Update on the Grand Central Terminal Air Rights Takings Litigation

On September 28, 2015, Plaintiffs Midtown TDR Ventures LLC and Midtown GCT Ventures LLC, the owners of Grand Central Terminal, brought an action in the United States District Court for the Southern District of New York against the City of New York, the City Council, and private real estate developer SL Green Realty Corporation, and argued that the May 27, 2015, Vanderbilt Corridor rezoning effected a taking of Plaintiffs’ transferable development rights, or air rights, in violation of the Fifth Amendment of the United States Constitution.

Unused air rights have substantial value through New York City Zoning Resolution § 74-79, which allows for transfer of unused development rights to specific properties.

Grand Central’s air rights were once previously litigated in a seminal eminent domain case. Penn Central Transp. Co. v. City of New York, 435 U.S. 103 (1978).  There, Penn Central argued that the City deprived Penn Central of Penn Central’s air rights when the City denied Penn Central permission to further develop Grand Central.  The United States Supreme Court held that there was no taking of the air rights.

Here, among other arguments, Plaintiffs argued that the rezoning eliminated the need to acquire its air rights in order to develop other properties in excess of existing as-of-right floor area ratios within the Vanderbilt Corridor, which is bounded by East 43rd Street to the north, East 42nd Street to the south, Madison Avenue to the west and Vanderbilt Avenue to the east.  Therefore, according to Plaintiffs, the rezoning deprived it of any viable economic use of its air rights, which it valued at approximately $475,000,000.  This, in turn, violated the Fifth Amendment’s Public Use Clause, the Fifth Amendment’s Takings Clause, and the New York State Constitution’s Takings Clause.

On December 23, 2015, the City moved to dismiss.

The City primarily made five arguments.

First, it stated that it did not actually take any air rights and that Plaintiffs alleged a taking of its expected resale of its air rights.  The City argued that a loss of projected profits is not a protected property interest.

Second, the City stated that Plaintiffs alleged an anticipated loss of profit due to a decreased level of demand for Plaintiffs’ air rights caused by competition from the rezoning.  The City argued that a consequential injury does not constitute a regulatory taking.

Third, the City argued that Plaintiffs’ injury was speculative.  Therefore, the City argued that Plaintiffs lacked standing to assert a takings claim because it did not suffer an injury-in-fact.

Fourth, the City argued that the rezoning advanced widely recognized public uses, including spurring economic development, providing needed mass-transit improvements, and facilitating the creation of public spaces.

And fifth, the City argued that Plaintiffs’ action failed under the Penn Central analysis factoring the economic impact of the disputed regulation, the property owners’ reasonable investment-backed expectations, and the character of the disputed government action.  The City also disputed Plaintiffs’ remaining arguments.

On February 8, 2016, Plaintiffs opposed the City’s motion to dismiss.

Among other arguments, Plaintiffs countered that its claim was based on a regulatory taking, which does not require a physical appropriation of property.  Plaintiffs asserted that the City took its protectable real property interests and not a loss of expected profits.  Plaintiffs claimed that the elimination of the value of its property was a direct and intended result of the rezoning and not a consequential injury.  Plaintiffs argued that it had standing.  Plaintiffs alleged that the rezoning was a pretextual taking that was not rationally related to a conceivable public purpose.  And, Plaintiffs stated that it adequately plead a regulatory taking under Penn Central.

On February 26, 2016, the City replied in support of its motion to dismiss.

The motion is fully submitted and the parties are currently waiting for the Court’s decision.

Posted in Inverse Condemnation, New York, Regulatory Taking, Zoning
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