Guide to Joint Development for Public Transportation Agencies (2021)

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135   Conclusion 9.1 Goals and Outcomes In the opening pages of this guide, the question was asked, “Why undertake JD?” Based on our survey of 32 transit agencies, the literature, and the practical experience of the research team and project panel, there are three overarching, commonly understood goals from the transit agency perspective: to grow ridership; to generate a financial return; and to advance a nexus of place- making, equity, and sustainability goals broadly associated with transit-oriented development. The relative emphasis placed on these goals, and the details of how they are refined and operationalized, varies among transit agencies. Two diverse examples—the official program goals of BART and KCATA—are listed in Table 11.1 Goals like these can be used to frame the agency’s preliminary project planning as well as the evaluation criteria for developer selection. In those predevelopment stages, the agency’s JD goals and criteria are, by definition, aspirational. This concluding chapter addresses how things actually turn out—how an agency’s JD goals can be turned into the measurement of future outcomes. 9.2 Defining and Measuring Outcomes Future outcomes do not happen in a single timeframe or a single place. In JD, outcomes evolve over time, with near-, mid-, and long-term horizons.2 They also evolve spatially, in what can be imagined as a series of ripples emanating from a project site: • The JD project itself, which, whether on transit property or close by, is typically in or near the core of the station area; • Development in the remainder of the station walkshed, where the transit agency and its local government partners hope the JD project will prove catalytic in establishing the market and exemplifying high-quality TOD; • If applicable, the combined impacts of JD and associated station area development at multiple stations in a corridor; and • Ultimately, the trajectory of mobility and land use in the regional market as a whole. (Is the “needle moving” in a more transit-oriented, sustainable, and equitable direction, and is it reasonable to credit JD with influencing these outcomes?) In theory, any of these spatial effects could occur in any of the three traditional timeframes. However, a rough correlation can be posited as events unfold: A. The specific outcomes of individual JD projects should be discernible in the near- to mid- term, as should the aggregate outcome of multiple JD projects. C H A P T E R 9

136 Guide to Joint Development for Public Transportation Agencies B. The catalytic effects of JD on the broader development of station areas and corridors consti- tute a mid- to long-term set of outcomes. C. “Moving the needle” on regional land use and mobility is a longer-term outcome. Table 12 illustrates how future JD outcomes could be defined and measured. Columns A, B, and C represent three time horizons. For each of them, conceptual metrics associated with the ridership, financial, and TOD goals of JD are listed. The point is not to prescribe specific metrics (which each transit agency should craft to reflect its own regional context), but to sug- gest a way of addressing future outcomes at each stage. As with other composite listings in this guide, it is understood that not all of the items will be applicable to every agency; the long-term column, in particular, may have limited relevance to systems with only a handful of JD projects. Some key points: Ridership outcomes. Ridership is not only a mission-central goal of JD, but it is integrally related to the others. On the financial side, farebox revenue, the direct product of ridership, is for most transit agencies the main component of own-source revenue and a key financial benefit of JD. On the TOD side, the goals relating to sustainability, equity, and placemaking rely on the everyday integration of land use and transit use. In addition to ridership volume and mode share, it is suggested that trip directionality and origin-destination patterns be considered as well (data which will be more readily collectible as fare collection technology becomes more sophisticated). Directionality is important because of the role that mixed-use TOD can play in generating reverse commuting, which uses the “found capacity” of counter-peak trips to add ridership and revenue. Origin-destination patterns can also reveal commuting to destinations near but not in the downtown core. Although these work places attract peak-direction trips, they help mitigate the core’s “crush load” peak conditions. Mixed-use TOD also tends to spread transit use across more of the 24-hour day, with cascading effects on activity, perceived safety, and market attraction. These patterns have equity and sustainability implications. The extent to which transit can reinforce concentrations of employment in outlying city and town centers, or in inner-ring areas that in many cases are former industrial districts, helps bring jobs and working-class residential communities closer together without promoting sprawl. BART PROGRAM GOALS KCATAPROGRAM GOALS • Complete communities • Sustainable communities strategies • Ridership • Value creation and value capture • Transportation choice • Affordability • Grow transit riders, creating economic benefits for nearby neighborhoods and businesses • Generate new revenues and revenue sources associated with TOD • Improve quality of life through transit-related investments (employment access, crime reduction, decreased congestion, cost savings) • Support increased residential and commercial activity, including density with benefits from transit ridership and investment • Emphasize public-private partnerships to better… leverage KCATA’s capital, while engaging the private sector… to undertake TOD Source: BART TOD Policy Goals; KCATA Joint Development Policy Goals Table 11. Examples of joint development goals.

Conclusion 137   A Near -Term (5 years) B Mid -Term (5 to 10 years) C Long-Term (beyond 10 years) Implementation of JD project(s), aggregate impacts Broader station- area and corridor development “Moving the needle” on regional land use and mobility Ridership Outcomes Ridership at affected stations (raw and net new) Transit mode share in affected station areas and corridors Directionality and hour of trips (stations) Ridership at affected stations and corridors (raw and net new) Transit mode share in affected station areas and corridors Directionality and hour of trips (stations and corridors) Ridership at affected stations and corridors (current and trend) System ridership (current and trend) System mode share (current and trend) Directionality and hour of trips (corridors and system) Financial Outcomes Net new farebox revenue from JD JD cash in-hand JD in-kind contributions Net present value of JD transaction(s) JD share of affected station costs Net new farebox revenue from JD and other station area development Annual stream of JD revenues Percent of operating budget covered by net new farebox and annual JD revenues Net present value of JD transactions Farebox revenue from JD and other station area development Annual stream of JD revenues Percent of operating budget covered by net new farebox and annual JD revenues TOD / Smart Growth Outcomes Housing units and square footage of commercial space built or under construction in JD projects Percentage of region’s housing and jobs within a half-mile of transit Percent of affordable units in JD projects Housing and Transportation Affordability Index for affected station areas Non-single occupant vehicle mode share Vehicle miles traveled per capita in affected station areas and corridors Housing units and square footage of commercial space built or under construction in station areas Percentage of region’s housing and jobs within a half-mile of transit Housing and Transportation Affordability Index for affected station areas Non-single occupant vehicle mode share Vehicle miles traveled per capita in affected station areas, corridors, and region Percentage of region’s housing and jobs within a half-mile of transit Housing and Transportation Affordability Index for aggregate of all station areas and region as a whole Non-single occupant vehicle mode share Vehicle miles traveled per capita in affected station areas, corridors, and region Table 12. Conceptual metrics for joint development outcomes.

138 Guide to Joint Development for Public Transportation Agencies Financial outcomes. Most of the North American transit agencies engaged in JD state that financial return is one of their motivations; some agencies consider it their primary motiva- tion. That said, they understand that the conditions of extraordinary density, compactness, and transit preference that enable some overseas transit systems to fund much of their operating costs through JD do not generally exist here. In the United States, even the most robust, well- established JD portfolios account for a small fraction of their agencies’ annual operating budgets.3 What types of financial metrics are aspirational and reasonable? As the table indicates, in the near-term, when the focus is on the JD projects themselves, it makes sense to: • Estimate net new farebox revenue generated by the projects; • Calculate the net present value (from the agency’s perspective) of each JD project and the portfolio of current projects, including their cash payments, any in-kind developer obliga- tions, and their net new farebox contributions [these values should be “in the black” (and substantially so) for the projects to have been approved in the first place]; and • For new stations or major station upgrades, calculate the share of station capital costs covered by the net present value of the JD in-cash and in-kind revenues (this percentage, which may be substantial, represents the extent to which JD paid for the stations with which it was associated). For the mid- and long-term horizons, it makes sense to consider net new farebox revenues not only from the JD projects themselves, but from other station area TOD that accompanied or followed the JD projects and can reasonably be seen as influenced by them. (This “induced” farebox revenue could be discounted to reflect the likelihood that station area TOD was the result of multiple factors rather than the catalytic effect of JD alone). On an annual basis, the combined net new farebox revenues and transactional revenues from the JD portfolio (ground lease or equity payments and any operation and maintenance costs assumed by the developer) can then be compared to the agency’s annual operating budget—a more meaningful contribu- tion than JD revenues alone. TOD/smart growth outcomes. The metrics for TOD/smart growth outcomes should reflect the equity and sustainability aspects of TOD as well as the physical. These might include: • The amount of housing and commercial space built in JD projects and any changes, over time, in the degree to which development is clustered around transit; • The combined Housing and Transportation Affordability Index, applied to JD stations, cor- ridors, and the region; and • Changes in non-single-occupant vehicle mode share and vehicle miles traveled (VMT) per capita for the JD station areas, their corridors, and the region. An example of how concepts like these can be refined into actual metrics for a particular JD program is found in BART’s TOD Performance Targets, shown in Figure 49. The outcome categories are BART’s six program goals. Metrics are provided for “TOD on BART Land” (JD) in three time horizons, and “Station Area Goals” (JD plus other station area TOD) are also pro- vided for 2040.4 9.3 Unwanted Outcomes: Managing Risk As important as pursuing positive future outcomes is the avoidance of foreseeable negative ones. Inattention to risk (or a lack of risk experience in JD and related contexts) can lead to adversity. At the same time, an outlook dominated by risk aversion rather than risk anticipa- tion and management can lead an agency to stay away from JD, missing out on its potential benefits.

San Francisco Bay Area Rapid Transit District © Figure 49. BART’s transit-oriented development performance standards.

140 Guide to Joint Development for Public Transportation Agencies A thoughtful and inclusive risk management strategy is integral to successful JD. In reading this guide, one encounters in virtually every chapter issues that create risk and practices to avoid or mitigate it. Table 13 outlines the components of a risk management framework, identifying five broad categories of risk applicable to JD: organizational, market, entitlement, stewardship (including impacts to transit operations), and transactional. Type of Risk Strategy to Avoid, Mitigate, or Allocate Risk Organizational Risk • The solicitation, selection, or negotiation process breaks down. • Failed internal coordination creates an adverse outcome (site plan, transit needs, design, operations, accessibility, etc.). Organize for success: maintain an inter- departmental coordination and evaluation committee, and a culture of predictability, from day one. Market Risk • The market changes during selection or negotiation and the project cannot advance. Make an informed, market-based site readiness decision before launching a project. • The developer starts construction but cannot complete work. • The market changes for the worse after project completion and the developer cannot make timely lease payments. Require rigorous closing conditions. Include default, termination, bankruptcy, self- help, and bond provisions in the JDA and/or conveyance instrument. Engage expert advice on how to use those provisions effectively. • The market outperforms expectations and the return proves insufficient. Sell the site only if unavoidable. In a ground lease, joint venture, or LLC, make the right deal on downstream participation. • The agency requires, or the project pro forma relies on, more retail than the market can support. Prioritize retail locations without over-prescribing. Take account of retail experience in evaluating proposals. Let developer determine details. • The plan is “locked in” to structured parking capacity that over time becomes a “white elephant”. Encourage repurposable garage designs. In multi-phase projects, require unbundled parking that can be absorbed by later phases. Entitlement Risk • The project that the agency and developer want to implement cannot be permitted; or the deal cannot be concluded without additional density which cannot be secured. • The developer is exposed to community pressure in the permitting process. Work proactively with local officials and stakeholders before solicitation to optimize acceptance and create a feasible envelope. Stay involved in post-selection entitlement. Stewardship Risk • The agency loses site control for reasons other than an intentional sale. Manage the default and termination provisions so that the developer cannot “sit on” the site. Include bankruptcy as an event of default. Reject subordination of the fee interest. Ensure that a termination of one phase terminates any future phase. • Development causes damage to transit assets or unexpected negative impact on transit operations. Exercise rigorous design review and construction oversight, consistent with adjacent construction requirements. Prohibit any change in transit operations without written agency approval. • An unforeseen event causes third-party injury or damage with associated exposure. Require and monitor appropriate insurance, indemnification, and safety protocols throughout site access, construction, and operation. Transactional Risk • The agency makes a “bad deal”, particularly with respect to financial return, site control, or legal exposure. Organize for success: between staff and expert consultants, maintain the legal and finance skills, experience, and insight to bargain successfully. • The developer breaches or defaults and the agency lacks effective recourse. Align the developer’s downstream obligations with the agency’s future capacity to monitor. Table 13. Components of a joint development risk management strategy.

Conclusion 141   The intent is not to conclude this guide with a traditional risk register (which should in any case be project-specific), but rather to highlight two complementary principles. First, the risks associated with JD are diverse, involving activities that were historically outside the core com- petencies of U.S. transit agencies. Second, these risks are foreseeable, manageable, and often avoidable. With effective organization and attention to proven practices, transit agencies can undertake JD with confidence that risk and reward are in proper alignment. 9.4 Final Word This guide began by defining JD as follows: This definition is intentionally broad. Many JD projects involve the FTA; many do not. JD often occurs on transit agency property—indeed, this remains the most common form. But JD can occur on land owned by other public agencies or by private developers as well, through a variety of creative business models. While JD is often associated, in fact and in perception, with rail transit corridors and off-street rail stations, there are opportunities for impactful projects along bus and streetcar lines and at bus transit centers. And while large rail and multi-modal agencies have produced much of the accumulated practice, successful JD has been—and will continue to be—undertaken by transit agencies of all sizes and service modes, in every region of the country. Endnotes 1. BART: https://www.bart.gov/sites/default/files/docs/BART_TODGuidelinesFinal2017_compressed.pdf. KCATA: https://ridekc.org/assets/uploads/documents/developmentpolicy.pdf. 2. These three horizons can be understood conceptually as 5 years (near-term), 5 to 10 years (mid-term), and beyond 10 years (long term). Realistically, the time horizons will vary and overlap. 3. For example, the WMATA joint development program in fiscal year 2019 generated approximately $10 million in revenue, representing about 1% of operating revenues and 0.6% of operating costs (https:// www.wmata.com/initiatives/budget/upload/FY19-Proposed-Budget.pdf). The MBTA, in fiscal year 2020, generated $22 million from all of its real estate activities (a broader category than JD alone), representing about 2.5% of operating revenues and 1% of operating costs (https://cdn.mbta.com/sites/default/files/fmcb- meeting-docs/2019/04-april/2018-04-08-fmcb-K-fy20-final-itemized-operating-budget-support-accessible. pdf). For descriptions of Asian systems with very large joint development enterprises, see Suzuki et al., 2015, and Lou et al., 2013 (Appendix E). 4. https://www.bart.gov/sites/default/files/docs/B-%20TOD%20Performance%20Targets%202040%20 Adopted%2012-1-16_0.pdf. Joint development is real estate development that occurs on transit agency property or through some other type of development transaction to which the transit agency is a party. Joint development is physically or functionally related to a transit facility, and it often involves the coordinated improvement of a transit facility and the affected real property. Transit agencies actively participate in joint development, generally by contributing property or funding; they benefit from joint development by deriving revenues, increased ridership, or transit improvements.