In October l991 the City of Philadelphia established its first local historic preservation incentive, a Transfer of Development Rights (TDR) program within the new Center City Zoning Code.The TDR is a publicly created mechanism within the zoning code that is designed to transfer excess development potential from small-scale city-certified--locally landmarked-- properties to sites being developed as dense skyscrapers on selected major downtown streets. The Philadelphia TDR program affords more than 200 historic property owners the opportunity to sell their unused development rights to developers of new buildings in several locations and invest the proceeds in critical maintenance or capital improvements to their landmarks.

The Philadelphia TDR program has three goals: to provide an economic incentive for rehabilitation to locally designated landmarks; to protect the 1984 local historic preservation ordinance from court challenge by offering relief to city-certified property owners on land zoned for more profitable use;¹ and to establish a new and innovative incentive for nonprofit owners of historic properties to maintain and rehabilitate their buildings.

BACKGROUND

Historians of city planning will consider 1984 a pivotal year in the modern history of Philadelphia. The TDR program was born from the confluence of two 1984 local planning controversies: the passage of a new, strong historic preservation ordinance as a result of the near demolition of the old Lit Brothers Department Store and the breaking of the so-called "gentlemen`s agreement" not to build higher than "Billy Penn`s hat" atop city hall by the developer of Liberty Place. These seemingly contradictory events became symbols that galvanized public concern about the future character of Philadelphia, then poised on the edge of a prodevelopment era. The 1988 "Plan for Center City" "has as its foundation these twin goals: to stimulate growth and at the same time preserve what is best about Center City.... The plan envisioned a city that combines the best of a dense, high-rise American center with the grace, delight, and serendipity of a lower-scaled European city."² This clear focus on the urban fabric convinced preservationists of the need to find innovative ways to maintain the built environment within a planning context.

"The Plan for Center City" contained hundreds of recommendations for the growth and preservation of downtown, leaving the future implementation of these recommendations to the public and private sectors. It included three recommendations for economic incentives for historic properties: enhancing already existing tax abatements to include historic properties; capitalizing a large revolving loan fund; and establishing zoning incentives, including the TDR.³

Two nonprofit organizations, the Philadelphia Historic Preservation Corporation (PHPC) and the Central Philadelphia Development Corporation (CPDC), obtained a large grant to design the TDR program (the zoning incentive thought to be the most viable) and a joint zoning task force was established to undertake research.

Within the plan it was acknowledged that "Philadelphia`s historic structures are cultural resources" as well as "tools for economic development."<sup>4</sup> The two organizations maintained that the pro-preservation language in the plan was laudable, but without a parallel commitment to preservation in the plan`s legal instrument for change--the zoning code--the plan`s intentions would never be realized. By moving development rights from older low-scaled historic properties to new skyscrapers through a TDR program in the zoning code, the twin goals of the plan could be fulfilled.

During the course of conducting research, a number of constraints were imposed by the Philadelphia City Planning Commission on the new zoning code. The zoning code was to be growth-oriented in certain areas and antilinkage, and it would severely limit assemblage of parcels on several pivotal streets that were important to preservationists. Although several overarching factors prevented TDR program designers from realizing all of their goals, an important and usable TDR program was ultimately included in the 1991 zoning code.

THE NEW ZONING CODE

In the new plan for Center City, the Philadelphia City Planning Commission staff was able to review many elements of the existing 1963 zoning code. The legislative findings of the 1991 zoning code noted "the current (1963 code) system of incentives and bonuses in the zoning code in many instances has resulted in construction of buildings with public space that is unattractive, inaccessible, and [that] makes little contribution to the ambience for the pedestrian experience of Center City."⁵

The Zoning Code quantifies the floor area ratio (FAR) for each zoning district. The FAR is defined as the total floor area allowed on the zoning lot divided by the area of that zoning lot. Each zoning district includes a specific FAR designation. The designation multiplied by the area of the zoning lot produces the maximum floor area allowable on that lot.⁶

The 1991 zoning code abandoned the old system of incremental incentives and bonuses (for example, an FAR of two for a plaza, an FAR of two for an arcade) and enacted mandatory performance standards to regulate aspects of building design in the public interest. Once the mandatory performance standards are met, then there are additional bonuses for those areas where additional density is permitted.

The TDR is integrated into the zoning code as part of the bonus system applicable to a limited area of Center City where the highest density of buildings is permitted. The density level of the Zoning Code--"as of right"--allots an FAR of five in the C4 and RC4 zones and an FAR twelve in CS.

The second density level permits buildings to achieve an additional FAR of eight in exchange for meeting a series of mandatory development controls.

The third--and highest--density level, "Incentive Floor Area," permits an additional FAR of up to four for development sites on certain streets in Center City. It is in this tier that the TDR competes with eight other options. Accounting for all options, more than thirty-five development sites in the highest density zoning district, C5, can be built to a maximum FAR of twenty-four, while more than fifteen C4 properties can be built to a maximum FAR of seventeen.

The TDR program designers believed that for development rights to be financially attractive to developers the cost of the TDR had to be slightly less expensive than the other options. Additionally, the competitive position of the TDR is enhanced by the fact that the TDR is the only bonus that can be used to attain all four points of additional FAR beyond twenty. Estimated TDR costs between $10 and $20 a square foot were determined by examining the real costs for construction and ongoing maintenance for the competing amenity choices. As a negotiated transaction between a willing buyer and seller, the TDR price would inevitably be determined by the real estate marketplace, mindful that it must be both affordable to developers and valuable to the landmark owners who are required to undertake repairs and encumber their property.

THE POSSIBLE USES OF THE TDR

More than 200 owners of city certified historic buildings scattered throughout the highest-density zoning districts (C4, C5, and RC4) will be able to sell their unused development rights to developers of new buildings. Developers of thirty new building sites of 30,000 square feet or more, fronting Market Street, John F. Kennedy Boulevard, or North Broad Street, can purchase development rights. The new buildings do not have to be adjacent to the historic building. Development rights of up to an FAR of four can be purchased by a developer at a one-to-one rate from the historic property.

Owners of historic buildings qualify to sell development rights if the buildings arc classified as "threatened" by the local preservation agency, the Philadelphia Historical Commission. Once they are sold, the development rights are permanently removed through a deed restriction. The developer of the new building places a corresponding deed restriction acknowledging the purchase of development rights. The proceeds of the sale will be placed into an escrow or trust account to be used for future maintenance or rehabilitation of the historic building chosen by the owner and reviewed by the Philadelphia Historical Commission. Two dozen nonprofit institutions control almost half of the available development rights supply, making them important players in the real estate marketplace.

A PROTECTED TRANSITION ZONE

The Philadelphia City Planning Commission established another opportunity to use the TDR option in a transition zone along two downtown streets, from the south side of Chestnut Street to the south side of Locust Street. This zone serves as a buffer between the dense commercial-development spine of Market Street and the residential sections of Center City to the south. Development sites in the transition zone can use the TDR but these new building sites must maintain the stringent height and width requirements for these streets as specified in other parts of the zoning code. Because the width restrictions are very strict and few dense or tall buildings can be built, it is unlikely that many development rights will be sold in this area.

FACTORS AFFECTING TDR USE

The Philadelphia TDR program has borrowed elements from the handful of other land conservation and historic preservation TDR programs across the country and is, as yet, untried. In essence, the Philadelphia TDR program ties rehabilitation to new construction. TDR sales will be influenced by the local real estate economy and investor and tenant confidence in Center City, so less development means fewer TDR sales. Program designers believe that the TDR Will be chosen between one quarter and half of the time. A developer may choose the TDR because of the special needs of a lead tenant in the new building. For example, an anchor tenant requiring high security would be unlikely to allow public access to public observation decks, public meeting facilities, gallery spaces, or public rest rooms. Program designers also felt that a preexisting relationship between a developer and a historic building owner, particularly a nonprofit owner, might spark some sales that ordinarily would not take place. The TDR`S appeal would also depend on its ease of use, making a public-education campaign essential.

CONCLUSIONS

The intent of the Philadelphia TDR program is to provide a local economic incentive for historic property owners on land that is zoned for high-density development. The incentive is clearly tied to the local real estate economy, and until the current economic recession abates enough for new construction to take place, few TDR sales will occur. The TDR program is not designed to be a panacea for all historic preservation problems in Philadelphia. However, the TDR is one tool in the tool box for the preservation community and the owners of threatened historic properties to use to protect historic buildings in Center City Philadelphia.

Eight other amenities compete with the TDR in the Center City Zoning Code in Philadelphia. The amenity choices are only available for approximately thirty sites, the densest buildings on sites fronting Market Street, John F. Kennedy Boulevard, or North Broad Street. Incentive floor area allows a bonus of an FAR of four in C5 (20 to 24 FAR maximum) or a bonus FAR of four in C4 (13 to 17 FAR maximum). Developers choose one or a combination to gain the FAR they need. The TDR is the only choice that can be used to obtain all four additional points of FAR. The eight amenities are:

1. Observation decks or rooms above the thirtieth floor, at a rate of five square feet of FAR for each square foot of deck; at least 2,500 square feet to a maximum of 10,000 square feet.
2. Through block connections between major streets: five square feet of FAR for each square foot of walkway, to a maximum of 50,000 square feet.
3. Improvements to or construction of publicly owned facilities within 500 feet of the new building; one percent of construction costs gains a maximum of two FAR.
4. Public museum, meeting, or library space for nonprofit use at the concourse level to the second floor; a minimum of 1,500 square feet at a rate of one square foot of FAR for twenty square feet of public meeting space.
5. Underground parking at a rate of one space for each 4,000 square feet of commercial use of the property for a maximum FAR of two.
6. Underground loading and trash storage; one square foot of FAR for each square foot of storage to a maximum FAR of one.
7. Public rest rooms--free, marked, and open to the public during regular business hours--gain .5 square foot of FAR for every square foot of rest rooms
8. Low-income-housing trust fund; $25 per a square foot for each foot needed (price tied to an escalation clause; funds deposited into an account) gains a maximum FAR of four (not yet operational).

LESSONS LEARNED FROM OTHER TDR PROGRAMS

Several aspects of the Philadelphia TDR program are unique and result from concerns raised by the local preservation and real estate-development communities during negotiations on project design.

The most extraordinary element of the Philadelphia TDR program is the mandatory placement of the proceeds of any TDR sale into an escrow or trust account to benefit the rehabilitation or maintenance of the historic property. The local development community wanted assurances that their payment of funds to the landmark would go directly for the preservation of the building and not be used for nonbuilding-related purposes. Program designers were able to gain the support of nonprofit historic property owners and religious institutions for this requirement by explaining that the payments from the escrow funds could be used to offset current maintenance and rehabilitation projects. Proceeds from the escrow account would allow the institution to divert its currently budgeted maintenance and rehab obligations to other organizational programming at its own discretion when the escrow account was put in place.

The Philadelphia program allows more than 200 historic buildings from across a very broad expanse of 120 blocks in Center City to sell their development rights to thirty development sites fronting three major streets and permits additional density on several low-scaled streets. While this aspect mimics the sending and receiving areas written about in the famed Chicago plan by the pioneer of the TDR, John Costonis, Philadelphia rejected the New York City model, which only allows transfers from next door, across the street, catercorner, or through a chain of title of ownership. Philadelphia rejected this hallmark of the New York City TDR program because it produced jarring differences in building scale. Additionally, all Philadelphia landmarks allowed to sell development rights are situated on similarly zoned land and are therefore similarly threatened because sites zoned for high-density development allow considerably more density to be built than contained in the existing landmark structure.

The wide variety of landmarks selling TDR to their sites enhances the ability of the private real estate marketplace to determine the price of development rights and allows developers to negotiate a sale with a seller of choice. Philadelphia nonprofit institutions have been very supportive of the program as they view sales of their development rights as a unique funding opportunity when the local real estate economy improves sufficiently for new construction to take place.

Finally, the nonprofit sector rather than the public sector initiated the research to establish the TDR program in the zoning code. As partners of the Philadelphia City Planning Commission the sponsoring organizations raised funds to hire consultants in planning, law, architecture, and economic development to fashion and explain the program. Program designers anticipate that a nonprofit organization will serve as a "broker" for deals between large sellers of development rights--particularly by nonprofit owners--and the Philadelphia real estate-development community.

OTHER TDR PROGRAMS

In fashioning a program that made sense for the unique planning and political realities of Philadelphia, program designers looked carefully at other building and land conservation TDR programs:

The New Jersey Pinelands  The New Jersey Pinelands Protection Act of 1979 permits owners of critical land tracts to sell "Pinelands development credits" (PDC) to designated regional growth sites under a comprehensive management plan for the 1.1 million-acre environmentally sensitive area in southern New Jersey. Each PDC permits four residential units to be built within growth areas. A maximum of 184,000 new units is permitted. The program has clear guidelines and forms and requires easements on the conservation area being sold as a requirement to transfer the credits to a regional growth area. When research was begun in 1988 on the Philadelphia program, few Pinelands transfers had occurred, although the program held significant promise and was used as a model. Contact: State of New Jersey Pinelands Commission, P.O. Box 7, New Lisbon, New Jersey 08064.

Montgomery County, Maryland  Beginning in 1969 the Montgomery County commissioners began to consider the conflict between the area`s traditional farming economy and the increasing influx of suburban development spilling over from nearby Washington, D.C. An ambitious program to concentrate growth in certain areas in order to preserve farmland and farming has resulted in a rural-density transfer zone. The zone allows density to be moved to noncontiguous areas, not necessarily in the same ownership, in different parts of the county at the rate of one new housing unit for twenty-five acres saved when clustered on lots of 40,000 square feet. Sales are private market transactions, through the subdivision process, and all transfers are recorded. This program is perhaps the most successful in the country today; TDR sales have been consistent and have withstood legal challenge. Contact: Maryland National Capital Park and Planning Commission, Development Review Division, 8787 Georgia Avenue, Silver Spring, Maryland 20910

San Francisco  San Francisco`s TDR program was an integral part of the staunchly pro-preservation 1985 downtown plan. The zoning code permits new downtown skyscrapers to exceed the allowable FAR by only one method--by purchasing the TDR from historic buildings. This is an extraordinary policy statement by city planners about the value of historic buildings in maintaining community character. In San Francisco 251 properties were identified as meriting preservation. Priority was given to nonprofit owners of landmarks, allowing them to exclude space used for public purposes from their mathematical calculation of development rights to be sold, giving them more rights to sell. There is no requirement that the sale proceeds must be spent on the building`s maintenance. Despite the early success of this program, the voters, through a referendum, imposed a cap on the amount of new office space to be constructed annually, thus limiting the effectiveness of this pioneering TDR program. Contact: San Francisco Department of City Planning, 450 McAilister Street, San Francisco, California.

New York City  The New York City TDR program--the first and, hence, the most time-tested TDR program in the country-- has been used in at least a dozen instances since 1968. The administrative procedure has been changed recently due to the enactment of a new city charter that gives the city council the final say on all land-use and landmark decisions. Individually landmarked structures not located in historic districts are permitted to sell development rights to development sites adjacent to the landmark through zoning lot merger or the New York development-rights transfer mechanism. Both processes have the potential to create jarring differences in scale. There is no cap on the amount of development rights that can be used in the highest zoning district, but in outlying zoning districts, the receiving development site may not exceed its maximum bulk by more than twenty percent using TDR sales. Preservation easements outlining the restoration requirements, are recorded for the landmark property and inspected by a qualified nonprofit organization. Zoning lot merger is an as-of-right process and is not considered a variance, but transfers away from the landmark are subject to considerable discretionary review through the planning commission`s administrative review and approval process. Contact: New York City Landmarks Preservation Commission, 225 Broadway, New York, New York 10007.

Other TDR programs around the country respond to local concerns. Information about other programs can be found in the American Planning Association Report, "Transferable Development Rights Programs: TDR and the Real Estate Marketplace" (May 1987) by Richard J. Roddewig and Cheryl A. Inghram. Philadelphia TDR program designers relied heavily on this report to guide research and development of the local program.

For more information, contact the Philadelphia Historic Preservation Corporation, 1616 Walnut Street, Suite 2310, Philadelphia, Pennsylvania 19103, (215) 546-1146.

ACKNOWLEDGEMENTS

The author wishes to acknowledge the fundamental importance of the work of the project consultants, John Andrew Gallery and Peter Lapham of Urban Partners, toward developing the Philadelphia TDR program and of John McGraw, project coordinator.

BIBLIOGRAPHY

• John Andrew Gallery and Peter Lapham. "Establishing a Program to Transfer Development Rights." Philadelphia: Central Philadelphia Development Corporation and Philadelphia Historic Preservation Corporation, 1990.
• Donna Ann Harris. "Transfer of Development Rights Program, Fact Sheet." Philadelphia: Philadelphia Historic Preservation Corporation, 1991.
• Philadelphia City Planning Commission. "The Plan for Center City." Philadelphia: Philadelphia City Planning Commission, 1988.
• Richard J. Rodddewig and Cheryl A. Inghram. "Transferable Development Rights Programs." Chicago: American Planning Association, 1987.

Notes

1. On July 10.1991, the Pennsylvania Supreme Court declared the Philadelphia Historic Preservation Ordinance unconstitutional. stating that the mere designation of a property as historic constitutes a "taking" without just compensation. An unusual reargument of the case took place on October 23, 1991, and as of December 15, 1992, no decision has yet been rendered by the Justices.
2. Philadelphia City Planning Commission, "The Plan for Center City" (Philadelphia: Philadelphia City Planning Commission, 1988), p.5.
3. Ibid., p.78.
4. Ibid., p.7.
5. City Council of Philadelphia, "New `C4` and `C5` Commercial Districts, Amending Title 14, of the Philadelphia Code relating to Zoning and Planning" (Bill No. 1217), October 31, 1991.
6. New York City Department of City Planning, The Zoning Handbook (New York: Department of City Planning, 1988), p. 110.