SECOND UPDATE, March 17: Clarifies the role of Community Board Five, which does not administer the Theater Subdistrict Fund, below.

UPDATE 8 PM: Adds more about Shubert ownership in sixth paragraph.

EXCLUSIVE: As Team de Blasio considers ways to plug loopholes in the various federal and local tax laws that cost New York City millions in revenue, let’s revisit a couple of sacred cows: Transfer of air rights over Broadway theaters, and the Culture Shed.

First, air rights. As I wrote yesterday, the owners of Broadway’s landmarked theaters benefit from a boondoggle only a Hamilton ticket scalper could really appreciate: They can’t physically alter their theaters, so the city allows the owners to transfer (i.e. sell or lease) the square footage above their theaters to developers, who use those rights to increase the actual square footage of their luxury apartment/hotel/office complexes only billionaires can afford and which will probably be empty in a decade.

Image (3) GerardColumn_badge__140512224655-150x150.png for post 735293To sweeten the deal, the city in 1998 gave the theater owners a further break: whereas owners of other landmarked buildings can only transfer air rights to projects on adjacent properties, theater owners can transfer those rights anywhere within the district.

 “The expanded theater air rights transfer zoning mechanism was designed specifically to induce theater owners to transfer their rights, thus stripping the theater parcels themselves of development potential and making theatrical production the highest and best use of the buildings,” says Jack Goldstein, a former Actors’ Equity executive and Co-Ordinator of the Broadway Initiative. “This was a separate and complementary real estate burden imposed by the public pledging the building primarily to theatrical use in perpetuity, executed when the air rights transfer.”

That’s how the Shubert Organization was able, for example, to transfer air rights from its 44th and 45th Street houses, notably the Majestic, the Booth and the Broadhurst, to development projects on the site of Roseland ballroom and, the monster of all current developments in the district, a tower in the offing at 740 Eighth Avenue (that may or may not include a new Broadway theater).

But the federal tax code, IRC 1031, allows the landlords to “swap” the profits from those air rights sales for investments anywhere they please. As I reported yesterday, this may be why the Shubert Organization — which owns 17 Broadway houses — also owns fast-food franchises and bank branches in Illinois, Maryland, Georgia and Massachusetts. And they’re all part of the non-profit Shubert Foundation, which enjoys enormous tax breaks no other commercial theater owners do. These are the franchises I’ve found in public records — deals done since the company began selling air rights:

Shubert & Booth Windward 1 LLC at 5210 Windward Parkway, Atlanta Georgia,
is a McDonalds;

Shubert & Booth Windward 2 LLC at 5170 Windward Parkway, Atlanta, Georgia, is a  bank branch;

Shubert & Booth Windward 3 LLC at 5150 Windward Parkway, Atlanta, Georgia, is a Kentucky Fried Chicken;

Broadhurst Odenton LLC at 1351 Blair Road, Odenton, Maryland, is an M&T Bank branch;

Broadhurst Hingham LLC at 421 Lincoln Street, Hingham, Massachusetts, is a TD Bank branch;

Majestic Crestwood LLC at 13101 Cicero Avenue, Crestwood, Illinois, is a Bank of America branch;

Majestic Mundelein LLC at 380 Townline Road, Mundelein, Illinois, is a Chase Bank branch.

All of these limited liability corporations list as their business address 234 W. 44th Street, which is the home of the Shubert Organization. There’s nothing shady or illegal, and obviously Shubert invests money in lots of other things, sometimes even Broadway shows. (Shubert executives refuse to comment on the company’s real estate deals.) It’s just worth the Mayor’s noting that the $50 million that Shubert has earned from the transfer of air rights above its Broadway theaters may be sheltered from taxes in these out-of-state businesses. Why not get them sheltered here by insisting that your Planning Commissioner refuse to sign off on commercial developments unless the money from air rights sale stays in New York?

It’s not just Shubert that’s taking advantage of these breaks. The Real Deal, a real estate business site, reports that the Nederlander Organization has just transferred some of the oxygen above the Neil Simon Theatre, on West 52nd Street, to Sharif El-Gamal, MHP Real Estate "Gigi" Theater Marquee UnveilingServices and Hampshire Hotels Management for a 237-key hotel at on Seventh Avenue between 40th and 41st Streets, according to an application filed with the City Planning Department. Per the report, Nederlander sold about one-fifth of the Neil Simon’s 100,000 available square feet of nothing for an estimated $300 per square foot, or $6 million (I think that figure is low, as it’s based on a year-old estimate).

So my question is, will Nederlander take the high road — and stash the cash in, say a Whole Foods market in Michigan since it’s healthier than The Colonel?

As for the boon these sales were supposed to be for the Theater Sub-District Council Fund, as Sarah Palin might say, “How’s that been working’ for ya?” Not so great: The fund operates on a pittance, has minimal oversight by the folks tasked with running it, and has dispensed so little money for the development of new works that Community Board Five, which reluctantly came out in favor of the Roseland plan, took notice in December:

Whereas, The Board urges the City Planning Commission to re-think the contribution into the Theater Subdistrict Fund so that the contribution is updated on a yearly basis and in a manner which reflects the increase in real estate value; and

Whereas, The Board is saddened to see that the Roseland Ballroom will be torn down to make way for this development and wishes that a development incorporating the Ballroom as a viable use and as an important venue in New York City would have been presented; and

Whereas, Based on recent estimates of air rights values in West Midtown the contribution into the fund of approximately $18 per sf is significantly less than 1% of the value of the air rights being sold, therefore be it

RESOLVED, Community Board Five recommends approval of Roseland Development Associates’ application for a theater air rights transfer to a Site located at 239 West 52nd Street and continues to urge the City Planning Commission to re-think the Theater Subdistrict contribution rate.

And Mr. Mayor, while I have your ear, can I remind you of another boondoggle you’ve ignored? That would be the gigantic “Culture Shed” that’s going up in the massive 26-acre, $20 billion Hudson Yards on Manhattan’s West Side, just south of the Theater District. In a Screen Shot 2015-03-13 at 4.22.57 PMDaily News guest editorial last fall, I told you about this: Just before he left office, former Mayor Bloomberg earmarked an unprecedented $50 million one-time payment for this mega-venue the city neither needs nor can afford. It was quite the gift to developer Stephen Ross and a coterie of Bloomberg cronies led by former Bloomberg L.P. CEO Dan Doctoroff (for whom I sorta used to work as an arts editor and columnist at Bloomberg News, and who’s a right guy).

The shed will compete with established venues like Lincoln Center and the Park Avenue Armory, not to mention the still-gestating arts complex at Ground Zero. And inevitably, it will jockey for dollars from philanthropists already overburdened with requests. (The city has also promised money to yet another mega-venue, being underwritten by Barry Diller and Diane von Furstenberg in partnership with producer Scott Rudin. That one is a floating park in the Hudson River just south of 14th Street, which at least adds the promise of low-fee performances and public spaces.)

Why is the city spending $50 million to increase the value of a commercial housing-and-retail project when arts education in our schools is non-existent and every groundling cultural organization is praying it can pay its staff and overhead next month? $50 million may be chump change in a $20 billion project. But in the context of how much New York City spends on the very thing that makes people all over the world want to live (or at least visit and spend their money) here, its — well, it’s as essential as air.