Silver Streak: Transit Oriented Development
Transit funds pave the way for Transit Oriented Development.
Investment in infrastructure is running high on priority lists in both the U.S. and Canada. U.S. voters have recently approved $200 billion for transit projects nationwide.
The most notable U.S. projects are taking place in Los Angeles and Seattle, where voters have agreed to spend $120 billion and $54 billion respectively. The American Transportation Association reports approval for 34 of 49 measures seeking funding for public transit on the ballot in November 2016.
At the federal level, transit development is a priority. Recent demographic shifts have put new emphasis on real estate that is located close to transit, especially in urban areas. As the market for Transit Oriented Development has evolved, so have practices in the evaluation of TOD opportunities.
In large part, the demand for TOD is generated by millennials and baby boomers who want to live and work in urban centers. For real estate investors looking to capitalize on this demand, five factors can be used to determine the potential for TOD in any one location: transit service; system access; underutilized land; market support; and plans, policies, and regulations.
Transit Service is more attractive to the consumer when the system is permanent, which is fixed versus movable; reliable; runs frequently; and provides access to multiple destinations across the region. Simply put, how easy is it to get around the city without a car?
System Access. Prime TOD locations are pedestrian friendly and offer safe, convenient access to transit. Ideal locations have efficient street grids with small city blocks and are free of access barriers.
Underutilized Land. While it may appear obvious, to create TOD there must be available underutilized property on which new buildings can be permitted and constructed.
Market Support. Like all successful real estate development, TOD needs to be supported by market fundamentals. Population and employment growth drive the demand for new space.
Plans, Policies, and Regulations. When done correctly, public land use policies, plans, and regulations encourage TOD. Urban center, urban village, and transit overlay zoning designations show support for TOD by local jurisdictions.
Case Study in Seattle
A good example of TOD opportunities is located in Seattle. The Roosevelt Station resides on a segment of the Sound Transit’s Link Light Rail Line that is slated for completion in 2021.
Based on the five factors to consider when assessing TOD opportunities, this evaluation starts by posing basic questions and conducting research to find the answers.
The best ways to start is to evaluate the size of the transit system, the modes of transportation, and how many routes serve the location. Other significant factors include the frequency of service and whether it serves major employment centers.
Findings: Seattle’s Regional Transit System ranks eighth in the nation, serving more than 200 million riders each year. Service includes commuter rail, a growing light rail system, express bus, and conventional bus. Voters recently approved a $54 billion transit system expansion designed to provide reliable transit service throughout the region.
The Roosevelt Station is a multimodal location, served by light rail and several bus routes. Travel times to the University of Washington and downtown Seattle are respectively five and 14 minutes, with the trains running every 10 minutes. For those wanting to reduce car dependence, the location provides transit access to a large geographic area and the region’s major urban centers.
How dense is the street grid? Are there barriers to access?
Findings: The street grid consists of larger blocks that are less-than-ideal for pedestrians making connections. The barriers to station access include a major highway, I-5, and Roosevelt High School.
How much-underutilized land is in the station area? How dense is existing development? How much single family development already exists?
Findings: There are several parcels within immediate proximity of Roosevelt Station that are underutilized or vacant, many of which are planned for redevelopment. Recently constructed mid-rise buildings indicate the land can support higher densities. A significant amount of single family development within the station area poses a challenge to future redevelopment.
Is the population projected to grow? How much are apartment and office rents? Have new projects been completed recently? Are new buildings proposed or under construction?
Findings: The residential population is expected to grow in the area. The area is not an established office market. Roughly 1 msf of new development has been added to the market in the last decade, and several proposed projects are in the pipeline.
Plans, Policies, and Regulations
Does the zoning code include a station area overlay or an urban village center designation? Are the minimum parking requirements low? Are shared parking provisions part of the code?
Findings: The city of Seattle has designated the area as the Roosevelt Residential Urban Village. A recent zone reclassification created a Station Overly District for commercial and multifamily areas within a ¼ mile of the station, a pedestrian overlay intended to encourage pedestrian-oriented retail, and an incentive zoning program for affordable housing. Low minimum parking requirements are in place, and the code encourages shared parking. Beyond the ¼ mile area, established single family neighborhoods pose a challenge to redevelopment.
The strengths of the Roosevelt Station area are the quality of the transit service once light rail is operational, market support for new development, and supportive plans, policies, and regulations. Those elements that are less-than-optimal include the system access and the amount of underutilized land available for new development.
Overall the location is good for TOD, particularly residential development targeting University of Washington students and downtown employees. The current market expansion is bringing new projects to the area.
As the opening of light rail service approaches, interest in the area is certain to grow, likely putting a squeeze on the limited commercial land supply.
The approach offers a relatively fast way to understand TOD opportunities and foster productive conversations. It can be used to compare locations and identify those that are better TOD opportunities. The work involves investigations, research, and application of local market knowledge. For CCIMs, the approach offers another perspective that can support the market analysis techniques presented in the CCIM core course CI 102.
By: Blair Howe (CCIM Commercial Investment Real Estate)
Old Priorities Become New
Public transit and biking have not enjoyed this much popularity and infrastructure investment in the U.S. and Canada for 100 years. Canada just added an extra $6.64 billion for public transit, sewage treatment, and housing through 2019 to 2020 fiscal year to an allocation of $17.94 billion through 2020 for infrastructure improvements.
In Calgary, Canada, a new 25-mile leg to its existing light rail transit will connect the city’s commuting population from the north to south sides with multiple destinations, including downtown and the oil industry hub in the southeast.
“This LRT is about making it more sustainable for people to live, work, and play in Calgary,” says Theresa Browning, CCIM, acting manager of business operations and administration for Real Estate & Development Services at the City of Calgary. “We are taking a holistic approach and strategically planning with the community to provide amenities and infrastructure to improve the quality of life. Smart investment in transit infrastructure has a measurable social return on investment, providing a low-stress commute, more time with family, and amenities at stations along the way.”
Browning’s team is assisting in the acquisition of about 500 properties — both residential and commercial real estate — to develop this Green Line extension. Giving credit to skills she learned in CCIM training, Browning is applying tools such as hold versus dispose analysis, discounted cash flow analysis using a 3D model that she helped to build, and financial and market analyses. Her value analysis work includes consideration of the implications of the LRT to businesses and residents, the benefits to the city from LRT, and transportation implications for commuters during construction.
“Working with real estate professionals is paramount to the success of the Green Line,” says Michael Thompson, director of Transportation Infrastructure at the City of Calgary. “Property acquisition is one of the largest risks for the short-term project completion, and future Transit Oriented Development is one of the largest long-term opportunities for the city.”
“For this massive project, my team is delivering highest and best use analysis for entire communities,” Browning says. “Planning is really important. We are providing feasibility options to our Transportation Infrastructure business unit for better decision making, using tools such as the economic base multiplier from CCIM training.”
The new leg to the existing 36.7-mile LRT line will also provide parking for bikes. Public engagement is ongoing on the route, station locations, and Transit-Oriented Development plans. These plans will be presented to Calgary’s City Council in June 2017. Calgary’s Green Line is designed as both a transit system and a platform for development and sustainable public transportation, which efficiently serves people working and living in a widespread urban landscape.
By: Sara S. Patterson (CCIM Commercial Investment Real Estate)
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