An ordinance that would allow downtown Los Angeles developers to purchase “air rights” so they could increase the size of their projects is drawing surprisingly intense interest, according to a legislation proponent.

It also may net the city far more than the $200 million originally estimated.

The ordinance which goes by the unwieldy name of Transfer of Floor Area Ratio but is commonly referred to as TFAR is set to go into effect May 20, prompting inquiries into its possible use.

“Developers have been calling me for months asking when it will be passed so they can go in and buy TFAR,” said Paul Rohrer, a land use attorney at Munger Tolles & Olson LLP who was one of the architects of the ordinance.

The TFAR ordinance, approved by City Council on April 4 and signed by Mayor Antonio Villaraigosa the next day, is the result of a compromise between the mayor and Councilwoman Jan Perry, who proposed it and represents much of downtown. The compromise gave Villaraigosa more say in project reviews.

It’s also an amended version of legislation created in 1988 that was cumbersome and not nimble enough to be effective in the collapsed office market of the early 1990s thus never utilized by developers more than a handful of times.

But with another boom in downtown development, the new ordinance will allow Los Angeles to sell off 9 million square feet of unused Los Angeles Convention Center development rights. Other air rights could be sold off by the city later. Builders of commercial and residential projects can purchase the air rights credits to increase the density of their projects.

Not utilized

The 1988 legislation valued any unused air rights essentially defined as square footage allowed by zoning codes but not used up by specific developments at a set amount. The problem was the value was set when the downtown market was booming.

“They did it when land was trading at $500 per foot,” Rohrer said. “But the market went down to $200 per foot, so no one did a TFAR deal.”

The new ordinance, however, sets the value of the rights based on a complex formula that takes into account the going market rate for downtown property. The formula is intended to make the air rights competitively priced.

“I am optimistic that it will be a tool that will be helpful and constructive in facilitating downtown development so it becomes what we all want it to become,” said Jane Blumenfeld, a senior city planner who worked on the ordinance with Rohrer, other lawyers and city officials.

It might even be possible for the ordinance to spur development if the downtown market slows because the additional square footage could be had at a low price.

“Maybe developers will say, ‘I can get my land cheap and my TFAR cheap I will build,'” Rohrer said.

When the ordinance was first passed in March, it was widely reported that the sale of the convention center air rights would generate up to $200 million for the city. It appears that figure was a conservative estimate generated by Perry’s office. Because the ordinance is tied to land values, it could generate even more money for the city or less.

According to Mark Tarczynski, a senior vice president at CB Richard Ellis Group Inc. who specializes in the downtown market, entitled land downtown currently sells for $450 a foot. Unentitled land sells for about $300 a foot.

Using the ordinance’s formula for determining the sale price of air rights, if land is trading at $450 per foot, the 9 million square feet of convention center air rights are worth $315 million, or $35 per foot.

The updated version of the ordinance also allows funds generated by air rights sales to be put to a wide variety of uses.

When a TFAR sale is made, half of the money is put into a fund operated by the city. Money in that fund would be used for public improvements downtown, including parks, child care centers and affordable housing, among other benefits. And up to 50 percent of the money may be given to a “direct provider,” such as a nonprofit organization chosen by the developer in concert with the city.

“I think the idea is that it allows developers and private nonprofits to work creatively in an entrepreneurial fashion,” Rohrer said. “(It) might allow for public benefits to be brought quickly and in a visible manner. ”