseparation is desired.

New York Citys Theater Subdistrict uses an example of a TDR program that isdesigned 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 TheaterSubdistrict in Article VIII of the City of New York Zoning Resolution describes theintent 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 andthey are utilized by New York City to protect and rehabilitate existing theaters.Under this program, listed Broadway theaters that are located within the subdistrictcan transfer their excess development rights once they renovate and record arestrictive covenant that ensures the use will remain legitimate theater (Pruetz2006). Clearly, in this urban condition, TDRs were seen as a technique to keepintense and complementary development in the neighborhood while preserving andprotecting the historic theaters. Similarly, San Franciscos TDR program only allowsfor transfers that are within the same zoning district unless granted a codeexception. This zoning district encompasses most of the downtown core and it isdesirable 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 ofdevelopment rights. Seattles within-block TDR program allows for the transfer ofrights 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 couldconceivably be built if the zoning envelope was maximized by all property owners. Itdoes however restrict receiving properties to density increases that are limited to again 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 netdensity of the block and the fifteen percent increase limit ensures that no singlebuilding is build grossly out of scale with its surroundings.

In Los Angeles, the city has established two TDR processes, Floor Area RatioAveraging and Designated Building Site Ordinance, which allow for the transfer ofdevelopment rights amongst adjacent or contiguous parcels. Floor Area RatioAveraging is a TDR approach that is made available to unified developments that arelocated on contiguous parcels and feature common architectural and landscapeelements. Under this program, density can be transferred between the variouscomponents so long as the total density permitted by the underlying zoning is notexceeded. LAs other program, the Designated Building Site Ordinance, is a similarordinance 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 orBunker Hill districts. Under this program, once a Designated Building Site isapproved 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 theDesignated Building Site. All properties contained within the designated area are notrequired 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 the13 to 1 FAR (Pruetz 2003). This program was originally set up to ensure theprotection of the Citys Central Library, and is a good example of how cities canleverage city owned property to ensure conservation, all while stimulatingdevelopment.

Methods of TDR creation

Most TDR programs are focused on environmental reasons, rural character, or farmland protection, and generally deal with TDRs in terms of units of housing (i.e. oneTDR equals development rights for one additional house). However, TDR programs incities 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 unrealizeddue to preservation effort or that is created through density bonuses. The basicequation for sending sites to determine their available TDRs is to calculate the fullbaseline density that by-right zoning allows on the site, and then subtract from it theactual square-footage that is utilized by the building that exists on site. Whatremains is the amount of TDRs that can be transferred to eligible properties. Theamount of density that can be transferred by a receiving zone site can vary based onthe particulars of the local land use regulations. In DC, FAR and height are generallyadjusted to the maximum that is permitted within the city, and receiving siteproperty owners can purchase and utilize TDRs that allow them to build up to thatrevised density (Fruehling 2007).

San Franciscos TDR program will only provide an exemption from baseline FAR

limitations, but it does not affect the other Euclidian limitations such as height andset-back. However, unlike DC, where the increased FAR could not physically berealized without an increase to the maximum height, the density increase gainedthrough TDRs in San Francisco can generally be accommodated within the originalbaseline height limit eliminating the need for further exemption (Pruetz 2003, 225).

When TDRs are transferred from a historic building to a receiving site, a restrictivecovenant is generally placed on the building to ensure that further development ordemolition cannot happen to the structure. The covenant will also often require theperpetual maintenance of the historic property. To create further assurances thatany necessary historic renovations take place as promised, some cities placeadditional 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 aretransferred from historic buildings within the Downtown Historic District orPennsylvania Avenue Historic Sites may be transferred once the permit is issued forthe renovation work required by the Historic Plan Review Board. These rights maythen be used by the receiving site, but they do not fully vest, and the receiving sitewill not receive its final Certificate of Occupancy until the renovations on the sendingsite are complete (DCMR 11-1707). This requirement adds a level of private suretyto the promised redevelopment, as the timely completion of the work would likely bea 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 historicbuilding was destroyed by arson or an act of god, the density is limited to that in thecovenant.

In addition to being used to transfer by-right zoning square-footage that is notutilized, 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. Bydeveloping preferred uses in the designated areas, building owners can generateTDRs 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 abonus ratio of 3 to 1, and a the development of a residential project in an areadesignated south of Massachusetts Avenue will generate two square feet ofadditional transferable development rights for every one square-foot of residentialdevelopment (DCMR, 11-1709). As discussed, this ability to generate a saleableasset can help to offset any lost profitability that may be associated with thedevelopment of what is understood to not be the highest and best economic use butwhich is preferred by the city. Similarly, Seattles Housing Bonus Program allowsdevelopers to gain additional density for the creation of moderate-income and low-income housing. Projects that comply with the regulations of this program can havetheir FAR increased from ten to fourteen (Pruetz 2003, 235). This represents asignificant profit opportunity and can act as a strong incentive to build the desiredland-uses.

For TDR programs that base the transfer or creation of TDRs on other criteria, suchas preferred use, the restrictive covenants can be structured to ensure that theproperty is used in perpetuity or for a predetermined duration. In Seattle forinstance, Housing TDRs must include a covenant that runs with the land and assuresthat for fifty years the housing will be preserved as affordable (City of Seattle, Officeof 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. Sendinglots with accessory surface parking that is larger than one quarter of the total area ofthe footprints of all structures on the lot will not be able to transfer any of the rightsthat are derived from the portion of parking that is in excess (Seattle MunicipalCode). This approach illustrates another way that creative TDR programs can shapethe urban form.

Analytics of the TDR purchase, sale, and recordation process

As discussed above, the sale of a transferable development right is akin to sellingone stick from the bundle of rights. There are a number of potential purchasers inthe 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 propertyowner of a sending site to a private property owner of a receiving site. Thepurchasing property owner then utilizes the new development rights to develop aproject that is in excess of what is permitted under base-line zoning. Almost all TDRprograms 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 untila later time. These investors will try to buy in a period of low demand and sell in aperiod 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 evenwhen direct development demand is low. San Franciscos TDR plan is designed toaccommodate these investor purchases. Under this TDR scheme, developmentrights are allowed to be purchased and held indefinitely by an investor whose solepurpose in buying the rights is to resell them at a later date instead of putting themtowards 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 soldbetween investors and landowners but not between investors and investors. Asidefrom this restriction, DC has no prohibition on the purchase of TDRs with the intentto resell (DCMR, 11-1709). These regulations help to keep the TDR programsoriginal intent and integrity intact while allowing TDRs to be purchased from sellingsites 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 canhelp to provide a market for TDR sales when development pressure wanes. Byreselling the TDRs at market rate once the TDR market has resurfaced, the TDR bankcan make a marginal profit. This is money that can be reinvested into the TDRprogram and used to help cover the programs public operating costs. By functioningas a buyer of last resort, the TDR bank helps to create a stable and predictablemarket in which sending site property owners can be assured that there will alwaysbe a market for their TDRs should they chose to liquidate their asset.

The state of New Jerseys TDR bank has a detailed and market-based methodologyfor determining the fair market value that it can offer for TDRs. Using the appraisalinput provided by two independent professional appraisers, the board of the TDRbank makes a recommendation and certifies the fair market value. The appraisalsare completed under a strict set of standards dictated by the state to ensure qualityand consistency. To complete their evaluation and ultimately certify the TDR value,the bank may use either appraisal independently, municipal averaging based uponappraisal 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 toaccept 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 longtime to make the transition from a market with very low development activity to anactive market that is ripe with private market TDR demand. Because of this, sendingsite owners may be restricted to the option of selling their TDRs to either a privateinvestor or state run bank for an extended duration while the real estate marketgoes through its cycle. In Seattle, the city was the sole purchaser of TDRs for twelveyears before private purchases began. During this time, the city amassed nearlyfour million dollars worth of development rights from eight separate sites. By thetime that the real estate market eventually came through its natural cycle and

development pressure began to pick back up, the TDR bank had accrued largeenough amount of TDRs to be very attractive to major developers. The bankeventually made bulk sales of TDRs that were in excess of one hundred-thousandsquare-feet in a single transaction (Massachusetts Executive Office of Energy andEnvironmental Affairs). This illustrates the important function of a TDR bank as anaggregator of smaller individual TDR sellers to help facilitate eventual transfers ofdevelopment rights to purchases who are looking to purchase significant TDRs in asingle transaction.


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In addition to these functions, a TDR bank can work as the nerve center of the entireTDR program by being the core source of information about the TDR program. Byfacilitating the process and keeping records of all TDR sales in the city, the TDR bankcan provide vital information to planners that is used to reevaluate the status of theTDR program and its various successes and failures. This information allowsplanners 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 Cityof Seattle and was discussed above, maintains an active directory of all TDR sellersand potential buyers (King County Natural Resources and Parks). These transactionsdo not necessarily flow through the bank, but helping to facilitate these transactionspromotes the general health of the TDR program by encouraging more of the coreprivate-to-private transactions around which the TDR concept is founded.

Despite the many clear benefits to a public TDR bank, there are many programs thatdo not utilize them. Often in the smaller the TDR programs, that are established inmore rural areas, the demand and transfer frequency may simply not be greatenough to justify the creation of a TDR bank. In other cases, such as in SanFrancisco, the TDR program was developed deliberately without a public TDR bank sothat the market forces would control the TDR transfers without interference orinfluence (Pruetz 2003, 225). DC also does not have a publicly run TDR bank. Whilethis has not created an unsuccessful TDR program per se, it has created a programthat is hard to quantifiably describe its successes because there is no accurateaccounting of the TDRs created, utilized, or held by private companies (Fruehling2007). This failure to maintain an accurate accounting system of all TDRs availablecan make adjustments to a faltering TDR program very difficult to successfullyimplement.

A TDR program does involve more rigorous administration than typical land-usecontrols such as zoning. Accordingly, there is an administrative burden to TDRprograms that must be accounted for. Some of the earlier alternative programsdiscussed above, namely PDR and Conservation Easements, require the same

administrative requirements in addition to the costs associated with the actualpurchase of development rights. TDR banks, while certainly having administrativecosts, can be designed to help further mitigate the costs borne by the city. The TDRbank will require an outlay of capitol funds to purchase development rights. This isagain very similar to the public funding required by PDR and Conservation Easementprogram, however with the TDR bank these funds will eventually be replenished oncethe TDRs are resold to private developers in receiving sites. In this way the outlay offunds becomes of cash flow management issue rather than pure expenditure for thecity. If these rights are managed appropriately, the sale will also create a profit forthe 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 SanLuis Obispo County, CA where the Land Conservancy of San Luis Obispo County runsthe operation of the TDR program (Pruetz 2003, 77). Funding for the non-profitadministration of the TDR program come from the taxes or fees levied in the sale ofTDRs. Jurisdictions vary on whether TDRs should be taxed as income or realproperty. Either way, the tax on TDRs could be used as a source of funding to coverthe 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 tocreate a market and maintain the balance between TDRs available in sending siteand the market demand for those rights. Many of the regulatory items andcomponents previously discussed play a critical roll in this process.

The first issue to be addressed when implementing a TDR program is deciding if theTDR program will be voluntary or mandatory. This is particularly important for TDRprograms that focus on historic preservation. The TDR program associated with NYCLandmark Preservation Law is the classic example of a mandatory TDR program.Under these regulations, buildings that were designated as landmarks weresignificantly restricted from making building modifications that would permit densityup 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 square-feet on site was essentially mandated when the permit was denied. It should benoted that the Landmark Preservation Law did not flatly refuse any developmentproposals, rather only those that affected the historic architectural integrity of the

building in question. Many mandatory TDR programs act in this way, by permittingsome reasonable modifications. For example, in DCs historic preservation, regulationrequirements are drafted so as to allow maximum design flexibility for the massingand sculpting of the restricted building mass in relationship to the scale andcharacter of affected historic buildings (DCMR 11-1707).

Voluntary TDR programs are ones where additional development restrictions are notplaced upon the sending zone sites. These act in a similar fashion to the wayConservation Easements are utilized, whereas an interested historic property ownervoluntarily sells the development rights that are not being utilized. In order to enticeproperty owners to sell their development rights without regulatory restrictions, acity may use tax benefits or other incentives in conjunction with the TDR program.

Another example of voluntary TDR programs is Seattles within-block TDRprogram. In this program, there are no development restrictions set on individualproperties. Owners of the properties, both historic and not, can voluntarily transferthe rights to another site within the same block and record a restrictive easementagainst their property. This is a process that may be preferred by a property ownerwho does not have an interest in further developing their property but is interestedin capitalizing on the unutilized development rights.

Further, the supply side of the TDR equation can be stimulated through attractiveTDR bonus ratio programs such as that used in DC. These programs work byincentivizing sending site property owners to create desired land-uses in exchangefor 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 partof its complementary urban land-use agenda.

In order to create a level of demand which counterbalances the TDR supply whichhas been generated, cities must work to carefully integrate the TDR program into themaster plan for the city. When San Francisco created its TDR program, itaccompanied the new regulations with a down-zoning in the receiving zone. This is atechnique that somewhat artificially inflates the apparent demand for TDRs becauseit 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 highlyeffective method of generating TDR demand, but also one that may be controversialand unpopular with owners of the down-zoned properties that are not already builtup to the previous FAR maximum. The San Francisco TDR program also offers anexample of how TDR programs can fail when they are not carefully integrated intothe 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 TDRprogram was initialized. This effectively constrained the receiving side of the TDRequation so significantly that private transfers were all but eliminated. Again, thisunderscores the importance of integrating TDR programs into the greater regulatoryframework when trying to build market demand.

Infrastructure support in TDR receiving zones is another tool that cities can use tohelp build market demand for TDRs. By providing the necessary infrastructure to adeveloping area of town, the city makes the area more desirable to developers andshows a commitment to development in that part of the city. When thisinfrastructure support is coupled with TDR overlay zoning, it can create a highlydesirable 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 addedin the same area that a TDR receiving zone was overlaid. This has resulted in theneighborhood seeing unprecedented development and investment.

Additionally, the demand for TDRs is sustained in the San Francisco program becausethe regulations are coordinated so that the only way for development in thedowntown to exceed the down-zoned limits is through the purchase of TDRs. Byensuring that TDRs are the only tool available for increased density, the SanFrancisco program further reinforced the value and demand for TDRs. Conversely,the Landmark Preservation TDR process in New York City has been renderedsomewhat ineffective due to the many alternate paths available to developers whowish to increase density and the complexities and restrictions placed on theprogram. These alternative measures can include density bonuses given in return

for incorporating on-site amenities, such as public plazas and arcades, into thedevelopment (Pruetz 2003, 223). While these amenity-based density bonuses docreate desirable results they do not help to supplement the strength of the TDRmarket.

As illustrated in the earlier discussion on TDR banks, these institutions can be usedto help create, supply, and maintain a healthy TDR program. TDR banks willpurchase TDRs from sending zone properties in times of low direct developerpurchasing interest. This can be critical for programs that utilize mandatory TDRprograms because it can sometimes represent the only viable TDR sales outletavailable. Additionally, a city run TDR bank can provide a certain stability to theoverall 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 purchasingpoint for private developers interested in a significant TDR purchase as illustrated inthe discussion of Seattles TDR bank.

Further, TDR banks can be used to help with the marketing and promotion of theTDR program. This helps to enhance the popularity of the program and works toensure that all property owners in the sending and receiving zones have a goodunderstanding of the potential opportunities present for them under the TDRprogram. 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 buyersand sellers, as is the case with King Countys TDR Exchange. The type of sales andtransfer information tracked by the TDR bank can also be used by city planners toevaluate and adjust the TDR program to achieve a desirable TDR balance.

-- VI . TDR BEST PRACTI CE RECOMMENDATI ONS FOR MAJOR US CI TI ES --

TDR programs in major cities should use square-footage as the medium for thetransfer of rights from a sending site to a receiving site. Unlike TDR programsutilized in more rural settings, which often use a system based on one TDR equalingone housing unit, the zoning used in cities is typically more heavily reliant on floorarea ratios then strictly units of housing. Using this methodology is particularlyuseful for transferring rights out of areas that are not zoned residential or intoprojects that are not intended for residential use because it deals strictly with theareas being transferred, not the intended use of the TDRs.

In defining sending and receiving zones, cities should always work carefully andthoroughly to map all defined areas. These mapped zones should be clear and

accessible to all property owners. This helps to eliminate any potential confusionabout what properties are affected by the overlay zoning. These zones should bedetermined utilizing defensible and sound logic. The use of overly subjective andselective zones could open up the potential for complaints about TDR zonegerrymandering.

In order to maximize the ability to effectively preserve architecturally or historicallyimportant structures, cities should consider instituting mandatory historicpreservation TDR programs or adding the TDR component to their existing historicpreservation programs. Sending zone properties affected should be identified andlisted by a nationally-recognized preservation group, such as the National Registry ofHistoric Places, or a locally-based historic preservation group. Using a respectedthird-party to identify sending zone properties will help to give the designation morelegitimacy in the eyes of the public and a stronger more defensible methodology forthe city. Owners of these historic properties, or any other property that is affectedby the mandatory TDR program, should be given full and sufficient ability to appealthe designation based on hardship exemptions. Providing a feasible way for affectedproperty owners to dispute the designation can help to protect cities from a DueProcess claim and ensure property owners of their rights. Property owners ofhistorically contributing buildings should be allowed to voluntarily become certifiedas an approved TDR sending site. This will allow for more of the historic urban fabricto be preserved without mandating TDRs on a wider collection of properties.

Cities should also carefully evaluate what other urban goals can be achieved throughcreative utilization of TDRs. This can include density bonuses for preferred land-

uses, transfer penalties for undesirable land uses, or making TDRs available for thepreservation of desired cultural institutions. By thinking creatively about how TDRprograms can be constructed, cities can craft a program that fulfils their specificurban agenda. Innovative tools, such as Floor Area Averaging, should also beevaluated 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 toabsorb the additional density. In addition to understanding how transportation andinfrastructure 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 increaseddensity on existing residents within the TDR receiving zone. This potential increasein density in their neighborhood can have very real impacts on the residents andshould be respected and accommodated (Yaro et al. 1998, 38). Concerns aboutreceiving zone capacity highlight the need for a comprehensive review of the TDRprogram and the importance of its wholesale integration into the citys master plan.

Further, TDR receiving zones will work best when the use of TDRs are the onlyavailable option for exceeding the underlying zoning (Yaro et al. 1998, 11). If otherprograms for density enlargements already exist, a TDR program should attempt tobe structured so that it will provide the most inexpensive, most expedient, and mostpredictable option for enhancing density. If property owners in receiving zones haveother easier and cheaper options to enhance baseline density, they will tend to usethose methods. This undercuts the effectiveness of the TDR program in achievingany of its sending site goals.

When setting the supply and demand balance, cities should aim to provide asufficient 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 encouragemore eligible sending properties to contribute their TDRs, while ensuring a fairmarket value for these TDRs. This balance must be carefully monitored to avoidconstraining the market so much that potential purchasers are disincentivized due tothe potential risk of not being able to find adequate TDRs available at a fair marketprice. Other techniques, such as offering increased incentives to property ownersthat 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 helpto promote participation in the program as the brokers will work to connectcomplementary parties (Jones 1992).

As TDRs are transferred away from a sending site, cities should require guaranteesthat 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 historicproperty has made enough from the TDR sale to cover the costs the costs of propermaintenance. TDR banks can ensure that the funds raised are sufficient to cover themaintenance costs for perpetuity by only buying TDRs or approving TDR sales at anamount high enough to cover the anticipated costs (Jones 1992).

Once the TDRs have been transferred to a receiving lot, the TDR program should beset up as such that the development is now treated as functioning under a new by-right zoning code (Walls and McConnell 2007, 10). These developments should notbe subject to any new or additional reviews that would be outside of the typicalzoning approval, provided that they are in full compliance with the overlay TDRzoning. 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 entailadditional reviews and approvals. Also, as noted above, the approval of TDR transferfrom a historic sending site to a receiving site should only be limited by a reasonablecost floor as determined by the costs of maintenance.

All TDR programs in major US cities should include a TDR bank as a centralcomponent of their program. TDR banks should function as a buyer of last resortfor sending site property owners looking to sell their TDRs. TDR banks should alsoassign 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 valuesand the assurance that the TDR bank will always be available to purchase TDRs atthis rate will help to disable a Suitum challenge (Yaro et al. 1998, 32). The sale ofTDRs to the bank should never be required of property owners, but it should alwaysbe an option available to them.

In addition to aggregating TDRs and repackaging them in bundles that are attractiveto large development projects, TDR banks should aggregate sales information andkeep an active list of available TDRs on the market. This function of the TDR bank isneeded in order for planning departments to critically evaluate the success of theTDR program and make necessary adjustments. In making adjustments to the TDRprogram it would behoove cities to recognize that timeliness and certainty in theprogram are the two aspects of the program most desired by the privatedevelopment community (Yaro et al. 1998, 32)

To help limit the public burden of administering a TDR program and running a TDRbank, taxes and fees levied upon the TDRs should be partitioned off to help cover thepublic 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 theadministrative side of the TDR program to a non-profit can take some of thepersonnel burden off of the city. The TDR bank, while requiring an initial capitaloutlay, will also be a source of revenue for the city. The profits from this bank canbe reinvested in the TDR program to help cover the expenses, as well as to enhancemarketing and promotion of the program. To help minimize administrative burdenand keep the program as equitable as possible, the underlying rules and TDRcalculations should be kept as simple as possible (Yaro et al. 1998, 37). Additionallayers of complexity will never satisfy all affected parties and only serve to furthercomplicate the administration of the program.

- -VI I . CLOSI NG--

As demonstrated, TDRs can provide a potentially powerful market-based techniquethat cities can use to achieve a variety of urban agendas. However, despite its manyadvantages, only a quarter of the top thirty largest American cities utilize TDRprograms. According to a survey that was mailed to every city, town, and countywith a population of 15,000 or more, the top five reasons for not using a TDRprogram were: we have not given TDR much consideration, we rely primarily onzoning and development restrictions to achieve land use goals, our property ownersare reluctant to agree to a process that is unknown or untested, we preferred to useoutright purchase to acquire land, easements or other development rights, and ourcommunity 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 aproperly designed TDR program. TDR educational outreach in a major city is the keyto addressing many of these concerns for the public and government leaders. Byillustrating the proven track record of successful TDR programs and showing howTDR 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 andseriously consider its use. Further, the complex land-use problems of major UScities require new and flexible land-use techniques that go beyond typical zoning anddevelopment 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 challengesand achieve their goals. Lastly, as described in the best practices section, theimplementation of a well scoped TDR program does not have to be any morecomplex or burdensome than other comparable land-use tools. This may be aparticularly valid concern for small towns and more rural areas with smaller planningdepartments, but major US cities should be equipped with the planning

sophistication needed to efficiently implement a TDR program. As the pressures ofeconomic development and expansion continue to conflict with the aims of historicpreservation and cities face increasingly complex issues in their greater urbanagenda, hopefully more major US cities will begin to turn to TDRs as a viable part ofthe solution.


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- - VI I I . REFERENCE LI ST - -

Cavarello, Daniel T., 1995. From Penn Central t o United Artists I &I I : The Rise toImmunity of Historic Preservation Designation fr om 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 DevelopmentRights. DC: Office of Documents and Administrative Issuances

D.C. Municipal Regulations (DCMR). 2001. 11-1707: Historic Preservation. DC: Officeof Documents and Administrative Issuances

Fruehling, Douglas. 2007. TDR 101. Washington Business Journal, August 17, 2007

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