TRANSFER OF DEVELOPMENT: THE CASE OF LOWER DOWNTOWN DENVER, COLORADO
University of Colorado at Denver Spring, 1982
^FRAtfSFER OF DEVELOPMENT: THE CASE OF LOWER DOWNTOWN DENVER, COLORADO
A Thesis submitted in partial fulfillment of the requirements for the degree of
MASTER IN PLANNING AND COMMUNITY DEVELOPMENT
University of Colorado at Denver Spring, 1982
"A simple yet persuasive view states that education is a primary instrument in any program to increase appreciation of the beautiful things of this country and to preserve them from damage. We turn to education because appreciation and conservation of beauty can be taught and learned."
Paul F. Brandweir "Education" 1975
Drawing by Holf; 1954 The New Yorker Magazine, Inc
Good. Lord, Gilroy, it's not for us to determine whether theyre worth saving
TABLE OF CONTENTS
Preface Chapter 1 i-ii
Introduction Chapter 2 1
Overview of TDR and Lower Downtown 3
Summary: Surrounding Land Use Impacts Chapter 3: What is TDR? 13
The Operational Concept 14
Precedents of TDR in Denver Chapter 4: The Economics of TDR 20
Private Sector 24
Limits of the Economic Study 27
Framework for Case Studies Chapter 5: Case Studies 28
Preservation Sites 35
Receiving Sites Chapter 6: Findings of Case Studies 44
Preservation Sites 53
Receiving Sites 59
Summary of TDR Economics Chapter 7: Public Planning Base for TDR 64
Authors Note 68
Limits of Planning Study 69
TABLE OF CONTENTS
Chapter 8: TOR Ordinance
Overview of Monitoring TDR 72
Chapter 9: Planning Criteria
Summary of Applications 90
Chapter 10: Study Conclusions
Final Notes 102
What's Next? 105
Senate Bill 1041 Appendix A
This study is designed to address two issues regarding the use of the Transfer of Development Rights (TDR) technique in Denver's Lower Downtown, also referred to as the B-7 zone. An overview of the TDR concept and the B-7 zone is provided before the issues are explored.
The thesis problem is, can the Transfer of Development Rights process via an ordinance by the City of Denver, preserve the historic character of the B-7 zone district. The desired ends of the ordinance are to provide a means of encouraging the preservation of this community resource. The planning solutions to this end will be discussed throughout the paper.
The study is narrowed further as a means of focusing the problem statement. The specific objective of this thesis is to study the application of TDR from an economic perspective of the private sector and from the perspective of what sound planning should be to make an alternative land use tool workable.
My interest in the Lower Downtown and the TDR concept stems from a keen interest in alternatives to Euclidean Zoningl as well as an interest in the historic quality of the B-7 zone district. The B-7 district is presently facing development pressure due to the growth boom that is occuring in the Denver Metropolitan Area. The development boom is BIG NEWS. The transformation of the City from a frontier town into a big time metropolis is documented in national magazines and newspapers with words like "explosive" and "dramatic".* 2
lAfter Euclid vs. Ambler Realty Co., 272 U.S. 365, 71 L Ed. 303, 47 S. Ct. 114, 54 A.L.R. 1016 (1929).
2Will Flessig, City West Progress Memo #1 to Downtown Denver Inc., October 1981.
Special thanks go to members of the University of Colorado at Denver, Planning and Community Development Department, including Dr. Andre' Kimboko, Herb Smith, and Dr. David Hill. I would also like to thank Bob Yeager of the Civic Ventures Team of DDI and Peter Bowes of Bowes and Co. for their time and consultation in preparing this paper and Sondra Rose of the City of Boulder Planning Department for participating in my thesis presentation. Finally thanks go to Oacki Albers for helping get the paper into this presentable format.
Chapter 1: Introduction
The B-7 zone was created by a vote of the Denver City Council in 1974, as a special development district, to accomodate a variety of land uses and to protect and enhance the historic character of the area and its many architecturally significant structures. The B-7 zone has variety in building age, size and style not found on such a consistent level in other areas of the city. This historic aspect is what makes the B-7 development zone unique; it is the birth place of Denver as a City.
The Lower Downtown, technically labeled the B-7 zone district, is bordered on the west by the railyards, to the south lies the Auraria Higher education campus, to the east is the Skyline Urban Renewal land (part of the B-5 zone) and to the north a scattering of commercial uses. Within the B-7 zone, Union Station, the railway activity center and the developing Regional Transportation District (RTD) Transit Facility are the main activity nodes. The Larimer Square retail district adjacent to Lower Downtown on the SW corner, provides a low scale, pedestrian oriented shopping/entertainment corridor. The structures surrounding the Union Station Rail Center tend to be larger in scale than those throughout the district; they are four to six story brick buildings which served warehousing functions years ago. The land uses and buildings located in the northeast area of B-7 are inconsistent in style and use. Many are in poor structural condition and there are few sidewalks or other pedestrian facilities in the area.
A graphic representation of these existing land uses and general building types is provided below, Figure 1. This scenario, and the choice points concerning the balance between preservation and new construction are examined in Chapter 4-6 of this paper.
Union Station "BULKY STRUCTURES"
"STOREFRONT" "TRANSITION AREA"
Larimer Square SKYLINE URBAN RENEWAL
FIGURE 1: Existing Land Uses
The preceeding description of the study area provides a glimpse of the development considerations. Part I of this paper deals with the history of Lower Downtown as it relates to the architecture and development of the area. Impacts from surrounding land uses are also presented. The TDR concept is explored based on a thorough literature review of the subject, with highlights of TDR precedents in Denver. "TDR is an equilization process. What is taken away from one place must be made available somewhere else."3 Finally the existing planning and economic constraints which will effect the redevelopment of Lower Downtown and the precedents of TDR in Denver are discussed. Part I is thus an overview of development trends, past and present, in the B-7 zone and surrounding area region.
3m ichael Meshenberg, The Administration of Flexible Zoning Technique, Planning Advisory Service Report No. 318, Ch. 12 (1976).
Chapter 2: Overview of TDR and Lower Downtown Denver
The purpose of this chapter is to provide an overview of the existing condition of Lower Downtown, before venturing into specific issues. The Lower Downtown is the birthplace of Denver as a city. The short-lived Saint Charles Town was the settlement founded in 1858 near what is now Blake Street; by November of the same year the town had changed hands and consequently became known as Denver. This area of Denver contains the City's commercial record since the beginning of commerce took place there. Denver was a trading post from its beginning with Blake Street serving as the town's principle business corridor.
In 1863 the "great fire" destroyed most of the buildings on Market, Blake and Wazee Streets from 16th Street to Cherry Creek. The area was rebuilt almost immediately and by 1864 the commercial area of the Denver settlement also became the business center for the neighboring settlement, Auraria, which was located on the west side of Cherry Creek. The newly constructed settlement with its "far more presentable aspect and new and uniformly good buildings"^ is part of the first generation of buildings that gives the Lower Downtown its historic "character".
This first generation of buildings was built of brick, to insure against the loss of structures as happened with the wood frame
4Jerome Smiley, ed., History of Denver, 1978, pp. 370-75.
buildings in the "great fire" and because clay was an abundant natural resource to the area. The new Denver was designed and built by masons thus creating a group of buildings known as "Denvers Architecture without Architects".5 The structures were primarily narrow and two-stories, "with brick used for decoration as well as structure".6 This first generation of buildings has human scale, and narrow arched windows and doors. Approximately one fifth of the structures in the Lower Downtown belong to this generation. Constitution Hall, which burned down in 1977, was a classic example of the first generation of architecture in Denver, (see photo 1)
The railroad came to Denver in 1870 and ended the city's isolation; with the railroad came an era of growth, affluence and optimism. The district developed as a retail and wholesale trade
center with great success. The railroad era created a second generation of buildings; new money backed the new development which in turn brought about a more opulent style in the architecture. The buildings constructed between 1870-1890 are larger than those in the first generation; they tend to be four to six stories high with more ornamentation. The windows are rectangular and the building
proportions are more bulky. Several buildings in this second generation share the use of brick for ornamentation as seen in the first generation; pilasters, cornices and arches created in brick are examples. "Others follow the sensibility of the railroad era and 6
^Long Hoeft Report, Lower Downtown Architectural Inventory, 1980.
6 lb id.
exhibit elaborate moldings of stone, cast-iron and sometimes wood."7 Approximately one-half of the buildings in the Lower Downtown are of this generation.
The peak of social and business activity that existed prior to 1893 is represented by the Barth, Oxford and Columbia Hotels. All three hotels are examples of the architecture and commercial activity that flourished before 1893.
The economic panic of 1893 halted construction in Denver and the third generation of buildings did not emerge until after 1900. The last group of buildings were built for warehouse functions and tend to have large bays with floor to floor heights, typical of loft spaces. Due to rapid changes in the technology used in the construction industry, the buildings built in the 1900's emerge as two separate groups, although they are both considered to be of the third generation of structures in the Lower Downtown. "The first group has load bearing walls, expressed by massive pilasters and wide spandrels. The second group introduces metal to its structure with the result that the facades consist mainly of wire-glass windows and minimally of a multi-colored flat brick trim."8
Union Station, built in 1914 is the most important example of the third generation; it echos the commercial life of the district in the early 1900's.
7lbid. SI b i d.
The decrease in retail activity in Lower Downtown began when wealth brought down from the silver mines in the mountains spurred new real estate speculation; the speculation was focused on 16th Street to the area around the State Capitol and the Brown Palace. New real estate deals and with it the retail trade activity headed up town (or to what is now Upper Downtown). The economic panic of 1893 compounded the problems of the Lower Downtown and the site of Denver's origin no longer functioned as the City's business/trade center. The district continued as a wholesale and warehousing counterpart to the newly established commercial area Up Town.
The Lower Downtown was in for a long and gradual decline that continued for fifty years. Inadvertantly this decline is probably the single trend that preserved the area and its architectural records of the history of Denver. The buildings have now survived more than half a century of possible demolition and the original consistency of architecture gives the area an historic flavor in a unique setting. Lower Downtown has a human scale, due to the architectural limitations of the times in which they were built; human scale is part of the character of the area. The mixture of the building age, style and scale represent each distinct generation of early construction and architecture in Denver. The unique historical setting is an asset to the City of Denver.
The years of a dormant Lower Downtown are over now; the area is r,o longer "safe" from the development pressures of the Upper Downtown. The recent building boom that has affected the City and much of the
area is knocking on the door of this early settlement. Land values have increased over 1500% in the past three years in the Lower Downtown. Increases of this magnitude have placed pressure to develop and redevelop the land to its "highest and best use." Owners and developers are re-evaluating the timing for and type of development that might take place in the district.
An historical profile of Lower Downtown has been given. Next, it is important to examine the regional context of Lower Downtown to the City of Denver, focusing on adjacent land uses.
Lower Downtown is now an extension of the Financial/Business District located along 17th Street, and the rest of the B-5 zone uptown. Cherry Creek and the railyards are once again emerging as vital economic resources to Denver. Larimer Square, an existing retail district, was revitalized several years ago, and brought attention to the potential for redevelopment of this historic area. The Skyline Urban Renewal Project increased the work force living in downtown creating a new market for retail services and other goods.
The Auraria Higher education campus lies across Cherry Creek to the south. The campus attracts thousands of students who will effect the social and economic conditions in the Lower Downtown through their use of the area for transportation, shopping, and entertainment. The most recent project impacting the study area is the 16th Street Transitway Mall, which will provide a link between the commercial area Uptown and in Lower Downtown. All of these land uses are in transitional periods to some extent thus, as they change, so will the Lower Downtown. For this reason the following land uses that will help shape the future of the B-7 zone are discussed:
Surrounding Impacts: 1) B-5 business district; 2)
16th Street Transitway Mall; 3) Union Station & the Railyards; 4) Larimer Square; 5) Skyline Urban Renewal Project; 6) Auraria Campus; 7) Cherry Creek Development Project
The B-5 Financial District leads into Lower Downtown via 17th Street; this area has been highlighted as the major cause of development pressure in the area. The pressure to develop comes from a fairly recent (past 2 years) demand for high quality office space in Denver's CBD. High-rise office and residential structures, possibly because of loop holes in the B-7 revised zoning code (of 1974) are encroaching on the low-rise, people oriented character of Lower Downtown. Many special interest groups ranging from would-be developers to intent preservationists have helped bring attention to this changing district. Planning efforts are still in the draft
stages on the part of the City, the Denver Partnership and several other groups. It appears that the effort to control the impacts of the B-5 development pressure is making progress in the forms of public awareness, analyses to produce alternative development scenarios and a set of design guidelines as an optional approach for developers planning new projects.
The 16th Street Transitway Mall project has provided a link between Denver's two commercial areas. The project is nearing completion as a pedestrian mall although the redevelopment of the commercial uses and structures along the Mall Corridor are just beginning. The terminus of the Mall is at the Market Street Transit Terminal located in Lower Downtown between Market and Blake Streets. This facility is underway and is planned to be developed as a pedestrian activity center. These projects create the perception that the B-7 district is a part of "downtown" even though the architectural character is of another era. A new identity is the objective of the 16th Street transitway mall improvement project. "The 16th Street retail area is competing, in terms of achieving a distinct identity, with other regional retail centers and with other downtown districts and building complexes."9 This objective stirs hopes and expectation that the retail mall will flourish; bringing people to downtown. The activity of the mall will spill over to lower downtown via the transit link, thus creating a demand for shops, restaurants and other human services in B-7.
^Development Guidelines for 16th Street Mall, Denver Planning Office, pg. 8 (1981)
The railyards and Union Station will impact the B-7 zone tremendously based on the shape of future development. Union Station has been viewed much the same way the Market Street Transit Terminal is viewed; a pedestrian activity center. The extent of development is uncertain to date, however, it is assumed by preservationists and speculators alike that this activity node will attract many people. One scenario for the Union Station development envisions a large open plaza in the front of the structure with shopping, entertainment and restaurants. Lots of sitting places and a well paved ground surface are part of the picture. The wings of the station would be redeveloped as office, retail and other commercial space. Behind the terminal building would be a sheltered transfer facility for local bus, transit mall and other vehicles (as well as a place to connect with Amtrak service). Air rights development above the rail tracks would be organized for several functions, such as auto parking and housing.
This scenario is an example of the potential impact the development of Union Station and the adjacent rail yards would have on the B-7 zone. The people and activities this land use would bring can be integrated into the future development of the district to add to its character. This surrounding land use provides an array of opportunities and constraints that must be balanced and developed compatibly with the district.
Larimer Square is the only existing entertainment district in Downtown Denver at this time. Its nationally recognized historic
buildings and variety of retail shops and eating establishments bring many people to the area day and night. These features make the area a 24 hour mixed-use district. The impacts of this activity center on the Lower Downtown are straight-forward. People are brought to the area, providing a market for consumer goods and services. The storefront development of Larimer Square is continued along the Market Center block in Lower Downtown on Market Street between 15th and 16th Streets.
The continuity of retail uses at street level should be continued and maintained in all of Lower Downtown to continue to attract people both day and night. The design integrity of existing building facades can be restored throughout B-7, just as they have been along Larimer Square. The example of Larimer Square as a restored historic district, alive with various consumer activities a 24 hour mixed use district, should be followed in B-7.
The Skyline Urban Renewal land borders the B-7 zone from 15th to 20th Streets along the southeast edge. The buildings on this land have created an imposing wall of primarily housing units. The land use is compatible with the type of development proposed for B-7, although the height, bulk and character of the high rise buildings is in conflict with the character of Lower Downtown. The visual impacts of the Skyline projects are negative however they can serve as a lesson to the creators of new projects. The lesson is to build for the inhabitants of the central city, with designs that make the core
of Denver a livable neighborhood with people oriented designs and land uses.
Across Speer Boulevard to the southwest is the Auraria Higher Education Campus. The campus houses several colleges and programs for an assortment of degrees. The student population brings a new element to this "region".10 Students use transportation, restaurants, supply shops and many other retail outlets. They create a demand for goods and services, making the development of the Lower Downtown as a mixed use activity center a good idea. This student population will impact the transportation system in the region, from buses to bikeways. The impacts of this group of people must be considered in the policy making for redevelopment of Lower Downtown.
Cherry Creek is presently undergoing development as a natural land use providing pedestrian access to B-7. This land use creates an edge along B-7's western boundary. This active open space will add to the quality of life in the CBD by providing an alternative transportation sub-system that is non-polluting and recreational. The impact of this land use on Lower Downtown is reinforcing the pedestrian element, which has been stated as one of the objectives of the re-use of B-7. Such pedestrian facilities also reduce the need for car parking space within the zone, and support ground level retail uses that are pedestrian oriented.
10The region in this context is the B-7 zone district and the surrounding land uses which impact B-7 in some way. (i.e.
transporation, employment, high density office development)
Summary: Surrounding Land Use Impacts
All of the land uses mentioned effect and impact the B-7 zone. Some land uses place development pressure, in the form of a demand for office space. Other land uses bring people and activity to the region on a 24 hour basis, demanding additional goods and services. Each land use draws pedestrians or automobiles and must be considered in the planning and policies created to provide access points and land for catering to each transportation mode.
Transportation, access and land use, problems exist that must be reconciled in the redevelopment or consequently lived with for an undetermined period of time. Such loose ends will leave the B-7 zone unable to reach its potential as an integral but special place in Denver. Physical as well as legislative problems must be addressed in the redevelopment process. Public and private interest groups must actively commit themselves to development policy and process if a vital place to work, live, consume and experience the urban environment, is to be created.
Chapter 3: What is TDR?
The Operational Concept
Transfer of Development Rights (TDR) is a relatively new concept and indigenously American.H The basic concept is that a landowner whose right to develop a specific piece of land has been restricted, can still "use" this right to develop on another parcel of land thus .a development right is a creature of property law."12 it is one of the numerous rights included in the ownership of real estate. A development right is the right which permits the owner of land to build upon or develop that land. As the term is used here, development rights are the permitted but "unused" development potential of a zone lot. "The difference between the density which would be allowed under existing zoning and that which actually exists on any given parcel of land, expressed in suitable units such as square feet of building area, constitutes the unused development rights of property. It is these development rights which become the subject of the transfer."13
Legally, property may be viewed as a "bundle of rights"; certain rights of property can be separated from the bundle and transferred. Examples of these are seen in the separation of mineral rights and utility easements, to limit or restrict use from the property where they exist. Separation of certain rights, from this "bundle of
UDonald Carmichael, "Transfer of Development Rights: Early American Precedents", TDR ed., Jerome Rose (1974).
l^Budd Chavooshian, TDR: A New Concept in Land Use Management, 1973. 13Jared B. Shlaes, Planning, "Who pays for TDR?", July 1979.
rights" that come with the ownership of property, make the TDR concept feasible. TDR allows the transfer of development rights, or building density, from one parcel of land to another. "TDR is a system designed to permit the orderly reallocation of density within a given district in a manner which meets legitimate planning objectives without placing unfair burdens on the property owners."14 The TDR concept described here is in context to a TDR plan, which requires that the rights be made transferable on a limited basis within designated transfer zones(s).
The TDR concept probably has its beginnings in the concept of layered space which emerged at the turn of the century, as the railroads started selling the air space over the tracks for uses independent of the railroad. Next came zoning with its specified limits and codes regulating the use, height, and bulk of developments. Zoning began in a serious way with the 1926 Euclid decision, a Supreme Court ruling which upheld zoning and basically excepted the notion that regulating development was in the interest of the public welfare. By the 1950's condominium statutes made possible the ownership of a piece of property that stood on a piece of land, without owning the land below.
Density zoning also came about at this time which departed from allocating density on a lot by lot basis; density could also be alloted as a total volume for an entire tract of land or district.
This allowed developers to concentrate or distribute density within a given area. Examples of density zoning are the Planned Unit Development (PUD) and Cluster Development. TDR has its roots in these methods and techniques although new issues have evolved with the concept.
The traditional view of private property is that development rights come ". . .with the land itself, up from the bottom, like
minerals or crops."15 in the early 1960's new ideas concerning the development rights of land owners and the legality of separating this right from the land surfaced. TDR assumes the legality of this right, and this issue seems to be settled. "In the Supreme Court case of United States v. Causb.y the question was settled that the owner of land also owns the airspace above his land up to a level which he can take control of and use. In accordance with this principle, Section 38-32-101, C.R.S. 1973, recognizes the ownership in areas above the surface of the ground as "estates, rights, and interests in land, and further allows the ownership of the airspace to be divisible from the ownership of the surface area."16 Other issues raised by the
surfacing of TDR plans are political and economic in nature. "Who pays for TDR plans" and "is TDR in line with the due process clause of the 14th amendment that requires equal treatment for all persons," have been asked. The list of issues raised by the concept is lengthy.
15Reily, The Use of Land, pg. 140.
16Denver University Law Student, Memo: Legal Review of Proposed TDR Ordinance for B-7, 1980.
The recent (past 20 years) interest in TDR as a land control tool is part of the search to find alternatives to zoning, since zoning has sometimes been found inequitable in its application and has caused some undesirable patterns of development .the most serious fault in our zoning laws lies in the fact that they permit an entire area to be devoted to a single use."17 This is one view of the shortcomings of the zoning technique; Jacobs criticizes zoning in that it doesn't address social needs. Another common thread of TDR proponents is the search for a technique that supports land planning and management. This approach to TDR uses the existing development and a new map which directs the type of use density to which land may be developed. Development rights are then distributed to all landowners based on acreage owned or the market value of land. This use of TDR is a replacement to zoning whereas
previously it is defined TDR that is used as an arm of zoning.
Uses of TDR include the preservation of historic structures or neighborhoods, open space, and agricultural lands; as mentioned above it can be applied to general land planning and management as well. Large scale clustering of development is an example of land planning and is one method of achieving a balance between the land developed and the land left as open space. "Looking back over the century, however, TDR appears as the culmination of a trend toward a more fl exible conception of space that promises change. ."18
17jane Jacobs, The Death and Life of Great American Cities.
18John Costonis, Planning "Whichever Way You Slice it, TDR is Here to Stay," July 1974, pp. 10-15.
In defining TDR, it is necessary to discuss the concept in terms of a plan or program, that provides the framework within which it is used. A TDR plan requires that the "unused" development rights be made transferable on a regulated basis either within a given zone or using a dispersed model. (See Figure 1) The zone method designates an area from which development rights are transfered as well as an area which will receive the unused development right. This receiving area must be allowed to develop property beyond what is ordinarily permitted. A dispersed model allows transfers within a given district but does not designate areas within that district as "sending" and "receiving". A TDR plan permits the orderly reallocation of density and must be in tune with the city's comprehensive plan, to insure proper treatment. Conceptual questions raised concerning the zone plan are: What will be the impacts of any increased density in the receiving areas? Can a TDR plan insure property owners a market to buy and sell the rights? Can the community be assured that unorderly exchanges of development rights among private property owners will not take place? John Costonis, a renowned author on this subject comments, "when properly managed, density increases on some lots, offset by proportional reductions on others will not bring the walls down."l9
The use of TDR for land planning and management, on a city wide regional basis, as a replacement to zoning involves other concerns. Impacts of density reallocation must be determined. Selection of spaces and structures to preserve must not be arbitrary. A comprehensive plan 19
to address the new density allocations must be prepared to determine the appropriateness of higher/lower density. The impacts to the various communities of the city or region must also be addressed. As noted by Fred Bosselman, who has written of the taking issue of private land, ". the regulation of land, if reasonably related to a valid public purpose, can never constitute a taking."20
A TDR plan can provide an effective control for land use if it is rooted in a sound planning framework, which must also have legal teeth via an adopted ordinance. TDR can monitor and regulate growth as well as compensate property owners who's development right on land has been restricted.
The perspective that has ruled in America is land use governance which ignores economic impacts that regulations placed on landowners. "TDR's require that the physical and economic dimensions of land use regulation be viewed simply as two sides of the same coin."21 This point brings up one conflict between TDR opponents and proponents. .land use regulations with compensation.
TDR has been discussed as a land use tool; as a tool for protecting valuable community assets such as open space and historic landmarks and as a tool for planning and guiding growth through density management. There have been many proposals written in an attempt to apply these
20Fred Bossleman, The Taking Issue, 1973.
21John Costonis, Planning "Whichever Way You Slice It, TDR is Here to Stay," July 1974, pp. 10-15.
concepts to districts within a city or entire cities, each providing a means to let TDR work. A central problem for each plan has been to insure all parties involved with a fair solution. Property owners
need a market to buy and sell development rights. City officials are concerned with any impacts a TDR plan will bring to an area. Community members wonder if TDR is for the public welfare or just another private developer's advantage. The value of a development
right is also in a state of flux. Each TDR plan, based on the
location of the city, region, or state has a set of questions that affect the plan's legal, political, economic, and social situations.
The purpose of the TDR overview is to orient the reader to the scope of TDR. Two potential uses for TDR are proposed in the literature: the protection of scarce or limited resources and the
timing and control of land development. This paper deals with the protection of a resource -the historic/architectural district in Denver's Lower Downtown.
Precedents of TDR in Denver.
Transfer of Development Rights precedents in Denver completes the overview on the B-7 zone and the review of TDR. The examples included in this section will provide a current profile of the TDR debate in Denver and serve as a basis for the discussion of Denver Planning in Part Three titled Planning Study.
TDR is not a novel concept in Denver; a limited version exists in the B-5 zone due to Section 612.10-4(l)(a) of the City Charter which
permits 2 or more abutting zone lots to be designated as a single zone lot. Contiguous parcels can thus be viewed as one parcel and the total allowable square footage of development can be "bundled" onto either lot. This Section provides for the preservation of history and scale in architecture by shifting the development potential from one lot to the next.
The transfer mechanism also provides just compensation to the landowner who retains the historic structure through the sale of the rights to the adjacent property owner; an economic wipeout is thus avoided. An example of this type of transfer took place between a building owned by Conglomerate Associates and the YMCA. Conglomerate donated the rights in exchange for a $2.5 million tax deduction. The YMCA gained the opportunity to expand 25% beyond the allowable zoning limits imposed by the city. Conglomerate donated 81,000 sq.ft, of development rights to the YMCA. Although these two sites are across the street from each other, the transfer was still allowed under Section 612.10-4 which was amended to view properties across the street from each other as contiguous. The Colorado case of Francis v. Denver. 160 Colo. 440 decided this issue.
Another precedent was the request by the owners of the Navarre Hotel to transfer development rights from the location of their property to another site several blocks away. The Navarre contains 16,000 sq.ft, of building leaving approximately 75,000 sq.ft, of "unused" development potential allowed under B-5 zoning (10:1 FAR). The request went before the Board of Zoning Adjustment with the owners
asking for a variance to the existing ordinance (which allows such transfer between contiguous parcels only). The Board of Adjustment voted against the variance request, however, the city's zoning department then began to draft an ordinance which would make this sort of transfer possible. The ordinance would apply to buildings within the B-5 zone only; the City Charter requires that all landowners within a given zone be treated equally, thus an ordinance that applies to the entire zone would be within the legal constraints of the Charter.
The TDR ordinance for the B-5 zone was completed by a member of the zoning administration and then adopted by a unanimous vote of the City Council on January 18, 1982. The ordinance allows designated Denver Landmarks in the B-5 zone to transfer their unused development rights to other sites within the zone. The result of the ordinance on the Navarre is that the owners will be able to use the revenue gained from the sale of the rights (to the Oxford Development Co. at 18th and Glenarm) to restore the Hotel. The Navarre, located at 1725 Tremont is one of Denver's best known buildings and was facing demolition due to the financial strains of owning a building that costs more to retain than demolish.
Before the passage of the TDR ordinance it was not economically feasible to rehabilitate an historic building. Owners of such buildings were under pressure to sell their property to high-rise developers; one owner was offered $10 million for his six story building. The ordinance makes preservation and restoration of
historic buildings economically feasible thus economic incentive for restoration has proven to be a powerful tool.
Elizabeth Schlossler, of Historic Denver, explains "For the first time, downtown Denver's historic properties have a real chance for survival in the economic market." She adds: "The preservation of those buildings will give the downtown a sense of history and architectural diversity that would otherwise have been lost."22 22
22Elizabeth Schlossler, Historic Denver News, "TDR Ordinance Passes!", Feb. 1982, pg. 3.
ILLUSTRATION OF DEVELOPMENT RIGHTS TRANSFER
" -v-' -#v r
landmark building (A) utilizes only a fraction of the development rights of the site, the remainder of which (B) are transferred to various other sites within a transfer district and appear as additional bulk (C} on neighboring buildings.
Chapter 4: The Economics of TDR
"Public Preservation of privately owned open space, historic sites, landmark buildings and even marshes, is made doubly difficult by the "either/or" concept of land use and the pressure of private economic self-interest."23 We think of historic preservation in terms of either saving a historic landmark or demolishing it and replacing it with a more economically productive use. The driving force behind this "either/or" dilemma is that the private self-interest views land as a commodity that an owner is entitled to get the most of. The battle between property owners and government has waged for over 50 years, with owners still trying to minimize the impacts of public regulation on private economics.
The dilemma exists because the values of the public sector and private property owner are different. The public sector attempts to protect the public health, safety, morals and welfare. The private property owner, on the other hand, tends to value their own economic interests, seeking profits through the use and development of property. The attempt by both interest groups to maximize different values creates a problem in the process of community development, specifically when public benefits minimize private economic gains. "Public and private sectors work through complex regulatory procedures which do not adequately deal with the primary force shaping land use
23e11is Gans, "Economic Effects of a TDR System: Marin County, Calif. P.A.S. Report No. 304, pg. 34.
and developmentprivate economic self-interest."24 How to use this powerful force in a way that is effective and for the public's welfare is the issue in question.
Part I of this document has provided an overview of the TDR concept; however, elements of the concept that relate directly to the economic feasibility of the mechanism will be restated. TDR basically allows development rights to be severed from one parcel of land and transfered to another. The "wipeout"25 that would fall on a property owner of a historic landmark is avoided through compensation gained from the sale of these development rights. Instead of destroying a landowners profits through land use regulation, the right to develop is marketed and used elsewhere.
The scenario suggested for use in the B-7 zone, is that owners of "contributing structures"* along with owners of landmark buildings, are able to use TDR to preserve the buildings and avoid this wipeout. Generally a landowner is only subject to a wipeout when public regulation restricts the use or development of land to a point of economic hardship. In the B-7 zone, landowners could use TDR as a way to avoid the economic burden of preserving an older structure even
^Donald Hagman, Windfalls and Wipeouts, in the Good Earth of America: Planning our Land Use. (C. Harris, ed. 1974)
Contributing structures are buildings in the lower Downtown area that have architectural significance due to historic designation, character in terms of building scale, materials, etc. or building use such as a retail or entertainment establishment.
though public regulation has not placed the restriction against redevelopment of their property. Thus TDR is an alternative way to preserve significant buildings while providing an economic incentive to do so.
TDR coupled with Tax incentives may achieve a comparable economic return to the return possible from a new construction project. The benefits of preservation tax incentives are numerous and vary based on the building and type of preservation proposed. An explanation of the types of tax benefits and background information is provided in Appendix B.
The concerns of the private sector are important in the study of economic feasibility since the private development community is a driving force in the physical development of a city. Ideally the power of economics is a joint venture between the public and private sectors focusing on the community's welfare. This assumption is not realistic in all arenas. The private sector is concerned with: a) demand for various land uses; b) marketability of office space, housing units, etc.; c) cost of land and allowable density on the land; d) tax benefits of a project; e) incentives in building and zoning codes; f) premiums; g) availability of transportation and employment in the area.
Economic factors have influenced the amount and type of development that is occurring in B-7 at the present time. Land values have increased over 1500% since 1978, going from $10.00-$20.00/square
foot to over $200.00/square foot in recent land sales. There is and has been a demand for 1st Class office space in Denver; this demand was not adequately met in the B-5 zone, which is the City's business and financial district, so the development wave moved down 17th Street to the B-7 zone. This shift is the primary cause of escalated land values, as many realtors, developers and other interest groups have suggested.
The maximum floor to area ratio (F.A.R.) in the B-7 zone is 4:1; F.A.R. 2:1 is the base and an additional 2:1 is possible through the provision of various amenities (as stated in the B-7 zoning code). An illustration of what these F.A.R.'s mean is given in the following example. On a 1/2 block parcel of land in the B-7 zone, which is 50,000 square feet of land, a 16 story building with parking for 400 cars can be built (this satisfies zoning requirements). This size development also maximizes the development potential of a one-half block parcel and will bring the owner the desired rate of return on
Limits of the Economic Study
Test the economics of the TDR mechanism by conducting case studies of various sites within the B-7 zone. The case studies are site specific and weigh the economic benefits of 2 different development approaches. The sites were chosen based on an analysis outlined under METHODOLOGY, (see the subsection A) A
26city West Economic Facts, Memo to Downtown Denver, Inc., Nov. 1981.
determination will be made regarding the feasibility of TDR from the private sector point of view. The highest economic return is not the sole basis of the feasibility, however, it is a cricital part of the study. Other elements that play a role in the determination of economic feasibility include the present value of money concept, the time period an investment is tied up, the tax incentives available and the desired internal rate of return that a development can bring a property owner.
Framework for Case Studies
The four preservation sites are studied based on potential income from rehabilitation v. new development and the present value of money is used to compare the profit range of both types of development. The three receiving sites are studied in terms of the impacts of height, bulk and parking space as well as the potential profit from developing the land at a F.A.R. 4:1 v. F.A.R. 6:1. The basis for the F.A.R. 4:1 is the maximum allowed F.A.R. under the existing B-7 zoning code. The
F.A.R. 6:1 is the new maximum allowable F.A.R. under the TDR ordinance
designed for the purposes of this study. (This ordinance is included in this section.) The potential income from the use of TDR's in a development are presented under the F.A.R. 6:1 project.
A. Methodology: for Site Selection
Conduct an analysis of the B-7 zone including: 1) a land use inventory; 2) determine landmark buildings; 3) classify each building by the generation of architecture it belongs to;
5) determine which buildings are "contributing" to B-7's scale
and character; 6) calculate "unused" floor area of each building based on BASE F.A.R. and size of land.
Choose 4 sites for preservation case studies and 3 sites as receiving sites for testing economic feasibility of TDR.
Compile site specific data on all 7 buiIdings/parcels to be used in case studies.
Develop criteria by which economic feasibility will be judged.
- Profit is the measure by which the feasibility of TDR is judged from the private sector view.
- TDR is a flexible zoning technique that can be used to preserve the historic character in Lower Downtown.
- The medium of transfer for the TDR study is one square foot (sq.ft.) of developable space. Thus 1 sq.ft. = 1 TDR.
- The value given 1 TDR is realistic given the present value of 1 sq.ft, of leasable office space in Denver.
- All case studies represent office space.
- The buildings used in the case studies contribute to the character of B-7, in their scale, texture, proportion and alignment.
- A rehabilitation project (thus preserving the building) takes six months.
- Contruction cost for rehabilitation projects is $55.00/sq.ft.
- A new construction project takes 2h years.
- The receiving parcels used in the case studies do not contribute to the character of Lower Downtown.
- Construction cost for new construction is $75.00/sq.ft.
- One parking space requires 350 sq.ft.; for every 500 sq.ft, of office space a development must provide one parking space.
- All receiving sites will provide two levels of the required parking below grade. A maximum of 214 cars can be parked on the 2 levels below grade given a 1/2 block parcel development. (50,000 sq.ft.)
I. By which preservation and receiving site were determined:
a. Preservation Sites: Does the structure have historic or
architectural merit? Is the structural condition of the building sound? Does the structure have any "unused"
b. Receiving Sites: Is the existing structure of little or no significance to B-7? Is the location of the parcel in an area of B-7 suited for new development? Is the parcel likely to be re-developed? Will the site serve as an interesting test case? II.
II. By which I judge the feasibility of TDR as an economic incentive to encourage preservation of landmark and "contributing" structures.
a. Does the TDR/Preservation alternative bring the property owner a return on investment comparable to the return possible from new construction?
b. Is the profit from a TDR/Preservation project an adequate return on investment?
c. How does the time involved on a development project effect the profits from the project?
d. Based on A-C, is TDR a feasible mechanism for the private sector?
D. Ordinance to Allow the Transfer of Unused Development Rights from Property in the B-7 Zone
100.01(a) Transfer of Development Rights from Historic and Contributing Structures. To authorize, upon appeal, subject to terms and conditions fixed by the Board of Adjustment, the permit to transfer unused development rights or underdeveloped floor area from a zone lot containing a structure that is designated significant to the character of the B-7 zone.
(1) This procedure is allowed only with the B-7 zone district, and may be utilized a maximum of twice for any specific property. The amount of unused floor area that may be transfered in any on application is a minimum of 50% of the maximum defined below.
(2) The maximum amount of unused floor area which may be transfered from a zone lot is the difference between the existing gross floor area in the structure and the maximum gross floor area permitted by the B-7 zoning regulations. An
additional F.A.R. 2:1 beyond the zoning regulations maximum, is permitted from zone lots which preserve and restore the existing structure and do not develop the zone lot further. (2:1 or existing sq.ft, plus 2:1) This is a Preservation Premium.
(3) The maximum amount of floor area that may be
purchased by a non-preservation zone lot is an additional F.A.R. 2:1 beyond the present maximum allowed by zoning (thus 6:1). This additional F.A.R. is achievable through the purchase of development rights only. This is a TDR purchase premium.
(4) Every application for TDR shall contain the
signatures of the owners of all properties
involved in the transfer.
(5) The medium of transfer is one square foot of
developable space for every one square foot of unused development space.
All transfers approved by the Board shall be recorded by the Zoning Administration with the Clerk and Recorder, with a statement, signed by the owner of the property designated Preservation, accepting the new physical limitations placed on the property as a result of the transfer.
Once the recording of the transfer is completed, the Zoning
Administrator shall administer the provisions of this
ordinance with these restrictions:
(1) The use of the transfered floor area is not allowed until the preservation structure is useable and rehabilitated according to the
Building Renovation Design Guidelines, prepared by the Civic Design Team of the Denver Partnership.
(2) If the preservation structure is partially or completely destroyed after a transfer of unused development rights, no new structure shall be built beyond the floor area of the former structure unless additional floor area is
permitted through a new application or the combining of zone lots.
(3) Any premiums awarded to projects are subject to design guidelines* and a design review,** to insure that the increases in height and bulk of a project are still compatible with the development objectives of Lower Downtown.
Note: The Preservation Premium and TDR Purchase Premium are
included in the new revised zoning code for the B-7 zone. (For the purpose of the case studies)
One TDR = One square foot of unused developable space
The Value of One TDR = $25.00 to $30.00. This figure is based comparable rents for rehabilitation space in Lower Downtown.
The salable price of one square foot of space in a New Construction project is $125.00 to $150.00 (includes costs).
*An example of the guidelines: for every five stories of vertical building a setback of ten feet is required, thus insuring adequate light for the ground area below.
**The design review system is specified in a pamphlet put out by the Planning Department. Design review is a public-private negotiation process that ensures compatible and proper building design, proportions, scale, texture and alignment.
The salable price of one square foot of space in a Rehab project is $100.00 to $120.00 (includes cost).
The present value concept is used to illustrate the real value of the salable price/sq.ft. of each type of project; the factor p.v. introduces is time.
The total dollar value of a development is determined by multiplying the potential developable square footage by the salable price per square foot.
Chapter 5; Case Studies
The four preservation sites will be presented first; when analyzing the economics of the "sending" sites, the unused development rights from the base F.A.R. of 2:1 (given by existing zoning) is included in the total TDR's figure (in square feet). Thus, if a building only used one-half of the square footage allowed by zoning, the other one-half of the development rights are considered as "unused" and given monetary value for selling purposes.
The square feet figures (sq.ft.) were gathered at the County Assessor's office in Denver and checked through realtors records. The value given to one sq.ft, of TDR was determined based on comparable rental rates for comparable rehab, office space in B-7. All figures used in this chapter are based on existing conditions. The value/sq.ft. of space includes all costs (hard and soft).
SITE #1 Wazee Exchange, 1529-43 19th Street BASE F.A.R. 2:1 (by-right)
Land: 31,300 sq.ft.
Building: 35,000 sq.ft.
"Unused" Development Rights: 27,600 sq.ft.
Preserve and Rehabilitate Building
TDR's by-right: 27,600 sq.ft.
TDR Premium: 62,600 sq.ft.
TOTAL TDR's: 90,200 sq.ft.
CASE STUDY #1: (continued)
Value/sq.ft. or one TDR: $25 to $30 Potential Income from TDR's:
a) 90,200 x $25.00 = $2,255,000.00
b) 90,200 x $30.00 = $2,706,000.00
Value of existing building: $100.00 to $120.00/sq.ft.
a) 35,000 x $100.00 = $3,500,000.00
b) 35,000 x $120.00 = $4,200,000.00
Total Income from sale of TDR's plus existing building:
a) $2,255,000.00 + $3,500,000.00 = $4,755,000.00
b) $2,706,000.00 + $4,200,000.00 = $6,906,000.00
INCOME RANGE: $5.7 to $6.9 million
New Development on Site
Maximum F.A.R., 4:1 (possible by providing various amenities) Potential sq.ft, based on maximum F.A.R.: 4 x 31,300 =125,200
Value/sq.ft. of building: $125,500 to $150.00
a) 125,200 x $125.00 = $15,650,000.00
b) 125,200 x $150.00 = $18,780,000.00
CASE STUDY #1: (continued)
VALUE RANGE: $15.6 to $18.7 million
Present Value Adjustment: (see explanation)
a) 125,200 x $95.00 = $11.894.000.00
b) 125,200 x $113.00 = $14.147.600.00
ADJUSTED INCOME RANGE: $11.8 to $14.1 million
A rehabilitation project takes approximately 6 months whereas a new development takes approximately 2H years.27 Due to the different time periods each project will take, a method of comparing the potential income from each type of development project is necessary. Present Value (P.V.) is a method of equalizing the two incomes. For the purpose of these case studies the New Development income is adjusted to a present value that is comparable to the income of a rehabilitation project.
The formula for adjusting the new development figure is: value/s.f. 7 1.32 = P.V./sq.ft.
Thus, the income range for new development project:
$125.00 t 1.32 = $ 95.00/sq.ft.
$150.00 t 1.32 = $113.00/sq.ft.
27Grubb and Ellis, Investors Outlook Quarterly Report on Real Estate Investment, Volume 2 Number 1, 1st 1/4 1982.
CASE STUDY #1; (continued)
The comparison of the income potential for the two development projects is:
Preservation New Development
$5.7 to 6.9 million $11.8 to $14.1 million
NOTE: The same Present Value concept will be used in the next three
SITE #2: ELM Distributors. 1621 18th Street BASE F.A.R.: 2:1 (by-right)
Land: 50,000 sq.ft.
Building: 91,000 sq.ft.
"Unused" Development Rights: 9,000 sq.ft.
Preserve and Rehabilitate Building
TDR's by-right: 9,000 sq.ft.
TDR Premium: 100,000 sq.ft.
TOTAL TDR's: 109,000 sq.ft.
Value/sq.ft., or one TDR: $25 to $30 Potential Income from TDRs:
a) 109,000 x $25 = $2,725,000.00
b) 109,000 x $30 = $3,270,000.00
Value of Existing Building:
a) 91,000 x $100 = $9,100,000.00
b) 91,000 x $120 = $10,920,000.00
CASE STUDY #2: (continued)
Total Income from sale of TDR's plus building:
a) $2,725,000.00 + $9,100,000.00 = $11,825,000.00
b) $3,270,000.00 + $10,920,000.00 = $14,190,000.00
INCOME RANGE: $11.8 to $14.1 million
New Development on Site
Maximum F.A.R.: 4:1 (possible by providing various amenities)
Potential sq.ft, based on maximum F.A.R.: 4 x 50,000 = 200,000
Value/sq.ft. of building: $125.00 to $150.00
a) 200,000 x $125 = $25 million
b) 200,000 x $150 = $30 million
INCOME RANGE: $25 to $30 million
Present Value Adjustment:
a) 200,000 x $95 = $19 million
b) 200,000 x $113 = $22.6 million
ADJUSTED INCOME RANGE: $19 to $22.6 million
SITE #3: Wells Fargo Building. 1338 15th Street BASE F.A.R.: 2:1 (by-right)
Land: 10,800 sq.ft.
Building: 1,500 sq.ft.
"Unused" Development Rights: 20,100 sq.ft.
Preserve and Rehabilitate Building
TDR's by-right: 20,100 sq.ft. TDR Premium: 21,600 sq.ft.
TOTAL TDR's: 41,700 sq.ft.
Value/sq.ft., or one TDR: $25 to $30
Potential Income from TDR's:
a) 41,700 x $25 = $1,042.000.00
b) 41,700 x $30 = $1,251,000.00
Value of Existing Building: $100 to $120 per sq.ft.
a) 10,800 x $100 = $1,080,000.00
b) 10,800 x $120 = $1,296,000.00
Total Income from Sale of TDR's plus Building:
a) $1,042,000.00 + $1,080,000.00 = $2,122,000.00
b) $1,251,000.00 + $1,296,000.00 = $2,547,000.00
INCOME RANGE: $2.1 to $2.5 rail lion
CASE STUDY #3 (continued)
New Development on Site Maximum F.A.R.: 4:1 (possible by providing various amenities)
Potential sq.ft, based on maximum F.A.R.: 4 x 10,800 = 43,200 sq.ft.
Value/sq.ft. of building: $125 to $150 a) 43,200 x $125 = $5,400,000.00 b) 43,200 x $150 = $6,480,000.00
INCOME RANGE: $5.4 to $6.4 million
Present Value Adjustment: a) 43,200 x $95 = $4,104,000.00 b) 43,200 x $113 = $4,881,600.00
ADJUSTED INCOME RANGE: $4.1 to $4.8 million
SITE #4: Hitchinqs Block, 1624 Market and 1322-32 17th BASE F.A.R.: 2:1 (by-right) Land: 31,250 sq.ft. Buildings: 92,900 sq.ft, (includes all but one Hitchings block) Street building of
"Unused Development Rights: 0
CASE STUDY #4 (continued)
Preserve and Rehabilitate Building
TDR's by-right: 0
TDR Premium: 62,500 sq.ft.
TOTAL TDR's: 62,500 sq.ft.
Value/sq.ft., or one TDR: $25 to $30 Potential Income from TDR's:
a) 62,500 x $25 = $1,562,500.00
b) 62,500 x $30 = $1,875,000.00
Value of Existing Building: $100 to $120 per sq.ft.
a) 92,900 x $100 = $ 9,290,000.00
b) 92,900 x $120 = $11,612,500.00
Total Income from Sale of TDR's plus Building:
a) $1,562,500.00 + $9,290,000.00 = $10,862,500.00
b) $1,875,000.00 + $11,612,500.00 = $13,487,500.00
INCOME RANGE: $10.8 to $13.5 million
New Development On Site
Maximum F.A.R.: 4:1 (possible by providing various amenities)
Potential sq.ft, based on maximum F.A.R.: 4 x 31,250 = 125,000
CASE STUDY #4 (continued)
Value/sq.ft. of building: $125 to $150
a) 125,000 x $125 = $15,625,000.00
b) 125,000 x $150 = $18,750,000.00
INCOME RANGE: $15.6 to $18.7 million
Present Value Adjustment:
a) 125,000 x $95 = $11,875,000.00
b) 125,000 x $113 = $14,125,000.00
ADJUSTED INCOME RANGE: $11.8 to $14.1 million
The four preservation sites vary in the size of the land (sq.ft.) as well as the existing number of sq.ft, of building. These two variables are used to calculate the amount of sq.ft, allowed on the land based on the F.A.R. limit in the zoning code. Given the variation in these variables, the potential profit from each site will vary in the dollar amount. The findings of each case study are presented in Chapter 3 of this section.
Note that a larger dollar amount is made when a new construction project is placed on each site. This dollar amount does not reflect the percentage of profit made on investment. Several variables effect the dollar amount possible from any development project. Variables include the total number of sq.ft, of building and the value per
sq.ft, of the building. In the following chapter the cost to profit ratio that plays a key role in determining the economic feasibility of rehabilitation and new construction will be discussed.
At this stage of the economic study it is obvious that the existing zoning code through its F.A.R. premiums, makes the new construction route equally or more attractive than the preservation route. However, it is only when land has been aggregated into larger parcels (at least 40,000 sq.ft.). That the new construction project appears to have a larger income range. "Landmarks were endangered both by the zoning ordinance's encouragement of new office buildings and by urban economics. Older buildings not ony enhanced the city's character through their historic associations and architectural distinctions, they also provided wells of light and air amid skyscrapers. Yet their economic return could not approach that of the office towers which might replace them, so the urge to demolish was overwhelming."28 This comment illustrates the need to provide a mechanism within the zoning code that is an economic incentive to preserve architectural records of Denver's past.
The purpose of the receiving site case studies is to illustrate the maximum development on each site. The impact in terms of building height and bulk is thus perceivable. The F.A.R. 6:1 is used by
28j. Pyke, Landmark Preservation 2 and 3 (Citizens Research Foundation, 1970).
developments that have purchased TDR's, (up to an additional 2:1) from property owners of preservation sites. Each receiving site is presented, applying the F.A.R. 4:1 and F.A.R. 6:1, to compare the potential building size and parking space required under each F.A.R. limitation.
The parcels chosen as receiving sites contain structures of little or no significance to the character and architectural consistency of the Lower Downtown. It is possible that a new development on the site would be a "higher and better use"29 of the land. The new developments would hopefully contribute more to the
district, than the existing land use, through the guidelines and design review required for projects that acquire various premiums in the form of additional floor area. Site #2, a full block parcel, does contain a 91,000 sq.ft, building that has historical character and contributes to the architectural quality of B-7. In this case, the building must be retained and integrated into the re-development of the parcel.
The case studies in this section are presented in terms of "Impacts" and "Income".
Impacts: Are addressed in terms of the potential height and bulk of a structure. Calculations are based on both F.A.R. 4:1 and
^Higher and better use in context to this paper refers to a development that provides a compatible land use, as stated 1n development policy and objectives by the City. The design and character of the structure fit into the fabric of B-7 based on given development guidelines. This is a judgement by the author.
F.A.R. 6:1 with parking requirements explained as number of spaces. Potential building heights are based on 25% and 40% lot coverage to provide a perception of height impacts.
Income: A comparative analysis of the income potential from a new
development at F.A.R. 4:1 vs. F.A.R. 6:1. The F.A.R. 6:1 analysis includes the cost and profits from TDR use.
CASE STUDIES: Receiving Parcels, "Impacts" and "Income"
SITE #1: H block parcel on west side of Market between 19th and 20th Street, (see map)
BASE F.A.R.: 2:1
Land: 50,000 sq.ft, [h block parcel)
Building: none, demolish all
F.A.R. 4:1 "IMPACTS"
TOTAL development potential: 200,000 sq.ft.
TOTAL parking required: 400 spaces
Below grade parking: 214 spaces / Above grade parking: 186 spaces 186 spaces @ 350 sq.ft. = 65,100 sq.ft, above grade for cars.
a) Assume 40% lot coverage a 10 story building is possible
b) Assume 25% lot coverage a 16 story building is possible
F.A.R. 6:1 "IMPACTS"
TOTAL development potential: 300,000 sq.ft.
TOTAL parking required: 600 spaces
Below grade parking: 214 spaces -- Above grade parking: 386
SITE #1 CASE STUDY (continued)
386 spaces @ 350 sq.ft. = 135.100 sq.ft, above grade for cars.
a) Assume 40% lot coverage a 15 story building is possible
b) Assume 25% lot coverage a 24 story building is possible
F.A.R. 4:1 "INCOME"
Sq.ft, potential: 200,000 sq.ft.
Comparable sale value per sq.ft.: $125 to $150
a) 200,000 x $125 = $25 million
b) 200,000 x $150 = $30 million
Cost of New Construction:
200,000 sq.ft, x $75.00/sq.ft. = 15 million
Adjusted Income Range: $10 to $15 million
F.A.R. 6:1 "INCOME"
Sq.ft, potential: 300,000 sq.ft.
Comparable sale value per sq.ft.: $125 to $150
a) 300,000 x $125 = $37.5 million
b) 300,000 x $150 = $45 million
TDR's Cost: $25
to $30 per sq.ft, x $25 = $2.5 million x $30 = $3 million
Cost of New Construction:
300,000 sq.ft, x $75.00/sq.ft. = $22.5 million
Adjusted Income Range: $12.5 to $19.5 million
NOTE: For all 3 receiving site income studies, the only costs subtracted are for purchasing TDR's and the price of construction.
SITE #2: 1700 15th Street and surrounding parking area
BASE F.A.R: 2:1
Land: 100,000 sq.ft, (one full block)
Building: 97,000 sq.ft., retain as part of new development
F.A.R, 4:1 "IMPACTS"
TOTAL development potential: 400,000 sq.ft.
TOTAL parking required: 300 spaces
Below grade parking: 428 spaces / Above grade parking: 372 spaces 372 spaces 0 350 sq.ft. = 130,200 sq.ft, above grade for cars.
a) Assume 40% lot coverage a 10 story building is possible
b) Assume 25% lot coverage a 16 story building is possible
F.A.R. 6:1 "IMPACTS"
TOTAL development potential: 600,000 sq.ft.
TOTAL parking required: 1200 spaces
Below grade parking: 429 spaces / Above grade parking: 772 spaces
772 spaces # 350 sq.ft. = 270,200 sq.ft, above grade for cars.
SITE #2 CASE STUDY (continued)
a) Assume 40% lot coverage a 15 story building is possible
b) Assume 25% lot coverage a 24 story building is possible
F.A.R. 4:1 "INCOME"
Sq.ft, potential: 400,000 sq.ft.
Comparable sale value per sq.ft.: $125 to $150
a) 400,000 x $125 = $50 million
b) 400,000 x $150 = $60 million
Cost of New Construction:
400,000 sq.ft, x $75.00/sq.ft. = $30 million
Adjusted Income Range: $20 to $30 million
F.A.R. 6:1 "INCOME"
Sq.ft, potential: 600,000
Comparable sale value per sq.ft.: $125 to $150
a) 600,000 x $125 = $75 million
b) 600,000 x $150 = $90 million
TDR's Cost: $25 to $30 per sq.ft.
a) 200,000 x $25 $5 million
b) 200,000 x $30 = $6 million
SITE #2 CASE STUDY (continued)
Cost of New Construction:
600,000 x $75.00/sq.ft. = $45 million
Adjusted Income Range: $25 to $39 million
SITE #3: Dave Cook Building, 1350 16th Street BASE F.A.R.: 2:1
Land: 31,250 sq.ft.
Building: 64,000 sq.ft.
F.A.R. 4:1 "IMPACT"
TOTAL development potential: 125,000 sq.ft.
TOTAL parking required: 232 spaces
Below grade parking: 133 spaces / Above grade parking: 99 spaces 99 spaces at 350 sq.ft. = 34,650 sq.ft, above grade for cars.
a) Assume 40% lot coverage a 10 story building is possible
b) Assume 25% lot coverage a 16 story building is possible
F.A.R. 6:1 "IMPACT"
TOTAL development potential: 187,500 sq.ft.
TOTAL parking reauired: 375 spaces
Below grade parking: 133 spaces / Above grade parking: 242 spaces
242 spaces 0 350 sq.ft. = 84,700 sq.ft, above grade for cars.
SITE #3 CASE STUDY (continued)
a) Assume 40% lot coverage a 15 story building is possible
b) Assume 25% lot coverage a 24 story building is possible
F.A.R. 4:1 INCOME"
Sq.ft, potential: 125,000
Comparable sale value per sq.ft.: $125.00 to $150.00 Income Range:
a) 125,000 x $125.00 = $15.6 million
b) 125,000 x $150.00 = $18.7 million
Cost of New Construction:
125,00 sq.ft, x $75.00/sq.ft. = $9.4 million
Adjusted Income Range: $6.2 to $9.3 million
F.A.R. 6:1 "INCOME"
Sq.ft, potential: 187,500
Comparable sale value per sq.ft.: $125.00 to $150.00 Income Range:
a) 187,500 x $125 = $23,437,500.00
b) 187,500 x $150 = $28,125,000.00
Adjusted Income Range: $7.7 to $12.1 million
Thus by purchasing TDR's in the form of an additional F.A.R. 2:1, * an additional income of $6 to $7 million is possible.
The three receiving sites also vary in size although they are relatively large parcels of land. The square footage of land times the F.A.R. equals the potential number of sq.ft, of building allowed. The most obvious impact of a F.A.R. 6:1 project vs. a 4:1 project is that the larger F.A.R. increases the potential height of a building five stories if 40% of the lot is covered by building and eight stories if only 25% of the lot is covered by building.
The preservation and receiving site case study's are complete. The next step is to use the findings of these brief studies to discuss the feasibility of TDR from the private sector profit-viewpoint. The impacts created by TDR will be discussed in terms of the trade-offs involved due to the choice to preserve parts of a city. This
) discussion is provided in Part IV with the Thesis Conclusions and
Chapter 6: Findings of Case Studies
The purpose of the case studies was to weigh the potential income from preservation vs. new development projects, applying the TDR premium to preservation projects. The case studies were subject to the limits of the TDR ordinance, provided at the beginning of Part II, and the assumptions stated in this section. In this sense the case studies are a model for the specific purpose of discussing the feasibility of TDR based on private sector interests. The findings which follow are based on the assumption that the private sector bases the feasibility of TDR on the monetary benefits and economic incentives it provides. Specifically, can TDR generate a return on their investment comparable to new development?
The findings of all four case studies, in terms of the dollar amount a development project will yield, consistently proved that new development on a parcel of land, using the maximum allowable F.A.R. will bring in the largest dollar amount. However, this does not infer that the actual percentage of profit was greater on new development projects.
The $100 to $120 value range given to the preservaiton buildings includes all costs and profits. This value must be broken down into a) cost, and b) profit, to discuss the feasibility of TDR from the private sector viewpoint. The value of an older building which needs rehabilitation is $50 to $70/sq.ft. Once the structure has been
rehabed the new value range is $100 to $120/sq.ft., thus the work done
on the building increased the value of the building $50.00. The cost portion of the $50.00 is $40.00/sq.ft. and the profit portion is $10.00/sq.ft.30 Thus a 4 to 1 ratio exists between cost and profit. For every $4.00 spent on the building $1.00 of profit is made.
The $125 to $150 value range given to the new construction projects also includes all costs and profits. The value of a new construction site containing a building that is in poor structural condition and slated for demolition is $25.00/sq.ft. Once a new building is developed on the parcel the value range of the property
increases to $125 to $150/sq.ft. Thus the construction of the new
building increased the value of the property $100 to $125/sq.ft. The cost portion of $100 to $125/sq.ft. is $80 to $100/sq.ft. and the
profit portion is $20 to $25/sq.ft.31 The cost to profit ratio for a
new construction project is thus 4 to 1; for every $4.00 spent, $1.00 is made, (note: costs32 below)
The preceding cost to profit ratios provide a method of comparing the profit of both preservation and new construction projects even though the dollar amounts are greater on the new construction projects. Based on the cost to profit analysis, it can be concluded that both types of development can make a 20% profit for the property
30This ratio was derived from an analysis of the costs and revenues of development projects in Denver with the advise of Peter Bowes, an appraiser.
32costs include construction materials, labor, interest paid on borrowed money (all hard and soft costs).
owner. The important concept to keep in mind is that the initial investment, the time involved, and the overall risk factor is greater on a new construction project. The greater risk is because a greater sum of money is put into the project and a larger building with many more square feet is being constructed. Twice as much money (costs) and four times as much time [2h yrs. vs. 6 months) is put into a new development project, so a comparable profit should reflect the costs. The total risk factor is 4 to 5 times greater on a new development vs. a rehab, project.
The findings of each case study based on the preceding cost to profit analysis follows.
SITE #1: The Wazee Exchange
Preserving the building and selling the unused and premium TDR's brings the property owner $5.7 million to $6.9 million. Based on the 4:1 cost to profit ratio, $4.5 to $5.5 million is cost and $1.2 to $1.4 million is profit.
Demolishing the building and replacing it with the maximum allowable sq.ft, in the form of new construction brings the property owner $11.8 to $14.1 million. (This reflects the present value (P.V.) adjustment.) Based on the 4:1 cost to profit ratio, $9.4 to $11.3 million is cost and $2.4 to $2.8 million is profit.
A comparison of the two projects above shows that the new development project will make twice the profit that a rehab, project will make. However, both projects will make a 20% profit on their initial investment.
SITE #2: ELM DISTRIBUTORS Parcel
Preserving the building and selling the unused and premium TDR's brings the property owner $11.8 to $14.1 million. (This particular site had very few unused TDR's by-right). Based on the 4:1, cost to profit ratio, $9.4 to $11.3 million is cost and $2.4 to $2.8 million is profit.
Demolition plus new construction brings the property owner $19.0 to $22.6 million. (This reflects the P.V. adjustment.) Based on the 4:1, cost to profit ratio, $15.2 to $18.1 million is cost and $3.8 to $4.5 million is profit.
The dollar amount of profit for Site #2 is greater than the amount of profit on Site #1, in the case of rehab, and new construction. This is because the parcel of land is almost 19,000 sq.ft, larger, increasing the potential size of building allowed on the land due to the F.A.R. The percentage of profit however, remains at 20% on investment.
SITE #3: The Wells-Farqo Building
Preserving the building and selling the TDR's brings the property owner $2.1 to $2.5 million. (This building had many unused TDR's
but the parcel is very small.) Based on the 4:1 cost to profit ratio, $1.7 to $2.0 million is cost and $500,000 is profit.
Demolition plus new construction brings in $4.1 to $4.8 million (includes P.V. adjustment). Based on the 4:1, cost to profit ratio, $3.3 to $3.8 million is cost and $820,000 to $960,000 is profit.
Once again the new construction project brings in a larger dollar amount but invests twice as much money and spend four times as much time on the project. The Wells-Fargo site is very small and probably not suited for new development given the limited lot size. The rehabilitation and sale of TDR's in this case is a more suitable use of the site given the land limitation.
SITE #4: The Hitchinqs Block (now Market Center)
Preserving this group of buildings and selling the total TDR's will bring the owner $10.8 to $13.5 million. Based on the 4:1 cost to profit ratio $8.6 to $10.8 million is cost and $2.2 to $2.9 million is profit.
Demolition and new construction will bring the owner $11.8 to $14.1 million. Based on the same cost to profit ratio, $9.4 to $11.2 million is cost and $2.4 to $2.8 million is profit.
This case study brings up some new information when comparing the dollar amount possible from each type of development project. The
existing buildings have a larger value than any of the previous
examples due to the total number of existing sq.ft, the group of buildings has. The value of the existing buildings is $9 to $11 million dollars, given the $100 to $120 value range for rehab structures. Market Center did not have any TDR's by-right, but the TDR premium for preservation makes the preservation route for these buildings equal in total dollar amount to a new construction project on the same site. The new construction value was adjusted using the Present Value concept, thus the extra time a new construction project takes over rehabilitation makes the rehab route for Market Center more attractive. The TDR premium is not the main incentive for preserving this site, however, it brings the total dollar amount to the same figure as new construction.
The present value concept used to equate the potential income range of rehab projects and new construction projects is important to understand before presenting the findings from the Receiving Site Case Studies. Adjusting the income range to the present value means that the value of the income a new construction project will receive in two years is worth X amount today. The adjusted P.V. figure is today's value of money that will be payed at a future date.33 The P.V. adjustment thus lowered the value range per sq.ft, of building for new construction projects from $125 to $150/sq.ft. to $95 to $113/sq.ft.
33a rehabilitation project takes 6 months and a new construction project takes 2h years. Adjusting the income from a new construction project by 2 years will equate the value of the profit for both rehab and new construction.
The impacts from transfering the sq.ft, of development space from one location to another must be assessed when studying the feasibility of a planning tool. As a means of curbing the potential impacts of TDR's, the TDR ordinance in Chapter Two, of Part Two, provides a degree of insurance. Projects using TDR will be checked for negative impacts via the design review and design guidelines controls. It is stated that any project which purchases TDR's, allowed as a premium in the ordinance, is subject to a design review and a set of design guidelines. These controls can check that the building scale, proportion, bulk, and various setbacks are in accordance with the existing character of 8-7.
There are many buildings in the Lower Downtown which do not contribute to the districts character or are in poor structural condition. One example of this is the Dave Cook building, Site #3 of the receiving site case studies. The existing impact of this building is negative in terms of its texture, alignment, proportion and lack of pedestrian orientation. A new development on this site, even at F.A.R. 6:1, could be designed for its location on the 16th Street pedestrian mall. A new development on the site could be sensitive to the parcel's position as an entryway to the B-7 zone, with the relative advantage of being located caddy corner to the RTD Transit facility. This facility is a developing pedestrian activity center and can use the support of surrounding parcels to enhance it's pedestrian appeal.
Site #2 is located in the west corner of the B-7 zone along the railyards. A structurally sound, 5-story building from the 3rd generation of Denver's architecture occupies approximately one-sixth of the land. The parcel encompasses a full block, thus 100,000 sq.ft, of land. There is great potential for development of the parcel since five-sixths of the site is vacant.
A new development that includes the existing structure in the design would be an asset to this corner of the zone. Many land uses are needed in the area including housing and parking. A development built at F.A.R. 5:1 would not negatively impact this area of the zone because the land is in a corner next to the Speer Boulevard viaduct, which already creates an edge. Assuming that only 25% of the land is covered by the buildings, a 24-story structure is possible. It is more realistic to assume that at least 40% of the land would be covered by building, allowing a 15-story building. The existing parking requirements are a problem in designing new buildings in B-7. This requirement must change so that the designs of new construction do not have to work around such huge parking allotments.
Site #1, a half block parcel in the northeast (NE) area of Lower Downtown is occupied by several small, structurally poor and noncontributing buildings. This NE corner is the transition area of B-7, and borders the Skyline Urban Renewal Housing Towers. The most suitable place for tall buildings in the B-7 zone is in this corner;*
*A conclusion that was reached in an analysis of B-7.
new development within B-7 can be gradually scaled down from the heights of the various housing towers. All buildings in Lower Downtown are not worth saving. New development that is sensitive to the historic quality of the zone can work with the redevelopment of B-7, as long as the design, scale and bulk of the buildings are compatible to the surroundings. In this way a balance between preservation and new development can be achieved.
The incentive to purchase TDR's from preservation sites appears to exist. As illustrated by the potential income from a 4:1 project vs. the potential income from a 6:1 project including TDR purchase, the 6:1 project will profit from $2 to $9 million dollars more. The only costs that have been deducted from the income range figures are for a) construction, and b) TDR's when purchased. Thus, the figures are not representing the true profit. For the purposes of this study, it is not important to list all costs on the receiving sites. The impacts of large developments and the incentive to purchase TDR's are the issues. The TDR costs do not lower the income of a 6:1 project enough to discourage their use. Instead TDR's provide a means to build more floor area at a relatively low cost.
In a real market situation, the value of a TDR may be higher, however the crucial issue regarding the value of a TDR is; "The supply of development rights and the demand for them must be such that a) their value does not fall below their value when issued; and
b) developers will be encouraged to or can be required to make use of them because they can make a reasonable profit in doing so."34
This requirement when applied to the B-7 zone, and the values given in this paper, means that the $25.00 to $30.00 value of a TDR must remain stable or increase in order to keep the TDR market alive.
Stable or rising TDR values would signal a supply and demand for the
comodity thus a functioning TDR market. (The TDR value is based on
the comparable values of office space in Denver. An example of the
values are listed in the table below.)
Comparable Sales in B-7 , 1980-81
SALES DATA ADDRESS ZONE SQ.FT. PRICE/SQ.FT.
Feb. 1980 1634 18th Street B-7 15,600 $ 45.00
March 1980 1623 Market B-7 3,130 $ 43.00
Aug. 1980 1429 18th Street B-7 6,270 $ 24.00
Nov. 1980 1635 Blake B-7 3,130 $ 70.00
Jan. 1981 1425 Market B-7 6,250 $ 24.00
Jan. 1981 1640 Wynkoop B-7 15,625 $ 31.00
Feb. 1981 1408 Wazee B-7 3,132 (land) $ 83.00
7,800 (bldg.) $ 33.00
March 1981 1731 Wazee B-7 9,375 (land) $ 43.00
April 1981 1801 Wynkoop 1-2 22,000 $ 18.00
B-7) 50,180 $ 31.00
Dec. 1981 1300 17th Street B-7 50,000 $230.00
Source: Grubb and Ellis office data.
S^David Heeter, "TDR and the Comprehensive Planning Process: a Critics Choice." P.A.S. Report No. 304, pg. 45.
The four preservation sites have the potential to send a total of 303,400 sq.ft, of TDR to receiving sites. The three receiving sites
used in this study can absorb a total of 362,500 sq.ft, of TDR,
assuming that all three parcels purchase an additional F.A.R. of 2:1 using the TDR premium. A balance between the supply and demand for TDR's is seen in this small scale application of TDR, thus a market for TDR's in this context does exist.
Summary of TDR Economics
The purpose of this section was to test the feasibility of the TDR mechanism through its application on several sites within the B-7 zone. The mechanism should appeal to the private sector due to the
economic incentive it provides for preserving historic and
contributing buildings. TDR also puts some teeth into the land use
regulations for B-7 by providing a premium that can actually preserve and enhance Lower Downtown's historic quality. This brief economic
study illustrates that the power of profits, in the private sector, is one of the keys to preserving B-7's character, and also allows a
balance between preservation and new construction.
This balance is a step toward controlled development for Lower Downtown. TDR is economically feasible as an alternative to
demolishing buildings with character, TDR offers an alternative, since it lifts the economic burden associated with preservation.
Conclusions and recommendations for both this economic study and the planning study which follows are presented in depth in the final
part of this thesis (PART IV). Consider the preceding summary as food for thought. The next section presents planning issues that influence the feasibility of TDR in Denver's B-7 zone.
HISTORIC BUILDINGS | Designated Denver Landmark i National Register of Historic Places
... L >
" 1 ]
i x * -a n nL".
Tl V L-
t? l *
' r - = =i a a i
1L - a a =
r j||| r
4 . p i
f . j
Lower Downtown/B-7 Zone District
Tht Denver Partnership. Inc. January. IMS
0 100 250
Chapter 7: Public Planning Base for TDR
Sound planning mediates among competing needs. It deals with the allocation of resources and with relationships between uses, as well as the capacity of land and infrastructure to support various uses. Planning decisions and solutions can have a huge impact on the urban form through density determination, location of public facilities, traffic patterns and the mix of land uses. Sound planning is rooted in an adopted comprehensive plan, supported by zoning ordinances that are appropriate for each parcel, district or neighborhood. The significance of the comprehensive plan to sound planning is that it highlights the importance of a clear understanding of the development objectives of a city.35 The plan ought to be a guiding light for the governing body in its daily decision making as well as a predictable guide for the private sector.
A final point regarding the operational definition of sound planning is that it must be rooted in consistency -- among regulations, mechanisms, and processes used to effectuate control. An example of sound planning is a city directing public investment into public property to achieve urban design that has been stated as a community development objective. Parks, streetscaping, public plazas and public buildings are specific examples. The character and appeal of a city as a place where people meet, exchange ideas, and the human
35The operational definition of Comprehensive Planning was derived from numerous readings on the subject. The way it is used here is based on my discussions with Herb H. Smith, a professor of Planning and Community Development at the University of Colorado in Denver.
spirit is reinforced depends on the sum of many qualities. The character of Lower Downtown can be enhanced and preserved through sound planning practices.
Questions to ask in establishing the desired ends of a planning solution like TDR included Why, What, and How can the historic character of Lower Downtown be preserved? Although inter-related all three questions involve values related to the protection of community resources. Why preserve is the first element discussed.
Preservation for preservation's sake is not really sufficient. Based on analysis and evaluation, many benefits to property owners, city government and the community in general can be established. The justification can be considered in terms of economic, cultural and planning benefits. An example of econmic benefits is that preservation spending both stimulates work for the local building trades and also provides usable space without bringing the impacts of new, higher density development. Restoration and reuse can have an important effect of creating an area of prestige for businesses and residences. An example of this is Boston's Beacon Hill.
The value of preservation to local government is ". .the private reuse of old buildings and the improvements made to them as reflected in maintained and increased property values and tax returns."36
36Ralph Miner, "Conservation of Historic and Cultural Resources", ASPO, Report No. 244, pg. 9.
What to preserve is related to the area in question, it's condition, opportunities and the community's objectives. The Lower Downtown, for example, must be examined in terms of the extent to which it can be preserved and the relative significance of its historic and cultural importance to the city of Denver. "Though it is possible, and in some cases desireable, to draw on experience of other communities in developing aspects of a conservation (preservation) program, a successful program must be custom-tailored to fit local conditions. This is particularly true in the determination of what to preserve. The evaluation criteria must be relevant in terms of unique local circumstances."37 The label "contributing structures" is used to explain which buildings are worth preserving in B-7, based on an in-depth analysis of the area.
Finally, how can historic structures be preserved? The course any community follows to implement preservation is based on local conditions; including needs, resources, laws and enabling legislation. The preservation of a district must be integral to a city's master plan, to insure that the preservation is within established public policy. A joint venture made up of public and private sector interests will be the most objective and appropriate group to work on the preservation process. In the city of Denver, a partnership of this kind is flowering through the efforts of Downtown Denver Incorporated and its Civic Design Team. In general, this is the planning perspective. The discussion continues with the feasibility of
37Ibid, pg. 11.
using TDR in Lower Downtown, by setting forth the criteria upon which judgement is based.
The objective of this section is to study several planning tools that influence the development of Lower Downtown. The evaluation of these planning elements is provided to study the presence or lack of a sound planning base, as a means of testing the feasibility of yet
another planning technique, TDR. Sound planning is defined, in the Introduction, and serves as a basis for the three criteria by which the feasibility of TDR is judged. A problem came to light in the
exploration of the planning tools that exist for controlling land use
and development in the B-7 zone. The existing planning framework is
not sound, nor are the various planning efforts for Lower Downtown coordinated. The planning department has drafted development guidelines, the department of zoning administration enforces floor area ratio's, and generally none of the existing development controls work together in a way that could actually achieve the stated objectives for B-7's redevelopment.
Another problem is rooted in Denver's attitude toward planning. It is short sighted and has no depth for meeting long range problems with workable solutions. There is no long range planning strategy that could actually be pursued. The political body seems to float from week to week, with very few controls or planning tools to help shape Denver's future form. Without a long range vision it is
difficult to create or enforce planning tools that can achieve the stated objectives of the city.
Given the lack of sound planning in the city of Denver, the criteria used in the planning study become moot points. The feasibility of TDR, if totally dependent on the existing politicalplanning climate in this city, may prove futile. I do not think that TDR is futile nor in-appropriate as a means to reach the objectives of Lower Downtown, which are to preserve and enhance the areas historic quality. Therefore the criteria by which I judge the feasibility of
TDR, which requires that sound planning be in place first, is shifted.
The criteria and subsequent discussion in Part III focuses on the planning tools as they exist, their weak points, and what they ought to be to insure that TDR is a practical and workable planning solution in Lower Downtown.
Limits of the Planning Study
The criteria set forth will be the basis for judging the feasibility of TDR in Denver's Lower Downtown. The study has been limited to three criteria as a means of focusing judgements on issues that strongly influence the workability of any land control tool.
The first criteria challenges the existing zoning code for the B-7 zone; the effectiveness of the ordinance is
judged. A zoning code is the mechanism by which the
governing body in a city can regulate, control and direct the development of each zone district. The B-7 code has
been analyzed and evaluated by its capability as a planning tool to effectuate the stated planning objectives. The effectiveness/ineffectiveness of the zoning ordinance is discussed.
The second criteria addresses the effectiveness of the development guidelines drawn up by the Denver Planning Office in 1978 for the B-7 zone. The guidelines coupled with the zoning code should be the strong planning base upon which a mechanism like TDR could grow. The guidelines are reviewed and evaluated based on their workability and chances of being used. They are judged as to whether they are appropriate in achieving the ends that are stated in the objectives of the guidelines. The feasibility of TDR relies on sound planning first; these guidelines are a test of the city's ability to do sound planning.
The third criteria challenges the administrative body charged with monitoring the TDR process. The functional organization of the department of zoning administration (DZA) is explored and the DZA's experience with negotiation is discussed. It is crucial to the TDR process that the agency monitoring the use of the planning tool have a clear understanding of its application, experience in negotiating with developers and have staff time alloted to monitor the process.
The criteria are parameters for this review of sound planning as it relates to the B-7 zone. All three points will be discussed and judgements regarding TDR's feasibility made based on careful analysis. The criteria section will lead to findings, conclusions, and recommendations for further planning studies. The general aim is to determine if a framework of sound planning exists to use the TDR mechanism as a means of balancing preservation with new development in Lower Downtown. The criteria section is prefaced with a discussion of the TDR ordinance and how it becomes law in Denver. TDR has been proposed/used to meet a variety of community objectives. In Lower Downtown, it would be a planning tool that provides economic incentive for preserving historic buildings. In this study the TDR ordinance supplements existing zoning rather than using TDR as a replacement to zoning.
Chapter 8: TDR Ordinance What it is and how it would evolve and become law in Denver.
Overview of Monitoring TDR.
House bill 1041 enacted by the Colorado Legislature in 1974 includes a section that was intended to allow rational local governmental regulation of land use consistent with the constitution, including such regulatory techniques as TDRs. (see Exhibit A in Appendix)
House bill 1041 was enacted to allow all rational local
government regulation of land use consistent with the constitution including such regulatory techniques as TDR's. Note that the bill does not specifically authorize enforcement of any of the regulations adopted under its authority. That is the main problem with it. However, this sort of enabling legislation is broad enough to authorize the city of Denver to use an innovative land use
This is the legal side of how a TDR ordinance can, (and recently has) become law in Denver. TDR ordinances can be adapted to accomplish a variety of land use planning objectives. The TDR ordinance has been frequently recommended as a way of dealing with preservation of buildings or districts of historical and/or architectural merit, as is the case in Denver's Lower Downtown. The
38This information was gathered during conversations with staff members of the Department of Zoning Adjustment and the Civic Design Team of DDI.
TDR ordinance allows for the separation and transfer of development rights from one property to another. Transfers in the B-7 zone would take place only between properties within the zone and properties need not be contiguous, (see Assumptions on page 29) The city charter of Denver demands equal treatment of all landowners within a given zone; this eliminates the use of a TDR zone model, although, does not eliminate the dispersed model used in the case studies.
A TDR ordinance in the B-7 zone would be the economic means by which historic/architecturally significant buildings could be preserved. The ordinance would be the law by which the preservation of buildings could still provide compensation to the property owner by allowing the sale of development rights that have not been "used" on the parcel of land. A hope of such an ordinance is to insulate landowners from the windfalls and wipeouts39 that accompany current planning restrictions and permit and facilitate the preservation and conservation of community resources. Such an ordinance permits planning that is both effective and equitable in its treatment of all landowners, and the economic impacts it creates.
Any public or private group/agency can write a TDR ordinance. The ordinance is viewed as a proposal and is reviewed by the planning
^WINDFALLS and WIPEOUTS, the terms coined by Donald Hagman, are most commonly associated with land use restrictions imposed by government on property owners. A wipeout occurs when a property owner's land has been restricted to a point of economic hardship. In this case study, preservation is an option and TDR is an alternative way of avoiding a wipeout from preserving a historic building.
department as well as the zoning administrator, and other departments that are responsible for reviewing land use proposals. These departments review the proposal and make recommendations as to the effect the ordinance will have on short and long range planning concerns. The legality of the ordinance is also reviewed.
These recommendations are passed on to the city council and mayor, who can accept or reject the ordinance, based on recommendations and their own judgement of the proposal. If the council adopts the ordinance it becomes law in Denver, giving the proposal a means to accomplish the goals as described in the proposal.
The present system in Denver, requires that the zoning administration handle the TDR process. This department monitors, reviews, and checks the transfers between property owners. The actual transfer of development rights requires several steps. First, the owner of a building that is allowed to sell unused development rights, as stated in the TDR ordinance, checks to see if her building meets the requirements. The owner then applies to the zoning administrator for a permit to transfer the rights. The zoning administrator checks the legality and appropriateness of the application to see that the owner has rights to sell and that requirements of the transfer are in order. The permit application then goes before the board of zoning adjustment which can approve or reject the permit based on the criteria set forth. If approved, the owner can sell the TDR's to another landowner, who is consequently allowed to build a given amount beyond what is ordinarily permitted by the zoning code.
This is the system for the TDR process in Denver. It is a simple system that allows the private market to handle TDR. The private market system for transfering development rights among properties involves establishing a market in which voluntary transfers among property owners is determined by supply and demand, with little or no government intervention. The government monitors the process but does not influence supply and demand. The incentive for use of the TDR ordinance beyond the premium of increased density (increased F.A.R.) or monetary gain is the sheer existence of a TDR market. The market must exist so that an incentive for using the mechanism exists. "The supply for them must be such that (a) their value does not fall below their value when issued; and (b) developers will be encouraged to or can be required to make use of them because they can make a reasonable profit in doing
40David Heeter, "Six Basic Requirements for a TDR System", Part V, PAS Report No. 304, pg. 45.
Chapter 9: Planning Criteria
Criteria One: The existing zoning code (612, revised in 1974 for the B-7 District) begins with a description of the B-7 District. "This district is intended to provide for an encourage the preservation and vitality of older areas that are significant because of their architectural, historical and economic value." The code goes on to state that the intent of the zoning is to ". .facilitate the re-use of existing structures without jeopardizing or reducing zoning standards."41 Premiums are mentioned as an incentive to developers to conform design of projects to the style and character of the area.
The objectives of the zoning code are made clear at the beginning of the ordinance but fizzle out as the code continues, with no mechanisms to actually bring the objectives into reality. The code lacks mechanisms to bring about this "compatibility of new development to the older character." There are no means to adequately protect existing structures from inappropriate additions. "The
ineffectiveness of the ordinance to carry out the intention in the present Denver real estate market is that there are no bulk restrictions, nor are there sufficient economic incentives to encourage developers from an economic standpoint to design their project with scale, style and materials that are compatible with the
4lExerpts from B-7 zone district revised zoning code, 1974, City of Denver.
area. There area also virtually no incentives to encourage adaptive reuse of existing structures."42
The various plaza premiums (pg. 39.88 of B-7 code) are unsuitable for a district that has building to the lot line. If a goal of the code is to retain the scale and character of the district, with human scaled structures as the norm, then the plaza premium's are not
appropriate. The premiums to encourage attriums and arcades do not
hold much attraction for a face block development since such a
development has already used the maximum F.A.R. in meeting the parking requirements.43 it has been expected that the zoning ordinance would determine in advance how the community's land would be used and
developed. The public debate and formal adoption of the ordinance would, as a result, minimize the need for discretionary judgements in its administration.44 Provisions were made for a Board of Adjustment to grant special exceptions when provided for in the ordinance and to grant variances when unnecessary hardship was imposed.45
The entire zoning ordinance system was supposed to be neat and efficient, although it doesn't always work the way it was designed. An array of devices that allow greater flexibility to developers exist
42Richard Flemming, memo on Lower Downtown Project conducted by Civic Ventures Design Team, DDI. (1981).
43will Flesig, City West Consultants to DDI's Lower Downtown Project, 1981.
44standard State Zoning Enabling Act, Sections 7 and 8.
45standard State Zoning Enabling Act, Section 7.
which in turn complicate the public administration of zoning codes. John Reps, a speaker at the 1964 American Society of Planning Officials pointed out the the serious defects in zoning practice had, in reality, abandoned many of its principle. He suggested that informed discretionary judgement should play a key role in reviewing applications to develop.46
In the past 15 years we expanded discretionary judgement but not in the form Reps suggested. We have an array of independent devices loosely based on public policy. This situation is echoed in the B-7 zoning code for Lower Downtown. While the local discretionary power has expanded, this city is a long way from an orderly system of using the zoning codes to enforce public policy. "What we have now is wait and see techniques that provide communities with an opportunity to make final development decisions at the time development occurs. Wait-and-see approaches, on the other hand, permit local reviewing agencies to exercise more refined, particularized control."* 4? The issue here as applied to the Lower Downtown of Denver is that the existing zoning is not a means of enforcing public policy. Obviously the discretionary power as used by the planning department and governing body has not achieved the stated goals of the B-7 zoning
46John Reps, "Pomeroy Memorial Lecture: Requiem for Zoning," in Planning 1964: Selected papers from the ASPO National Planning Conference, p. 61.
4?U.S. National Commission on Urban Problems (Douglas Commission), Building the American City, pg. 206. The term "wait and see" in this context seems to have been coined and used first by the Douglas Commission in this report.
code. This is true in terms of the zoning code itself and the local power that applies and enforces the code.
Thus, the B-7 code as it presently exists is an ineffective mechanism that does not meet the requirements of sound planning. The zoning code of 1974 is no longer feasible in terms of 1982 land values. The increased land values in Lower Downtown demand a new look at the real issues that must be addressed for the future development of B-7. Residential development is needed in the Lower Downtown if the district is to become a 24-hour mixed-use "neighborhood". Premiums for housing, rather than plazas and arcades, must be made available so that enough dwelling units can be built to bring population into the area. Citywest, a consulting firm hired by Downtown Denver Inc., has suggested that in order to make a residential presence work in Lower Downtown, housing development would have to be built at an average of 20 units per acre. This density would achieve the 1000 unit level, that was determined to be necessary in order to produce a real community feeling in the district. Citywest also noted that this number of dwelling units will only be marketable if land costs are brought down to near zero. Residential development must therefore be integrated with other income producing uses that can absorb most of the land costs.
A way to achieve housing units at a zero land cost would be to allow developers to build housing into projects, excempt from F.A.R. calculations, imposing a ceiling on the sq.ft, of residential use a project an have. For example giving a housing premium of F.A.R. 2:1;
the impacts of this suggestion must be considered before a decision is reached. An exemption for housing would be a mechanism for encouraging developers to mix land uses. A development could include the office/retai 1/parking as well as housing thus bringing a new element of mixed land use to Lower Downtown.
If a neighborhood feeling is brought to Lower Downtown, short and long term plans to re-route traffic compatible with the neighborhood climate must take place. The housing could be centered around a sub-area that I have previously called a transition area ripe for new development. If the housing occurs primarily in a contained portion of the district, the through traffic can be moved outside of the neighborhood.
Another element missing from the zoning code is a way to insure that new development will be compatible with the existing significant architecture. A committee must be charged with the task of creating guidelines that are reasonable and practical for use by developers in Lower Downtown. Compliance with a set of development guidelines must be required and written into the zoning ordinance; this would insure their use.
The existing B-7 zoning actually seems to encouarge aggregation of parcels into half block sites. The result of a poorly drafted zoning code will often allow development that is not compatible with the exiting character, if mechanisms to steer the development are missing. The development boom is happening now; the zoning code must
be revised right away so that development objectives are actually implementable through the zoning code and other regulatory mechanisms.
Hindsight will not protect the historic character of the cultural resource Denver has in the B-7 zone. The description of the district as stated in the B-7 district zoning code will no longer apply, if current zoning controls allow half and full block aggregates that result in 20-story office towers with no ground level pedestrian appeal.
Criteria Two: Development guidelines are a tool of planning which insure that development within a given area is compatible with existing fabric. The guidelines assist the developer in doing a good job on their project that will meet the city's various requirements. Without reasonable and implementable guidelines the B-7 district will loose its unique cahracter to individual projects that are not compatible with each other.
The City of Denver Planning Office put together a set of Development Guidelines in 1978 which were intended to provide information and recommendations for use by decision makers, both public and private, who affect Lower Downtown. The guidelines were not to be an official addition to the Comprehensive Plan, but rather an analysis of issues affecting the future of the B-7 zone. Suggestions are put forth for improving the physical and economic conditions that exist in Lower Downtown.
The development problems that can be avoided and solved by Development Guidelines still require sound planning first by the city. The City of Denver's planning approach will be evaluated as it relates to the drafting of these guidelines.
The development objectives stated by the Denver Planning Office at the beginning of the guidelines document include:
- cooperation between the city and county of Denver as well as
private agencies in the urban planning of Lower Downtown.
- encourage and assist redevelopment
- maintain the unique character . . .while integrating it more
closely economically with the rest of the central area
- encourage and assist historical preservation effort . . and
adaptive reuse of existing structures
- encourage new development which is sensitive to the existing
As recommendation these objectives cover all of the bases -- but beyond the D.P.O.'s capabilities as a recommending body they need to provide implementation methods. Objectives without a plan to put the ideas into effect are moot.
The guidelines go on to provide background information on the commercial growth of B-7 from an historical context and mention surrounding land use impacts. The way the background and analysis are presented is informal with little information that would help in decision making. An example of this is the description of the Skyline
Urban Renewal Project. The Development Guidelines inform us that the project will "completely transform the area" between the CBD and Lower Downtown. How it will transform the area is not discussed.
Unfortunately the document does not provide recommendations for the compatible development of land in Lower Downtown. There are no implementation guides, rather we are given background information that leads us to profound findings, such as "The opportunity exists, with careful coordination and phasing of the many projects, to produce a unique example of publicly guided private revitalization in the core city."48
The objectives as stated in the guidelines suggest a coordinated effort to actively redevelop and revitalize Lower Downtown. The creation of a 24-hour mixed use district with unique character and a balance of new construction and rehabilitation is the objective. The planning solutions to meeting this desired end is the source of the problem. Appropriate planning solutions to revitalizing an area is sound planning. In the case of Denver's B-7 zone, no planning solutions were found in the development guidelines only objectives and an inventory of existing conditions.
The City of Denver Planning Office has coordinated many background studies which provided data and analysis of the existing
48Denver Planning Office, Development Guidelines for Lower Downtown, Denver, 1978.
conditions in Lower Downtown. Among these are the 1978 Development Guidelines, various maps of B-7, showing structural condition of buildings, existing land use, existing F.A.R., potential transferable rights, and an inventory of historic structures. This data base of the Lower Downtown could serve as the point of departure for creating practical and workable solutions for meeting the development objectives in Lower Downtown.
The objectives and data base are in place; a plan with mechanisms to implement the objectives is missing. The City of Denver's governing body appears to be hesitant or unable to effectuate their development concepts. As long as a proposal technically meets the requirements of the city it gets an okay. The city must take an active role in the redevelopment of Lower Downtown by adopting ordinances, guidelines and design criteria for ordinances, guidelines and design criteria for the redevelopment of the area. Mechanisms by which the city can legally steer and regulate the development of land are needed. Rhetoric that explains how things ought to be is obviously not enough to preserve and enhance the architectural records of this city. Development Guidelines could be provided as an option to developments which are uses by-right, however any developments receiving premiums or bonuses for providing amenities or purchasing TDR's could be required to follow the Development Guidelines. This sort of requirements is feasible and a realistic method of ensuring that planning solutions meet desired ends.
Downtown Denver Inc.'s Civic Design Team has drafted a set of Building Renovation Design Guidelines which specifically state the various renovation categories and issues surrounding rehabilitation. These guidelines are optional, and provide technical assistance to developers interested in rehabilitation and renovation project. The city can use such guidelines in B-7 zoning that are required to be used when premiums have been awarded.
Criteria Three: The DZA as the monitoring body of the TDR process. The workability of land use controls depend on many factors unique to each city. Factors which influence the TDR process in Denver's Lower Downtown include the fact that the Department of Zoning Administration (DZA) is a centralized department; the power to accept or reject applications for transfers rests in one office.
A centralized zoning department, (thus a centralized monitoring process) may lend itself to the TDR technique. Checking the appropriateness and monitoring the actual exchanges of development rights would take place under a single authority, minimizing duplication in the process. The process of TDR stands a better chance of being consistent in this situation. The limitations and rules for transfers as well s the subsequent guidelines that apply to developers using TDR would be administered and negotiated under a single authority, increasing the consistent treatment of all TDR users.
A problem with Denver's centralized authority for TDR, the DZA, is that the department lacks experience in negotiating development
tradeoffs and making discretionary judgements.49 Negotiation and
discretionary judgement are critical parts of the administration of any flexible zoning technique. "Flexible techniques complicate the development management process. Where permitted uses and development standards are spelled out explicitly in the ordinance, the community building or zoning enforcement officer can readily determine, .compliance. But when discretion is involved, more steps are added; substantial professional skills are needed; and additional public bodies become involved in making decisions. There is often negotiation over specific plans, (thus) the process usually takes more time that administration of conventional regulations."50
The negotiation process should be limited to the defined guidelines within the TDR ordinance. A well written and realistic ordinance that clearly states the limits and bonuses available through TDR, will keep the negotiation process between the DZA and landowners/developers at a clearly defined level. Any negotiation with developers must be within the bounds of the adopted TDR ordinance.
A factor critical to this discussion is that Denver's zoning ordinance does not address administrative discretion in any length.
49This statement is based on conversations with the Zoning Administration and research on the present scope of the DZA's duties, as well as a clear understanding of the TDR process.
SOMichael Meshenberg, "The Administration of Flexible Zoning Techniques," PAS Report No. 318, pg. 6.
With this in mind it is clear that the DZA or any department within the city is not used to negotiating development tradeoffs, nor used to making discretionary judgements that are part of the TDR process. However, with a clear TDR ordinance, the DZA's judgements would be based on the definition of what constitutes a contributing structure in terms of B-7's existing scale and character. Assuming the
ordinance provided in Part II of this paper is effectuate the DZA could prepare an inventory/analysis of B-7 siting:
1) Building scale;
2) Building character (architectural data);
3) Structural condition;
4) Potential TDR's, and so on.
This would be the technical base for making discretionary judgements.
Coordinated planning studies should support TDR decision making to ensure that discretionary power is fair and consistent to all TDR applicants. "Under any system, it is vital that there be underlying planning studies and then a clear and credible recital of purposes to be served."51 The DZA is presently charged with monitoring the TDR process in Denver's B-5 zone. Transfers in B-5 are limited to designated landmarks. The only property owners allowed to use the TDR mechanism are landmark owners; and they can transfer their unused development rights to any site within B-5. The experience the DZA is gaining through the TDR process in the B-5 zone is providing the
SlDonald Carmichael, "Legal Precedents for Adoption of a TDR System: Colorado, a paper delivered at the Bettman Symposium, Chicago (1974) ASPO.
ground level experience that will be needed to administer TDR in Lower Downtown (once again assuming the ordinance proposed earlier, which allows transfer on a free market basis between all "contributing" buiIdings).
Based on discussion with a zoning department staff person, it is understood that the DZA has a large workload and a limited number of staff. The department has always been ministerial in function and is not specifically qualified to administer TDR. Another weak link in the DZA
is that they have not used a design review process before. Design review can help control the design alterations of existing buildings as well as the design of new buildings. The TDR ordinance proposed in this paper requires design review for projects that purchase additional development rights via TDR. Design review is conceptually simpler than TDR, but has greater implications for the administrative procedures.
Although many weak points in the DZA regarding their capability to administer TDR have been discussed, it is not believed that the present weaknesses rule out the DZA as the agency to handle TDR. The TDR process is not new to this city, rather the concept and application of the process has expanded. The TDR ordinance is in effect in B-5 and transfers are underway between designated landmarks and sites ripe for new development. The DZA is gaining experience in administering TDR on a different level than it had previously. Use of
this same flexible zoning technique in the B-7 zone would just be one step further in applying the same concept.
The essential difference would be the number of properties that could take advantage of TDR; this gives an economic incentive to preserve history and architectur. As long as the TDR ordinance is clear in its language and the exchange process is well defined and appropriate to the B-7 district the administration and monitoring of transfers should not be a drawback to the feasibility of TDR.
The key element of sound planning, regarding this criteria, is that the planning body in Denver must commit itself to a workable TDR process that is practical in terms of its administration, implementation and monitoring of transfers. Although the discussion has focused on the DZA, another critical factor to the planning feasibility of TDR is the City's Public Policy approach.
The Public Policy for this city is designed to serve as a general framework for the long term and short term objectives it has started. Within the Public Policy, the South Platte River Valley (of which B-7 is a part) is classified for industrial development. Since the writing of these policies, the development concept for B-7 has changed radically. City planning should be premised on its policies for development, so that a comprehensive approach to directing growth and development is used. Through Public Policy the governing planning bodies can steer the type and timing of development in each sub area of the city.
The changes in the social and economic climate of B-7, demand a new statement of public policy. Lower Downtown must be viewed in the City Policy as it is now; it is a redevelopment mixed-use district with historic significance. It is part of Denver's history and the policy for redevelopment there must be geared toward its special needs. The policy approach of the present, which is a general theme for development in all of downtown can not steer the new forces shaping B-7.
The new market pressures shaping the urban form in Denver must be recognized. New long and short term objectives that will accommodate diversity and preservation of community resources must be stated. Public Policy must recognize the changing climate in the city, and the framework must be re-written to reflect the new realities of this changing city. General goals do not and can not shape a city. The governing -- planning forces in Denver need to work from a strong policy base that is effective in guiding the shape of this growing city. The B-7 zone must be dealt with as a separate unit of downtown; the policies for growth that apply to the CBD are not adequate for Lower Downtown. Short-term objectives, rooted in strong public policy will insure the development of B-7 as a 24-hour, mixed-use historic district.
Summary of Applications
The criteria used in this chapter were chosen to judge the planning base from which the TDR process functions. Flexible zoning techniques rely on a sound planning base to be truely effective;
planning tools along can not solve all of the dilemmas in a city. The purpose of this chapter was to determine if TDR is feasible in Lower Downtown as a planning solution for preserving and enhancing the areas historic character. A sound planning base, theoretically would make TDR feasible. In the absence of such a base, the technique has advantages, although they are more limited.
The existing zoning code and shallow development guidelines are handicaps to TDR's effectiveness. TDR supplements zoning in this study, thus it still relies on a sound zoning code to be truely effective. The premiums available in the present B-7 zoning code encourage aggregation of large parcels of land and new development. The parking requirements guarantee that many parcels of land in B-7 will be covered with parking structures. These are weaknesses that must be changed, if the objectives of the city are to preserve and enhance the historic character of Lower Downtown.
This is the end of the planning study. The following chapter presents the findings and conclusions on the feasibility of TDR in Lower Downtown; recommendations for change are also provided.
* "In view of what has been learned from social experiments of this type to date, a promising strategy for TDR might be to capitalize on opportunities to "experiment" with TDR in jurisdictions trying out the program in much the same way that the planned variation experiments capitilized on a similar opportunity to learn in education."
Worth Bateman, "The Need for Further Experimentation," pg. 51, Planning Advisory Service Report No. 304.
Chapter 10: Study Conclusions
This thesis has provided a thorough review of the TOR concept, a a development control technique, which has already begun to impact the way in which land is managed and development resources are protected. TDR is a straight forward concept; development rights are severed from one parcel of land and transferred to another. Typically a restriction has been placed on the use of land but is unsupportable under police power. An example is a restriction placed on the owner of an historic property which prevents him from demolishing the building and constructing a new one. The "wipeout" that would usually befall the owner of the restricted property is avoided through TDR. Instead of destroying a property owner's investment through regulation, the severed development rights are transfered through the free market to another site.
Various cities and counties across the nation have proposed a TDR process; few have used TDR. Each proposal uses a variation of the flexible zoning techniques to accomplish objectives. Under the plans that seek to create a free or partially free market for development rights, the method of calculating the number of rights and value of a TDR varies. The Maryland proposal distributes development rights based on the number of acres owned, irrespective of value. In New
Jersey, development rights would be distributed based on the
proportionate value of the owner's land to the total value of all land preserved for open space use.52
The proposed ordinance for TDR as presented in this thesis (see pg. 31) is designed to accomplish the objective of preserving and enhancing the historic character of Lower Downtown, while encouraging the development of mixed-uses. The TDR ordinance is one approach to this end, providing an economic incentive for property owners to retain historic and contributing buildings. The use of TDR in Lower Downtown is an option for owners of historic and contributing structures.
The economic study, provided in Chapters 4-6, test the feasibility of TDR from the viewpoint of the private sector. The preservation site case studies compare the profits from rehabilitation of a structure with historic character, to a new construction project on the same site. The profits from both development approaches are presented. The receiving site studies illustrate both the impacts and income possible using TDR and use-by-right approaches to development.
The planning study, provided in Chapter 7-9 critically evaluate several planning instruments that presently steer the re-development of Lower Downtown. Each element is discussed in terms of present
52jerome Rose, Transfer of Development Rights, Introduction to collection of papers delivered at ASPO, 40th Annual Conference, Chicago (1974).
performance and the changes needed to make it more effective. A summary of all thesis findings follows.
The findings answer the two part question that is posed in the preface to the thesis. First, is TDR feasible from the private sector view, in terms of the economic incentive it provides for preservation of historic and contributing structures? Second, is TDR a sound planning approach for accomplishing the objectives of Lower Downtown? The second question is approached from the perspective of what changes need to take place within the planning framework for B-7, if TDR is to be an effective and sound land development control.
TDR is feasible from the private sector view, because it brings a property owner a return on investment that is comparable to development by-right. The cost to profit ratio that is provided in Chapter 5 shows that a 20% return on investment was possible for both the preservation (plus TDR) and new construction project. The dollar amount of profit for each development project varies. An example of this difference is seen on Site #2 of the preservation site case studies (pp. 38 and 39). The income range from preserving the building and selling the unused development rights (TDR's) is $11.8 to $14.1 million. The income range from a new construction project,
without the use of TDR's, on the same site is $19 to $22.6 million. However, the difference in the dollar amount does not reflect the percentage of profit made on the projects. The difference in Income
is due to the difference in the scale of the two projects, which can be discussed in terms of risk.
Factors that create the risk of a development project include the time involved, the initial investment, and the time it takes the project to reach a positive cash flow. The risk of a new development project is greater than that of a rehab project. The reasons for the increased risk are because the initial investment is greater on a new construction project and the cash flow will start sooner on a rehab project. A rehab project takes six months and $55.00/sq.ft. for construction cost. A new development takes 2H years and $75.00/sq.ft. for construction. The number of sq.ft, in a new development project greatly exceeds the number of sq.ft, in a rehab project. An example is the Wells Fargo Building, Site #3 on pp. 40 and 41. Preserving the existing building requires $55.00/sq.ft. for 1,500 sq.ft, whereas a new development on the site requires $75.00/sq.ft. for 43,200 sq.ft.
The value/sq.ft. of new development must be greater than the value/sq.ft. of the rehab building to compensate for this disparate initial investment. The increased time factor requires a larger Income Range for the new development project since the positive cash flow takes at least two years longer than it does on a rehab project.
In summary, the new construction project requires a larger income to compensate for the additional costs and time, or for the additional risk involved. TDR has been proven to be economically feasible from the private sector profit view because a 20% return on investment is
achieved via the TDR premium, which is comparable to the 20% return on new construction.
Another part of the economic study was to examine the impacts and income possible on the receiving sites, which purchase the TDR's from preservation sites. The income comparison of a parcel that develops by-right (4:1 maximum) vs. the property that purchase TDR's allowing a 6:1 development illustrated that the TDR purchase is profitable. An example of this is seen on receiving Site #1. Developing the site to the F.A.R. 4:1, allowed by existing zoning has a potential Income Range of $10 to $15 million. The F.A.R. 6:1 development, achieved by purchasing TDR's has an Income Range of $12.5 to $19.5 million. The cost of the TDR's has already been subtracted from this income range (see pg. 48). Thus, the economic incentive also exists for purchasing TDR's because an additional $2 to $4 million can be added to the profits.
The impacts of TDR's are important because the objective of redeveloping B-7 is to enhance the existing character; building scale is a component of B-7's character. The impacts were presented in terms of parking spaces required under current zoning and the potential height a 4:1 and 6:1 development might reach. The parking space requirements are proven to be ill-suited for the B-7 zone. An example is seen on Site #2 (pg. 48). For every 500 sq.ft, of office space, one parking space is required, demanding 800 spaces for a 4:1 development and 1200 spaces for a 6:1 development on the site. This number of spaces requires that a 4:1 development must have 130,000
sq.ft, of parking above grade. (A greater amount, 428 spaces, was assumed to fit below grade.) A 6:1 development would have to provide 270,000 sq.ft, for parking above grade. The net effect of this impact is a four-story parking structure occupying at least 50% of a new development site. This impact can be reduced by changing the parking requirements, as suggested in the recommendations that follow this section.
The impact of additional floor area to building heights appears to be less of a problem, because the impact is not occuring at ground level. A development using F.A.R. 4:1 can build a 16-story building assuming 25% of the lot is covered by the building whereas, a F.A.R. 6:1 development would produce a 24-story building. The eight stories added via the TDR purchase are relative. Design guidelines can ensure that setbacks are used to allow adequate light and air to the street below. The design review and reduced parking requirements can provide a way for the developer to use more of the land for building coverage. For example, if 40% of the lot were covered by building at F.A.R. 6:1, a 15-story building is possible. This is one story less than a 4:1 development which only uses 25% of the lot for building. TDR may bring a handful of 14 to 20-story buildings into B-7, but the tradeoff is that Denver can preserve many character buildings in the process.
A balance between the old and new can take place; in this sense TDR is a negotiator for balancing the old and new. Zoning is the tangible vehicle which can effectuate this balance and design review
and guidelines can ease the negative impacts possible on receiving sites.
The use of TDR requires that in the process of problem solving we pose two questions: 1) what is acceptable in the market place; and
2) what is politically expedient? Supply of TDR's must not surpass the demand for them. This can be avoided through a sound planning approach; planning studies to project TDR needs is one way.
The planning study brought forth findings regarding the planning base in Denver. The existing B-7 zoning code, for example, offers a pre-amble with good intentions to preserve and enhance Lower Downtown's character, while the text gives us Alamo Plaza (a new 14-story tower at Market and 17th Street). Alan Canter, former director of the Denver Planning Office, commented on this dilemma at the April 23, 1982 meeting of the American Planning Association. "The pressures to develop in 8-7 have overwhelmed the zoning laws -- developers have found ways around the B-7 zoning."53
This comment reflects a noncommital approach to effectuating change. It is true that the economic climate in B-7 has radically
changed since 1977; however, such changes demand a new approach to planning in the area. The existing zoning must be expanded to
accommodate the changing economic climate. TDR is one solution to
53Alan Canter, from his comments at the Colorado Chapter American Planning Association conference, April 23, 1982, Denver, Colorado.
B-7's development problems; it is a solution because it is an economic incentive for directing development to meet objectives. This study pointed out the need to revise Denver's zoning code and development guidelines in regard to the B-7 zone, as well as the need to coordinate an effort on the part of the city to control development.
The problems that can be solved with TDR require sound planning first. The planning solutions that will be implemented via TDR must also be appropriate to accomplish the objectives of Lower Downtown. Thus, the planning approach to B-7 must change. The change in market conditions demands revisions and a new look at the situation in the area. What should be sought is optimum preservation, not maximum preservation. Technically, the B-7 zone is not an historic district but, it definitely has historic scale and character that makes it a resource; it is Denver's record of commercial growth.
The land values in B-7 are the highest near the CBD of the B-5 zone. The bulk of the historic and contributing buildings are located in the vicinity of Union Station. Thus, preservation sites will tend to be located in the west, central and southern parts of the zone while receiving parcels will tend to be along the east boundary and hopefully spread out toward the north area which is already in a state of transition. Due to the existing physical makeup and land values, the city will not have a hard time directing the location of preservation and receiving sites.
HIGHER LAND VALUES
To provide an economic incentive for preservation, a TDR premium is needed in the zoning code, along with a TDR ordinance to control and guide all transfers. A design review process must be required for all new development in B-7 and design guidelines provided that are realistic and coordinated. The guidelines can be required for preservation sites and optional for new developments, since new development is subject to a design review. The guidelines can be required for new developments that purchase TDR's (receiving sites) as a method to control the impacts of additional density.
Beyond the TDR premium, the zoning code must offer bonuses for retail and housing uses, to encourage redeveloping B-7 as a 24-hour mixed use district. The market demand for office space is expected to meet the supply of office space by mid-1983. The leveling off of demand for office space will create an opportunity for the city to encourage retail and housing since there will be room in the market for developing these other uses.
The parking requirements are absorbing valuable space in Lower Downtown. The large structures built to accommodate the requirements are hurting the visual appearance of B-7. An alternative is to create a parking district, similar to the one used in the Downtown area of Boulder. The parking district can be supported by property owners as a trade-off for the huge parking structures on their land. The parking needs for the entire area can be planned for, and located on sites within the zone that are suited for parking.
The premiums for plazas in the existing zoning code are a problem because they do not insure that useable space with human appeal will be created. Plaza space must be reviewed and design of such spaces must be subject to guidelines. Plaza's that are not used are not a public amenity and thus should not receive bonuses. An example of an unused plaza is in the Larimer Tower on Larimer at 15th Street. A large cement surface, located on the second level of the building is inaccessible and isolated. A visit to Larimer Tower will reinforce the need for guidelines in the design of plaza space. An example of stringent guidelines to insure useable plazas is New York City's zoning code that was adopted in May, 1975. The plaza guidelines within the code insure useable public amenities in exchange for development bonuses.
TDR is feasible if there is a demand for increasing density in one place and preserving an existing structure in another. "One of the criticisms made is that if there isn't a demand for TDR's, then
the system won't work. This is rarely the problem because if there is no demand, there are no development pressures. If there is no demand for an office building next door, then there probably won't be demand for tearing down an historic building."54
TDR enables the city to protect its historic resource, the B-7 zone, which is under pressure for urban development. The city can do this because TDR provides a way to channel development pressure to other sites that are better suited for large scale development. This channeling of development is a way to balance preservation with the pressure for new development. TDR can also effectuate a balance between public and private interests. It does this by protecting community resources while providing a means of lifting the economic burden often associated with preservation. The fact that the power of profits is a key to the preservation of Lower Downtown's character must not be dismissed.
Property owners and developers can help achieve the objectives for B-7 as long as incentives are provided by the city with guidelines to steer the development. A joint venture between the public and private sectors is the best way to create a high quality urban environment. "We are no longer in an era where we create the value of land by clearing the field and chopping down trees. Therefore, it is sometimes appropriate to separate out the rights to these values and
^Claude Gruen, TDR and the Need for Sound Planning, P.A.S. Report No. 304, pp. 47-49.
use them as a planning tool. But I think we must understand that TDR is just a tool, not a panacea."55
The effectiveness of this tool is dependent on the ordinance that gives it legal power. The planning approach that will make TDR
effective is to analyze the B-7 zone and project the demand for TDR's and impacts of new development. This approach requires an objective evaluation of the costs and benefits that come with the TDR solution. The potential benefits of TDR are sufficient to justify further and more sophisticated research by the city, into the possible applications.
The success of the technique is linked to the political-planning bodies. They must be certain that the planning base for Lower
Downtown is stringent enough to encourage the use of TDR for achieving desireable densities. A difficult part of the TDR process is determining the value of the rights. The going rate of leasable
space, that was considered comparable to the transferable space, was used in this study. Plannerscan help in determining the value by determining the demand for TDR's. As with leaseable office space, the value rises as demand increases.
There exists a strong presumption in our society, that an act should not be undertaken unless the benefits outweigh the costs. In order to determine this, all benefits and costs should be expressed on
55lbid, pg. 47.
a common scale for comparison. The comparison should include the benefits and costs that are not traded on the market, thus have no established dollar value.
People have different preferences and are subject to varying constraints as choices are made. The dollar value given to non-market benefits and costs will change based on the values of each person. Personal perference for office space in an historic building vs. a new building is a non-market element that has value.
What else is to be gained or lost from preservation of significant architecture? Whose role is it to identify the less tangible benefits? Who actually benefits from a community resource? These are questions that should be pursued in further study of the Lower Downtown. Other planning tools will be needed to create a
diverse district in B-7. Housing must be encouraged through
incentives from the public sector. A master plan for the
redevelopment of B-7 is the first step; this plan must not theorize
about the ideal way to develop B-7. It must provide mechanisms that can effectuate the plan.
From: Local Government Land Use Control Enabling Act. Article 20,
House Bill 1041. Enacted in 1974, Section 29-20-104(1)(h).
29-20-104. Powers of Local Government.
(1) Without limiting or superceding any power or authority presently exercised or previously granted, each local government within its respective jurisdiction has the authority to plan for and regulate the use of land by:
(a) Regulating development and activities in hazardous areas;
(b) Protecting lands from activities which would cause immediate or foreseeable material danger to significant wildlife habitat and would endanger a wildlife species;
(c) Preserving areas of historical and archaeological importance;
(d) Regulating with respect to the establishment of, roads on public lands ....
(e) Regulating the location of activities and developments which may result in significant changes in population density;
(f) Providing for phased development of services and facilities;
(g) Regulating the use of land on the basis of the impact;
(h) Otherwise planning for and regulating the use of land so as to provide planned and orderly use of land and protection of the environment in a manner consistent with constitutional rights.
1) Smiley, Jerome, ed., History of Denver, 1978.
2) Carmichael, Donald, Transfer of Development Rights: Early
American Precedents, TDR ed., Jerome Rose (1974).
3) Reily, The Use of Land.
4) Jacobs, Jane, The Death and Life of Great American Cities.
5) Bossleman Fred, The Taking Issue, 1973.
6) Hagman, Donald, Windfalls and Wipeouts in the Good Earth of America: Planning Our Land Use. (C. Harris, ed. 1974)
Articles in Journals/Magazines
1) Raymond, George, "Structuring the Implementation of TDR," Urban Land Institute (July/August 1981).
2) Norman, Thomas, "TDR: A New Concept in Land Use Management," Urban Land Institute (November 1973).
3) Schnidman, Frank, "Selling Air Rights Over Public Property,"
Urban Land Institute (November 1981).
4) Altman, Ross, "Tax Benefits of Historic Preservation," Urban Land Institute (October 1981).
5) Huff, Nadine, "Negotiating Rezoning Conditions in Fairfax County, Virginia," Urban Land Institute (November 1981).
6) Hagman, Donald "Windfalls and Wipeouts," Planning Magazine
7) Shlaes, Jared "Who Pays for TDR?" Planning Magazine (July 1974).
8) Bruegmann, Robert, "What Price Preservation?" Planning Magazine
9) Bartels, Robert, "TDR: No Panacea Afterall," Planning Magazine (December 1976).
10) Emanual, Manuel S., "TDR: What's Happening Now," Practicing
Planner (March 1977).
11) Costonis, John, "Whichever Way You Slice It, TDR is Here to Stay," Planning Magazine (July 1974).
12) Woodbury, Steven R., "Transfer of Development Rights: A New Tool for Planners," AIP Journal (January 1975).
13) Coughline, R.E., "Preservation of Open Space: Does It Work?" AIP Journal (October 1978), Vol. 44.
1) Meshenberg, Michael, The Administration of Flexible Zoning Techniques, Planning Advisory Service Report No. 318 (1976).
2) Long-Hoeft Report, Lower Downtown Architectural Inventory, (Denver 1980).
3) Development Guidelines for 16th Street Mall, Denver Planning Office, pg. 8 (1981).
4) Chavooshiam, Budd, TDR: A New Concept in Land Use Management, 1973.
5) Gans, Ellis, "Economic Effects of a TDR System," Marin County, California, Planning Advisory Service Report No. 304.
6) City West Economic Facts, a memorandum to Downtown Denver, Inc., November 1981.
7) Grubb and Ellis, Investors Outlook Quarterly Report on Real Estate Investment, Volume 2, Number 1, 1st Quarter, 1982.
8) Schlossler, Elizabeth, Historic Denver News, "TDR Ordinance Passes!", February 1982, pg. 3.
9) Pyke, J., Landmark Preservation II and III, Citizen Research Foundation (1970).
10) Heeter, David, "TDR and the Comprehensive Planning Process: A Critics Choice," Planning Advisory Service Report No. 304.
11) Miner, Ralph, "Conservation of Historic and Cultural Resources," American Society of Planning Officials Report No. 244.
12) Bateman, Worth, "The Need for Further Experimentation," Planning Advisory Service Report No. 304.
13) Greuen, Claude, "TDR and the Need for Sound Planning," Planning Advisory Service Report No. 304.
1) Denver University Law Department, Memorandum to Denver Planning Office, "A Legal Review of Proposed TDR Ordinance for B-7 Zone" 1980.
2) Reps, John, "Pomeroy Memorial Lecture, Requiem for Zoning," Selected paper from ASPO National Conference, 1964.
3) Charmichael, Donald, "Legal Precedents for Adoption of a TDR
System: Colorado," a paper delivered at Bettman Symposium,
4) Rose, Jerome, "Transfer of Development Rights," introduction to collection of papers delivered at ASPO, 40th Annual Conference, Chicago, 1974.