TOD Market Dreams + RealitiesRail-Volution 2014

Minneapolis, MNSeptember 22, 2014

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Discussion Agenda

TOD in (my) context

Current trends in the marketplace

Opportunities for public-private partnerships

Lessons Learned

Discussion / Q&A

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What is Transit-Oriented Development (TOD)?Development pattern characterized by a mix of land uses surrounding a transit station:

High density and intensity

Synergistic uses such as housing, retail, employment and entertainment (24/7)

Walkable environment through hard and soft scape treatments

Target .5 mile around the station

Top: Tempe, AZ Bottom: Garland, TX

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TOD: A Brief (revisionist) History

Development Pattern Technology Time Frame ExampleSteam-powered commuter rail

mid-1800s New York, San Francisco

Electric streetcar and horse-drawn carriage

late 1800’s to early 1900s Pacific Electric Railway in southern CA, Chicago “L”)

Auto-oriented Development

Auto dominance Post WWII Suburbs spurred by Federal Interstate Highway System

Transit-Related Development

Rail and bus transit Post Urban Mass Transit

Act of 1964

Lease-revenue focused joint ventures with transit

agencies

Transit-Supportive Development

Rail and bus transit 1980s - present Lease-revenue and

ridership focused joint ventures

Development-oriented Transit

Source: Institute of Urban and Regional Development Working Paper 2009-02

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Which One is It?

Development-oriented Transit(transit-lead high density development)

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Which One is It?

Right: Santa Clara Valley Light Rail AuthorityTop Left: Phoenix Metro (Tempe)Bottom Left: Dallas Area Rapid Transit (DART)

Transit-related Development(auto-lead low density development)

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Which One is It?

Transit-supportive Development(high density mixed use development)

Right: Norfolk, VATop Left: Capital Metro proposed Leader Station Bottom Left: Murray, UT proposed Fireclay Station

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Millennials technologically sophisticated diverse and embrace diversity environmentally conscience, educated strapped for cash sense of community and places to “hang out”

Baby Boomers demand for smaller footprint Convenience and access to amenities/services cash conscious sense of community

Greater Desire for TOD

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This TOD Stuff is Expensive

Development CostsHigher density building costs – elevators, building codes for safety and energy efficiencyUpgrade existing infrastructure if urban infill Need structured parking

Market Rental Rates First project must “prove up” the market Retail siting requirements rule regardless!Dictated by space supply and demand

Entry CostsRegulatory “brain death” factor (by-right density?)Land cost and ability to assembleFew developers can successfully carry this off

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Intense competition for expanding development “market share” requires product differentiation: sense of place

Tool for spurring economic development – connection of jobs centers with housing centers regionally or locally

Having a light rail station in addition to traditional bus service seen as a “return” on years of investment in a transit district

Public desire for more “resilient development” – appropriate density, environmental stewardship and public amenities

Widening funding gap: Increasingly scarce federal and state funding at a time of rapidly increasing construction costs

Public Perspective on TOD

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Private Perspective on TOD Intense competition for expanding development “market share”

requires product differentiation: sense of place City Policy through comprehensive planning and zoning

regulations (ease of obtaining density?) Little to no appetite to construct speculative commercial

development - established markets with demonstrable (not proforma) demand

“Finance, finance, finance is the new location, location, location.” (Kirk Williams, Cypress Equities)

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Financing TOD Banks have little to no appetite to finance speculative development

Bank regulations limit the amount of construction financing

Small pool of seasoned developers & contactors

Underwrite on the separate parts and as a whole

Relatively long financing and entitlement lag -higher carry costs and higher risk

Opportunities for hidden surprises (environmental issues)

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Lesson #1: Many Tools for Partnerships

Reducing Development CostsFederal tax credits for housing and/or energy efficiencyBy-right higher density zoningExpedited permitting and review Fee waivers City CIP investment in infrastructure Tax Increment Financing (TIF) and tax abatementsFederal/Regional/State grants

Removing Barriers to EntryLand assemblage/swapsBelow market land lease ROW/street abandonment

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Lesson #2: Residential Density Leads

Transit Type DU/AcrePersons/ Sq. Mile

Bus - minimum service 4 6,192

Bus - Intermediate Service 7 12,096

Bus - Frequent Service 15 25,920

Light Rail 9 15,552

Rapid Transit 12 20,736

Source: Mineta Transportation Institute

Need high residential density (approximately 15,000 persons/ sq. mile) to sustain light rail

Synergy between housing, retail and transit only if easily walkable

People only willing to walk 2,300 feet for general purposes

Commuter support of transit needs residential density at both ends

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Lesson #3: Retail Follows Retail is a business operation

– rent subtracts from service

Retail site location science: (cluster, scale, access, visibility, zoning, consumer preferences, competition and capture)

Free rent won’t change bad fundamentals

A vacant development is worse than no development

MANAGE EXPECTATIONS

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Christine Maguire, AICP, EDFP Senior Manger ◊ DPFG

609 Castle Ridge, Suite 310Austin, TX78746

Christine.Maguire@dpfg.com

512-732-0295

Discussion and Q&A

“If you ask me a questions I don't know, I'm not going to answer.”

--- The Immortal Yogi Berra