Setbacks are part of the property that is still owned by the school. Schools don't (currently) pay property taxes in New York, but whoever buys the buildings will still owe taxes on the property, including the setback.

One of the potential buyers are trying to stop the sale to a different buyer, so the setback isn't at issue. The most one could say is that the setback diminishes the potential taxable value of the property by not allowing larger buildings, but that's somewhat subjective (does the setback itself make the existing footage more desirable?).