The Third Dimension - Unlocking the Secret to the Next Trillion-Dollar Market

Invisible Assets

Guest Post by Jonathan Dockrell

Jonathan is the CEO of SkyTrade, a seasoned entrepreneur and an Emergent Ventures winner awarded by renowned US economist Tyler Cowen. He writes the popular Substack Where is my flying car?!, which discusses new growth avenues, air rights, regulation, real estate, drones, and aviation. You can find Jonathan on X.

When we think of property ownership, we often focus on the two-dimensional aspects of land and buildings. However, property has three dimensions, with the often-overlooked third dimension holding significant economic value.

Air rights, the intangible yet highly valuable space above a property, have been a crucial aspect of property ownership since ancient Roman times. The Latin translation is property ownership from ‘Heaven to Hell’ was what you owned. This was altered later as governments started to expropriate property ownership. For example, the land mass of the US claimed ownership of high-altitude airspace above 5,000 feet. Buying and selling air rights gained prominence in the 19th century, enabling the construction of hotels and mansions.

More use cases emerged in the 20th and 21st centuries, adding value; now, technological innovation brings liquidity and accessibility. Today, if you own land or property, you own the low-altitude airspace above it, your air rights. These air rights are both constitutionally enforced and vested in the property owner in the majority of States through legislation.

As we look at the air rights market, it becomes clear that they are a vital component of the investment ecosystem, underpinning the fabric of our laws, economic systems, and property values. Powerful forces are reshaping urban life. Hedge funds, real estate, spirituality, and innovation are converging to create a seismic shift in how we live and interact. This intersection is yielding new opportunities for wealth growth and passive income. The market for underutilized air rights globally is estimated at $31 trillion.

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Transactions

In 2017, the Catholic Archdiocese of New York identified a potential buyer interested in acquiring some air rights from St. Patrick's Cathedral. The transaction is anticipated to yield a minimum of $7.2 million or ~$61 per cubic foot.

A few short years later, rezoning enabled the Cathedral to engage with new developments in an expanded 78-block area. Citadels CEO Ken Griffin paid the Archdiocese of New York up to $164 million for St. Patrick's air development rights. Each cubic foot costs $312.50. An increase of 510% in 7 Years for what some deem thin air, and others’ valuable assets. The transaction costs, including banking fees, broker fees, transfer fees, legal and administrative, were estimated at $10 million but could very well be higher. Stepping back, this appears to be a massive and unnecessary overhead for exchanging air for money.

NYC has passed the ‘City of Yes’, which brings densification to a new level and allows more air rights opportunities for building and trading. Air rights track real estate prices, and air rights options give holders the potential for exponential growth without the need to do the heavy lifting of buying brick and mortar.

Griffin's vision includes a 1.7 million-square-foot skyscraper with Citadel occupying about half of the space. This deal shows the demand for air rights and what’s possible for other holders.

Similarly, Grand Central Terminal sold its air rights to JPM for $240 million, and Related paid a staggering $1 billion to the MTA for the air rights over Hudson Yards. The trend extends beyond iconic landmarks, with condo buildings regularly buying air rights to secure unobstructed views for their residents, such as the $11 million paid by condo owners to protect their view of the Empire State Building.

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The lucrative air rights market is not limited to New York City. Significant deals have been made in other cities, including Calgary, where air rights parcels have traded for $32 million, and Silver Springs, where air rights parcels sold for $92 million. Even on Staten Island, air rights have been sold for $166 per cubic foot. In Chicago, a $21.5 million mortgage was secured on rental income from air rights. Across the Atlantic, London's zone 1 and 2 air rights are estimated to be worth a staggering £50 billion, with public policy encouraging their use. Governments are also capitalising on this trend, with San Francisco selling the air rights over City Hall for $45 million. These are splashy deals; smaller air rights transactions in the tens of thousands and hundreds of thousands happen, and people with small and mid-sized real estate portfolios are looking for liquidity and price discovery.

In Australia, for example, in an area of natural beauty, homeowners bought up many homes in their neighbourhood. They took the air rights out as easements to control any building that might block their views. They then sold the homes back on the market, increasing the value of their homes and the area. As the market continues to expand, it's clear that air rights have become a highly sought-after asset class.

The air rights market is very opaque and inaccessible for the average investor to get involved in. It is very valuable, and those involved tend to keep it gated. This is why SkyTrade, the air rights marketplace, has been developed. As a rule of thumb, air rights are worth 5-30% of the value of the underlying real estate, so there is a significant benefit to small homeowners and large real estate companies getting involved in the market.

Logistics & Communications

The crossover between real estate, air rights, and transportation is straightforward. Not only are air rights required so we can build in, but they are also required to allow drones and flying cars in low altitudes and the associated infrastructure. Drones are not just small toys but cargo drones that can carry hundreds of pounds of goods above highways, reduce costs, and decrease the number of trucks on the roads and the number of fatalities.

This comes from existing assets in air rights, where cell towers and antennas sit on top of rooftops into the air rights and add ‘free money’ to a building owner and network density to our ever-increasing demand for mobile data. These assets can yield a return of 6%-15%, and the cashflows are from highly rated companies with which SkyTrade partners.

The future of delivery is taking to the skies, and air rights hold the key to opening it as drone technology is poised to revolutionize the industry. According to ARK's forecasts, drone deliveries are expected to reach $450 billion by 2030, driven by their potential to reduce traditional delivery costs by a staggering 94%. Over 2 million commercial drone flights have already occurred, paving the way for widespread adoption.

Retail giants Walmart and Amazon are at the forefront of this trend. Walmart has completed over 20,000 drone flights and currently covers 75% of the Dallas-Fort Worth area, with ambitions to deliver to 90% of the US population. Amazon is also rolling out its drone delivery program but faces a significant hurdle: obtaining permission to fly over private property into individuals' air rights.

Under the law, drones flying over houses are technically trespassing. To address this issue, registering air rights and tracking drones can help the owners manage their airspace rights and receive financial benefits. This, in turn, adds significant value to income-producing air rights, and the value of these air rights, which can be traded, is increasing significantly.

Risks & Rewards

Trading air rights, like any trading, has risks. Some air rights assets are income producing, and others have more of a capital gain type profile. What has been demonstrated over time is that the densification of cities mitigates risks, and the increasing need for improved logistics reduces these risks. The growing demand for mobile data from AI, blockchain and other technologies increases the demand for air rights. The ability, with new technology and innovation, to access the market in a liquid way benefits traders' market timing and lowers transaction costs. Ken Griffin would have saved millions had the St Patricks’s air rights transaction been done digitally through SkyTrade.

Ultimately, it's not just about air rights - it's about the future of property, logistics, and innovation. As we unlock the value of the third dimension, we're not just creating a new asset class but also building a new economy. One that's driven by technological advancement, densification, and the relentless pursuit of progress. The question is no longer whether air rights will become a major player in the investment ecosystem but how quickly we can harness their potential to reshape the world. Much like the air rights themselves, the answer is waiting to be seized.

Where is my flying car? is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.