For the past two decades, one of the biggest hits on Broadway hasn’t been a blockbuster show. While most plays and musicals barely break even, major theater owners, including Jujamcyn and the Shubert Organization, have reaped more than $155 million from a 1998 zoning change that gave them the leeway to sell air rights—unbuilt space above buildings that is zoned for development—to property owners across the Theater District.
This month, however, the city is hoping to get the approval it needs to grab a bigger share of those profits going forward.
That proposal has drawn boos from Broadway and the Real Estate Board of New York, the city’s biggest real estate industry lobbying group.
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The plan to raise taxes on air rights also has rekindled bigger questions about how much compensation should be granted to landmarked properties such as Broadway theaters, whose owners are restricted from cashing in on the potential profits of redeveloping them into state-of-the-art venues or replacing them altogether with more lucrative development, such as office, retail, hotel or residential space.
The city now is aiming to take a 20% cut of any air rights that theater owners are able to sell and establish a minimum floor price of $346 per square foot. That translates to at least a 400% increase over the current flat fee of $17.60 per square foot.
“We believe this minimum increase is onerous, excessive and unfair,” Michael Slattery, a REBNY senior vice president, said late last month at a City Council hearing held to discuss the proposed price bump.
Funding the cause
Big theater owners have largely remained quiet, leaving REBNY to articulate their opposition. Executives at Jujamcyn, the Nederlander Organization and the Shubert Organization declined to speak for this story even though their venues, such as the St. James, the Neil Simon and the Shubert theaters, respectively, could be impacted by the policy change.
Their opposition could be unpopular. The city has collected about $9.6 million so far for what’s called the Theater Subdistrict Fund, a pot of money used to support nascent theater groups, subsidize smaller budget productions and help make theater more accessible to audiences who can’t afford Broadway’s $103 average ticket price. The fund also goes toward initiatives to bolster the industry at a grassroots level and is overseen by city officials and city-appointed members of the theater community, including Lin-Manuel Miranda, creator of the hit musical Hamilton.
“You need to have thriving, small nonprofit theaters to groom talent, from lighting technicians and stage hands to the actors,” said Tom Finkelpearl, commissioner of the Department of Cultural Affairs, who is a member of the committee that awards money from the fund. “The Lin-Manuel Mirandas don’t appear out of nowhere.”
The Theater Subdistrict Fund just finished spending about $2.2 million of air-rights proceeds on diversity initiatives in the theater industry. About $1.5 million remains, Finkelpearl said, which—along with money from future air-rights sales in the district—could next be used to help address the spate of closures among small theaters in the city—80 in the past 15 years.
“That’s definitely one of the cracks in the industry right now,” he said.
Missed hits
The city claims that it always meant to reap 20% of the air-rights sales. According to a study by REBNY, Broadway theater owners sold more than $165 million of air rights between 2006 and 2016. If the fund had been collecting 20% of the proceeds, it would be more than $20 million richer.
Instead, some of Broadway’s most established players kept those proceeds at a time when the industry was doing record business. According to the Broadway League, a trade association, Broadway shows took in $1.37 billion in ticket sales and had attendance of 13.32 million in the 2015–2016 season—both all-time highs.
“You can’t look back and finger-point and say, ‘Oh my God, they did something they shouldn’t have done by not collecting the 20%’,” said Carl Weisbrod, the outgoing commissioner of the Department of City Planning, which is spearheading the effort to raise the toll on Theater District air rights. “Times Square was the first area where there was a plan to float air rights across a district, and I think it takes time and some trial and error to figure out the best way to do it.”
Councilman Corey Johnson, whose district includes most of Broadway and whose approval is required for the toll on the air rights to be raised, expressed skepticism about the city’s plan at the recent council hearing.
“The proposed 20% contribution rate,” Johnson said, “seems like too much of an increase.”
Johnson even suggested the Department of City Planning was seeking the change to create parity with its plan to rezone Midtown East.
“I wonder if this has to do with other large-scale land-use actions that are coming up in the borough of Manhattan that could be influenced by this,” he said.
The Midtown East plan, which began public review last month, allows owners of landmarked buildings to sell their air rights throughout that district, with 20% of the proceeds going toward transit improvements. There has been speculation among zoning experts that the city Planning Department moved to address the flat fee in the Theater District because it could have drawn complaints from Midtown East landmarks chafed by the 20% levy.
Weisbrod dismissed the connection.
“The Theater District issue was in the works much longer than east Midtown,” Weisbrod said. “I don’t think there’s any disagreement anywhere that the current rate of $17.60 is an insufficient amount.”
For the past two decades, one of the biggest hits on Broadway hasn’t been a blockbuster show. While most plays and musicals barely break even, major theater owners, including Jujamcyn and the Shubert Organization, have reaped more than $155 million from a 1998 zoning change that gave them the leeway to sell air rights—unbuilt space above buildings that is zoned for development—to property owners across the Theater District.
This month, however, the city is hoping to get the approval it needs to grab a bigger share of those profits going forward.
That proposal has drawn boos from Broadway and the Real Estate Board of New York, the city’s biggest real estate industry lobbying group.
The plan to raise taxes on air rights also has rekindled bigger questions about how much compensation should be granted to landmarked properties such as Broadway theaters, whose owners are restricted from cashing in on the potential profits of redeveloping them into state-of-the-art venues or replacing them altogether with more lucrative development, such as office, retail, hotel or residential space.
The city now is aiming to take a 20% cut of any air rights that theater owners are able to sell and establish a minimum floor price of $346 per square foot. That translates to at least a 400% increase over the current flat fee of $17.60 per square foot.
“We believe this minimum increase is onerous, excessive and unfair,” Michael Slattery, a REBNY senior vice president, said late last month at a City Council hearing held to discuss the proposed price bump.
Funding the cause
Big theater owners have largely remained quiet, leaving REBNY to articulate their opposition. Executives at Jujamcyn, the Nederlander Organization and the Shubert Organization declined to speak for this story even though their venues, such as the St. James, the Neil Simon and the Shubert theaters, respectively, could be impacted by the policy change.
Their opposition could be unpopular. The city has collected about $9.6 million so far for what’s called the Theater Subdistrict Fund, a pot of money used to support nascent theater groups, subsidize smaller budget productions and help make theater more accessible to audiences who can’t afford Broadway’s $103 average ticket price. The fund also goes toward initiatives to bolster the industry at a grassroots level and is overseen by city officials and city-appointed members of the theater community, including Lin-Manuel Miranda, creator of the hit musical Hamilton.
“You need to have thriving, small nonprofit theaters to groom talent, from lighting technicians and stage hands to the actors,” said Tom Finkelpearl, commissioner of the Department of Cultural Affairs, who is a member of the committee that awards money from the fund. “The Lin-Manuel Mirandas don’t appear out of nowhere.”
The Theater Subdistrict Fund just finished spending about $2.2 million of air-rights proceeds on diversity initiatives in the theater industry. About $1.5 million remains, Finkelpearl said, which—along with money from future air-rights sales in the district—could next be used to help address the spate of closures among small theaters in the city—80 in the past 15 years.
“That’s definitely one of the cracks in the industry right now,” he said.
Missed hits
The city claims that it always meant to reap 20% of the air-rights sales. According to a study by REBNY, Broadway theater owners sold more than $165 million of air rights between 2006 and 2016. If the fund had been collecting 20% of the proceeds, it would be more than $20 million richer.
Instead, some of Broadway’s most established players kept those proceeds at a time when the industry was doing record business. According to the Broadway League, a trade association, Broadway shows took in $1.37 billion in ticket sales and had attendance of 13.32 million in the 2015–2016 season—both all-time highs.
“You can’t look back and finger-point and say, ‘Oh my God, they did something they shouldn’t have done by not collecting the 20%’,” said Carl Weisbrod, the outgoing commissioner of the Department of City Planning, which is spearheading the effort to raise the toll on Theater District air rights. “Times Square was the first area where there was a plan to float air rights across a district, and I think it takes time and some trial and error to figure out the best way to do it.”
Councilman Corey Johnson, whose district includes most of Broadway and whose approval is required for the toll on the air rights to be raised, expressed skepticism about the city’s plan at the recent council hearing.
“The proposed 20% contribution rate,” Johnson said, “seems like too much of an increase.”
Johnson even suggested the Department of City Planning was seeking the change to create parity with its plan to rezone Midtown East.
“I wonder if this has to do with other large-scale land-use actions that are coming up in the borough of Manhattan that could be influenced by this,” he said.
The Midtown East plan, which began public review last month, allows owners of landmarked buildings to sell their air rights throughout that district, with 20% of the proceeds going toward transit improvements. There has been speculation among zoning experts that the city Planning Department moved to address the flat fee in the Theater District because it could have drawn complaints from Midtown East landmarks chafed by the 20% levy.
Weisbrod dismissed the connection.
“The Theater District issue was in the works much longer than east Midtown,” Weisbrod said. “I don’t think there’s any disagreement anywhere that the current rate of $17.60 is an insufficient amount.”
A version of this article appears in the February 6, 2017, print issue of Crain’s New York Business as “Tapping Broadway’s upside”.
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