Contentious Air Rights Battles Are Leaving Commercial Projects Up In The Air

Two visions for a greener future, one head-to-head battle and an outstanding set of rights so convoluted that trying to figure them out can leave you feeling winded.

This is the ongoing story in Toronto, where Craft Development Corp. has been engaged in a conflict with the city for more than a year regarding the ownership of the air above a proposed mixed-use development situated in the same place the city wants to build a park.

This is not the first nor the last case in which air rights have caused substantial grief during the development process. From Chicago in the 1950s to present-day Washington, D.C., the legal tiffs between local governments and private developers regarding air rights have been wide-ranging and plentiful. 

Air rights can be traced back to 13th century early English common law. At the time, the law stated, "to whomever the soil belongs, he also owns to the sky and to the depths." That has since changed.

Today, though air rights typically belong to whomever owns the land below it, they can also be bought, leased, sold or transferred separately from the lot. This rather vague rule is what spurred Chicago’s Illinois Central Railroad Yards dispute, one of the largest and most controversial air rights battles in U.S. history.

A Contentious History

Railroad companies were among the first entities to recognize the potential to turn a profit by charging developers big bucks to build commercial buildings over their rail yards. Costs to build over railroads were, and still are, steep because these projects are rife with challenges. The development cannot disrupt railroad business operations, builders have to work around train schedules and railroad workmen's safety must remain a priority throughout construction. 

In 1951, Illinois Central, a railroad in the central United States connecting Chicago, New Orleans and Mobile, Alabama, sold its first parcel of land and air rights to Prudential Insurance Co. Prudential went on to build a 42-story office tower on the site, but shortly after its completion, disagreements with the City of Chicago broke out over who owned the entitlements and whether Illinois Central had the right to sell, causing years of unrest.

After nearly two decades of dispute, it was eventually found that Illinois Central did own the rights. The site, which is now home to Illinois Center, a mixed-use development in downtown Chicago, has since gone down in history for paving the way for future projects that would include air rights development over railroad land. 

It is a similar story in Toronto, where Craft claims it was caught off-guard when several years and millions of dollars into its project, coined ORCA or “Over Rail Corridor Area,” the city announced the building of a massive park in the same spot.

Like Illinois Central, the plot of land in question sits above a set of railroad tracks in the downtown core.

Craft has proposed a sustainable mixed-use development that would incorporate a 12-acre park.

City officials, meanwhile, are under the impression that those air rights belong to the City of Toronto and a handful of other entities. Toronto is pushing to create a more livable downtown by building a large 21-acre park called Rail Deck Park, an idea that originated during a planning study regarding TOcore, which works to address parkland deficiency in the downtown core, City of Toronto Director of Community Planning Gregg Linter said. 

"The opportunity for new parkland in the rail corridor originated in the TOcore planning study commenced in 2014," Linter said. "Staff had no previous knowledge of the developer nor their interest in the area." 

The Search For A Resolution

Neither party is backing down from its proposal and to further complicate matters, Craft officials allege they were blindsided by the Rail Deck Park announcement after being led to believe they were working together with the city on TOcore.

“[Craft] bought the air rights and came up with the development idea. We then went to the city and worked with the city on what that should look like. We thought we’d have city support. We don’t. We’re now fighting the city,” Craft co-founder Peter Griffis said.

Craft claims it dealt with the air rights necessary to build the ORCA project some time ago, purchasing them in 2013 after a year of negotiations. The deal, which includes the rights 27 feet above the top of the rail from Bathurst Street to Blue Jays Way in Toronto’s downtown core, became firm this year.

“It is an ironclad agreement,” Griffis said.

Representatives from the city deny this claim, saying the rights belong to several companies, none of which are Craft.

“To the best of our knowledge, as of this date, the 'air rights' in the rail corridor area considered as a part of the ORCA proposal are owned by CN Rail, Toronto Terminals Railway, Metrolinx and the City of Toronto,” Linter said.

And so, the battle rages on.

A Lengthy Process

In Washington, D.C., a seven-acre, $1.3B mixed-use development called Capitol Crossing is taking shape, but obtaining the rights to the land and air for the project was no easy feat for the developer. 

The air rights originally belonged to developer T. Conrad Monts, who had acquired them in 1989. Property Group Partners began negotiating with Monts for the rights in 2005, but finding that he had been entangled in litigation with the city for years over landownership, PGP decided to offer to pay the cost of a settlement in order to allow them to purchase the property from the city at fair market value, ENR Mid Atlantic reports.

PGP did not win the rights until Monts died four years later. It was then that the company paid an undisclosed amount of money to his widow in order to settle the lawsuit that had been plaguing all of them. The project is now moving forward as the nation's first “eco-district.” Similar in nature to the proposed ORCA project, Capitol Crossing will include five buildings with a total of 2.2M SF of LEED Platinum office space, apartments, retail and green space.  

Determining The Future Of A City

Not all developments come with a complicated entitlements process.

New York’s Hudson Yards project, which involves the building of a mixed-use precinct with a park over a railway, was relatively straightforward even though air rights had to be purchased on three separate occasions. The city bases negotiations on a stringent set of pre-defined standards so there were no issues, Oxford Properties Group Senior Vice President of Investments Dean Shapiro said.

"Fortunately that’s one thing we did not have to contend with to a great degree,” Shapiro said.  

While both parties in Toronto agree that the city needs more green space, whether the fate of the area is one large park or a mixed-use development remains quite literally up in the air.