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142 This glossary provides definitions for a variety of technical terms that appear in the guide. Some are specific to JD, TOD, or transit systems. Others are land use, real estate development, or real estate finance terms that are in general usage but have particular relevance or shade of meaning with respect to joint development. The definitions provided here identify such connections. Note also that: â¢ When a definition includes a reference to another term defined in this glossary, that term is italicized and hyperlinked for convenient cross-reference. â¢ There are hundreds of transit agencies in the United States, and they vary widely in the details of how they implement JD, the precise sequence of steps they use, and the names they give those steps. For clarity and consistency, this guide has chosen terms that are in common use and defined them in ways that generally fit the practices of many transit agencies. It is understood that neither the terminology nor the underlying set of procedures is universal; hence the occasional disclaimers âor the equivalent in local terminologyâ and âas used in this guide.â Adjacent construction. Adjacent construction is the term commonly used by transit agen- cies for construction by other parties in close proximity to a transit asset. Such construction could involve public improvements, joint development on transit property, or development on an adjoining site (which might or not be joint development as defined in this guide). Transit agencies may publish an Adjacent Construction Manual or similarly-named document containing applicable design standards, construction protocols, and review procedures. Affordable housing. Affordable housing refers to residential units that are available to households with incomes falling in a specified eligibility range. The income ranges and corresponding maximum rent levels or sale prices are determined based on Area Median Income. The income and price limitations run with the unit for a term of years. Such units are therefore often referred to as income-restricted (or deed-restricted) affordable housing. (The term âaffordable housingâ is used more generically as well; in this guide, unless the context indicates otherwise, âaffordable housingâ refers to income-restricted units as described here. See also inclusionary housing, workforce housing, and Housing and Transportation Afford- ability Index.) Air rights. Air rights include all empty space above the surface of a lot. In the JD context, developable air rights are located above an existing or future improvement such as tracks, busways, parking lots, concourses, or any other facility where an improvement exists or where the surface must remain available up to a certain height for current or future operations. In situations where a rail or roadway operates in an open cut or âboat section,â the air rights above that alignment might begin at or near the adjoining surface grade. Air rights may be conveyed by lease or easement. Glossary of Terms
Glossary of Terms 143Â Â Area Median Income (AMI). The AMI is a metric calculated and published periodically by the US Department of Housing and Urban Development (HUD) as a benchmark in determining the rent levels or sale prices permitted in income-restricted affordable housing, as well as the income levels of households eligible to occupy them. The AMI is published for each metropolitan area in the US and is calibrated by household size. Affordable housing is typically targeted to households with incomes up to a specific percentage of AMI, on the assumption that no more than 30% of their gross income should be devoted to housing. Base rent. In a long-term ground lease, the base rent is the âfirst tierâ of rent due; it runs for an extended term, often the duration of the lease. Base rent is typically a set amount that increases automatically in response to a fixed escalation factor (such as the cost of living index) or that is re-set at one or more specific milestones based on a reappraisal. (See also performance rent and capital event.) Best and final offer. In a competitive developer selection, the issuing and awarding authority may reserve the right to ask the proponents to submit a BAFO as a final step prior to final evaluation and recommendation. The âRequest for BAFOsâ may ask proponents to consider modifying their financial offer only, or to address other features as well. Best practice(s). Best practices in joint development are those that have proven effective in real-world application, that minimize risk to transit agency interests, that advance widely accepted joint development goals, and that are consistent with good public policy. Identifying best practices involves expert judgment that is to some degree subjective. The best practices identified in this guide reflect the research findings, the literature review, the authorsâ judg- ment, and the review of the project panel, many of whose members are accomplished joint development thought leaders and practitioners. Bid price. A proponentâs bid price is the dollar amount, in present value terms, that the proponent offers for the JD site and/or its development rights. The bid price includes the proposed sale price or ground lease value. Depending on agency practice, the bid price may also include the value of certain in-kind obligations; alternatively, in-kind obligations may be defined as separate from the bid price. (See financial offer.) Capital event. During the term of a ground lease, a capital event (or future capital event) is the allowable sale, refinancing, or other transfer or assignment by the tenant (i.e., the developer) of its leasehold interest. A ground lease may provide that the landlord (in most JD projects, the transit agency) is entitled to participate in the proceeds of defined future capital events. Capitalized value. Capitalized value is a metric of the market value of an income property. Comparing the propertyâs capitalized value to its cost is one way of measuring a developerâs return on investment. The capitalized value is defined as the propertyâs net operating income divided by a capitalization (or cap) rate. The cap rate is the percentage of the propertyâs market value earned each year as net operating income. For an existing project with a known market value, the cap rate is calculated, by dividing the actual net operating income by the market value. In evaluating a potential future development or investment, the net operating income is estimated, and the cap rate posited, based on the performance of similar projects and the developerâs perception of risk and opportunity cost. The greater the perceived risk, the lower the assumed cap rate; this has the effect of requiring a higher return on investment in order to proceed. A less risky project may be assigned a higher cap rate, with the effect of accepting a lower return. Closing. For a JD project, the closing or real estate closing is the occasion at which the devel- opment property and/or its development rights are conveyed to the developer in the method agreed to by the parties. This may be by ground lease, sale, or other method of conveyance.
144 Guide to Joint Development for Public Transportation Agencies As of the closing, the joint development agreement is generally superseded, in whole or in part, by the ground lease, deed of sale, or other conveyance instrument. The closing occurs on the closing date, the contractual deadline for which may be called the outside closing date. Closing conditions. Closing conditions are a set of preconditions that each party must meet, by a specific deadline on or before the closing date, in order for the closing to proceed. For a JD project, the closing conditions are spelled out in the joint development agreement or equivalent document. The closing conditions incumbent on the developer typically include evidence of financing, documented completion of all required entitlements and approvals, completion of the final plans and specifications and their approval by the transit agency, an executed construction contract and architectâs agreement, and so forth. Commercial lease. A commercial lease is a lease in which a tenant occupies specific space or premises within the landlordâs property (usually a building). The tenant uses the space for retail sales, office-based business, or other commercial activity. In a transit station, such activities are a form of joint development. The commercial lease may be a direct lease from the transit agency to an individual end-user tenant(s), or a master lease to a company that sub- leases to end-user subtenants, builds their tenant improvements, and manages the commercial areas of the station. A commercial lease is distinct from a long-term ground lease. Conveyance. Conveyance is the transfer of a property or an interest in it (such as a set of development rights). For JD purposes, the conveyance of the site to the developer occurs at the closing, most often through a ground lease or sale to the developer (or a special-purpose entity controlled by the developer) but occasionally through a commercial lease, an easement, or a sale or lease to a joint venture or limited liability company of which the developer and the transit agency are members. These are referred to as methods of conveyance, and the actual contract effectuating the transfer (the lease, deed of sale, or other) as the conveyance instrument. (âConveyanceâ is sometimes used to refer only to a sale of real property, but for consistency and convenience this guide uses the more inclusive meaning of a sale, lease, or other form of transfer.) Covenant. In the joint development context, a covenant is an enforceable agreement between the parties to a real estate conveyance. Covenants associated with a sale are generally recorded alongside the deed, while those associated with a lease are generally included as provisions of the lease itself. Covenants (or the broader term, covenants, conditions, and restrictions) also refers to the agreements often reached between the developer of a common-interest development (such as a condominium or a business park) and the individual unit or building owners, or among those individual owners, restricting the use of their properties. Debt service. Debt service is the scheduled stream of payments that a borrower is contractually obligated to make in order to repay a loan. Transit agencies commonly pay debt service on the bonds they issue to finance capital projects. Developers commonly pay debt service to mortgagees or other lenders that finance a project. Failure to make scheduled debt service payments generally constitutes a default. Default. Common to most types of contracts, a default occurs when one party breaches the contract, makes an untrue representation, is declared bankrupt (if applicable), or fails to perform a specific obligation, financial or otherwise, to which it is bound by the agreement, including meeting specific performance deadlines. Each such failure or breach is an âevent of default.â The defaulting party typically has a period within which it may work to âcureâ the default; if not cured, the party defaulted against has specific remedies set forth in the agreement. Default provisions are critical to real estate development agreements, including those involving JD.
Glossary of Terms 145Â Â Developer solicitation. A developer solicitation is the open and competitive process by which a transit agency invites potential developers to submit qualifications and/or proposals for one or more JD projects. There are several common types of solicitation, including RFQ, RFP, RFEI, and ITB. (The term âdeveloper solicitationâ is used rather than âdeveloper procurement,â which is also in common use. âProcurementâ is typically a bid process for goods or services, in which specifications are issued and the lowest responsible bidder wins the contract. By contrast, a JD solicitation is an effort to choose the most advantageous development concept and business relationship; the best financial offer may be only one criterion among several.) Development Requirements and Guidelines (DRGs). DRGs (or their equivalent in agency terminology) are a set of site-specific JD guidelines that a transit agency may prepare in the planning stage of a project. The DRGs are then included in the developer solicitation docu- ment to guide respondents in preparing their proposals. DRGs may address the site plan, required transit features and other infrastructure outcomes, the allowable mix of uses, parking requirements, and basic principles of urban form. DRGs should state clearly which features are required and which are illustrative only. Development rights. Development rights are the rights to develop real property up to the limits of applicable law and regulation. In the JD context, the term is used to distinguish fee simple ownership of a development site (which by definition includes all legally available development rights) from a more circumscribed set of rights reflecting the method and terms of the conveyance. Those terms may circumscribe the form, use, and spatial extent of the devel- opment rights, as well as their duration in the case of a lease or easement. Discount rate. The discount rate is the interest rate used to determine the present value of future cash flows in a discounted cash flow analysis. This helps determine if the future cash flows from a project will be worth more than the capital outlay needed to fund the project today. The discount rate assumed in such an analysis is the key variable in computing present value. It reflects, as applicable, the actual or imputed cost of capital, the uncertainty assigned to future events, and anticipated inflation. Disposition of excess property. In the JD context, disposition of excess property refers specifically to the sale by a transit agency of real property which had been acquired or improved with FTA assistance. Such dispositions require FTA approval and are an alterna- tive, where applicable, to FTA-assisted joint development. (This guide also uses the words âacquisition and disposition of real propertyâ in their usual, more general meaning.) Easement. Easements are non-possessory rights to use another partyâs real property for a stated purpose, either for a specified period or in perpetuity. A variety of easements occur in JD settings: as a way of permanently accommodating a physical element of a project; of accommodating temporary construction staging needs; or of allowing individuals associated with the transit station or the JD project to enter, use, or pass through the property of the other party. Eminent domain. Eminent domain is the power of the government to take private property and convert it to public use. Government may exercise this power only if it provides just compensation to the property owner. Most but not all transit agencies are granted the power of eminent domain for transit purposes in their enabling acts, with a wide range of provisions (some of them limiting in nature) on the disposition of property originally acquired by eminent domain. Enabling act. An agencyâs enabling act is the law or ordinance that creates the agency, defines its public purpose, establishes its governance structure, and enumerates its powers. In this guide, the term encompasses not only the agency-specific enabling statutes typical of most
146 Guide to Joint Development for Public Transportation Agencies agencies, but other forms of charters and authorizations that serve an equivalent function in some cases. Examples include joint powers agreements; interstate compacts; county, city, or regional government charters; and sections of a state transportation or public utility code. Entitlement. Entitlement is the process of securing the approvals and permits necessary to build a project. âEntitlementâ is sometimes used interchangeably with zoning, but its preferred meaning is more inclusive. Equitable transit-oriented development (ETOD). ETOD refers to TOD that seeks to counter the effects of gentrification and economic displacement through the inclusion of affordable housing, community-based retail and services, and community participation in TOD through community development corporations or other mechanisms. Evaluation criteria. Evaluation criteria are used by a transit agency to evaluate developer qualifications or proposals and set forth in the corresponding RFQ or RFP. The term selection criteria is often used interchangeably with âevaluation criteriaâ; the latter is more inclusive, in that it is applicable to RFQs from which a short list of qualified developers will result rather than an actual selection. Exclusive negotiating agreement (ENA). An ENA (or its equivalent in local terminology) is an agreement between the transit agency and the selected developer to negotiate, as appli- cable, a term sheet, joint development agreement, and/or conveyance instrument. The ENA is in effect during an exclusive negotiating period authorized by the agencyâs governing board. Fair market value (FMV). FMV is the price at which an asset would sell on the open market, assuming that prospective buyers and sellers are reasonably knowledgeable about the asset, behaving in their own best interest, free of undue pressure to trade, and given a reasonable time period for completing the transaction. FMV may be established through an appraisal based on these principles or on actual market outcomes. In the JD context, many transit agencies are required by law, governing board policy, or FTA guidance to obtain FMV when selling or leasing a property. Final award or selection. Final award or selection is the conversion of a preliminary developer selection into a final contractual relationship. This typically occurs as part of, or in conjunction with, the joint development agreement and requires a vote of the governing board. Financial offer. A proponentâs financial offer is the present value of all of the direct financial benefits that it proposes to pay the transit agency. It includes the value of cash payments (the purchase price or ground lease payments) as well as the value of any in-kind obligations that the developer would assume. Financial offer and bid price are distinct terms; in solicitations where the bid price is defined as including in-kind obligations, the bid price and the financial offer are the same. Financial return. The transit agencyâs financial return from a JD project is the combined net present value of all quantifiable monetary benefits associated with the project: the sale or ground lease; any avoided costs resulting from the developerâs in-kind obligations; the estimated net new farebox revenues generated by the JD project (net of any associated loss of park & ride revenue); and the estimated new farebox revenues generated by additional TOD induced by the JD project, to the extent reasonably subject to estimation. First-mile/last-mile connections. First- and last-mile connections enable transit users to reach destinations that are beyond reasonable walking distance from the station. These potentially include all of the modes that might be considered as part of a station access policy. With first-mile/last-mile connections, the emphasis is on linking nearby residential
Glossary of Terms 147Â Â neighborhoods or work destinations that might function, at least in part, as TOD if a relatively short gap could be bridged. Force majeure. A âforce majeureâ clause in a contract provides that under certain specified conditions, a failure to meet a contractual obligation that would normally constitute an event of default is not attributable to the party in question and therefore a default is not triggered. Force majeure (âsuperior forceâ) clauses typically list events like âacts of Godâ (fires, earth- quakes, or floods), war, revolutions, and pandemics. FTA-Assisted Joint Development (FTA/JD). FTA/JD is joint development that either: (i) occurs on property that was acquired or improved with FTA funding, or (ii) involves new FTA funding. FTA concurrence in an FTA/JD project means that: (i) lease or sale of the property does not constitute a disposition of excess property and does not extinguish the FTA interest; (ii) the transit agency must maintain satisfactory continuing control of the site; and (iii) the transit agency retains the lease or sale proceeds for any transit capital or operating purpose. FTA/JD is described in the FTA Joint Development Guidance (https://www.transit.dot.gov/ sites/fta.dot.gov/files/2020-08/Joint-Development-Circular-C-7050-1B.pdf). Governance. With respect to a JD project, governance refers to the mechanisms by which project-related decisions will be made, both before and after construction. As used in this guide, governance includes the decision-making structures for the design and operation of the transit components, development components, and common or shared components; limitations on future developer decisions (such as changing the uses or selling the leasehold) and the process for transit agency review and approval; and the process for monitoring and enforcing future developer obligations. Ground lease. A ground lease (in the JD context, generally a long-term ground lease) is an agreement in which a tenant is permitted to develop a piece of property during the lease term, after which the land and all improvements revert to the property owner. JD ground leases typically run at least 50 years and often to the traditional limit of 99. In most cases, the land and the leasehold remain separate legal estates and, subject to the terms of the lease, can be sold or assigned by their respective owners. The tenant (i.e., the developer) owns the build- ings and, unless the lease makes an exception, is responsible for paying property taxes and maintaining the grounds. Infrastructure improvements like sidewalks, utilities, and public amenities may be owned by the landlord or the developer, depending on the terms. Housing and Transportation Affordability Index. This index, developed and trademarked by the Center for Neighborhood Technology, defines affordability as a condition in which no more than 45% of a householdâs income (or as a proxy, 45% of Area Median Income) is devoted to housing and transportation (https://htaindex.cnt.org/). The standard criterion for affordable housing alone is 30% of AMI. The combined index enables officials and developers to evaluate the mitigating effect of transit on high housing costs and, where applicable, the mutually reinforcing effects of affordable housing and lower-cost, transit-based commuting. The index website is an interactive data base that allows the index and its components to be estimated for any US location. Hub station or transit center. A hub station or transit center is a location in a transit system where multiple transit modes and/or multiple lines of a single transit mode converge and interface. Such locations generally occur at or near the core of a transit system but may also occur in a more peripheral setting (such as an end-of-line rail or bus rapid transit station fed by several bus routes). Bus systems, as well as rail systems, may include hub stations or transit centers in off-street locations that may be suitable for JD. Hub stations and transit centers may present opportunities for joint development involving multiple public and private participants.
148 Guide to Joint Development for Public Transportation Agencies Incidental use. Incidental use is a defined term in the FTA Joint Development Guidance. It is a limited non-transit use that does not affect the stationâs transit use or capacity. An incidental use may be added to a station, with FTA concurrence, at any time, and the revenue generated is retained by the transit agency. (See also shared use.) Inclusionary housing, inclusionary requirements, inclusionary zoning. Inclusionary housing requirements are provisions that mandate a certain percentage of the housing units in a residential or mixed-use development be income-restricted affordable housing. Inclusionary requirements are usually imposed by a local zoning jurisdiction as a condition of entitlement. However, transit agencies engaged in JD may choose to adopt inclusionary requirements of their own, which apply to projects built on their land to the degree consistent with applicable zoning. Income property. An income property is one that is acquired or developed to earn income from rents (as opposed to home-ownership or commercial condominium properties). Income properties can be residential, commercial, or mixed-use. The value of an income property, and its potential return on investment, can be measured through the capitalized value method or the net present value method. Indemnification. Indemnification is a contractual obligation of one party to hold the other harmless and cover their costs in the event of damages (including to third parties) caused by the indemnifying party. Indemnification of the transit agency by the developer is an impor- tant feature of exclusive negotiating agreements, joint development agreements and conveyance instruments. Infill station. An infill station is a new station built in an existing transit corridor between two existing stations. A new station added to the end of a transit corridor is sometimes considered an infill station as well. In-kind contribution or obligation. In the JD context, an in-kind contribution or obligation occurs when the developer agrees: (i) to build and fund a capital improvement that will be owned or used by the transit agency, such as a park & ride garage, an improved or relocated busway, or an upgrade of other station components, or (ii) to perform and fund the operation and maintenance of a station component. âIn-kindâ is used to distinguish these developer expenditures from âcashâ payments, such as the purchase price or lease payments. Invitation to Bid (ITB). An invitation to bid is a simple form of developer solicitation that a transit agency may use to dispose of a remnant parcel or non-station asset. An ITB may suffice if development of the site does not present complex development or site plan issues and the agency wishes to make bid price the principal evaluation criterion. Issuing and awarding authority. The issuing and awarding authority is the entity that issues a development RFQ or RFP, will make the selection, and has the legal authority to enter into the joint development agreement and the eventual conveyance. In most cases, the issuing and awarding authority is simply the agency that owns the property. However, where the site is owned by two agencies side-by-side or in common, or where the JD project is in some other way a joint initiative, it is important to specify which entity is the issuing and awarding authority. Joint development (JD). 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 the transit facility and the affected real property through a collaborative effort of the transit agency and the developers. Transit agencies actively participate in joint development, generally by contributing property or
Glossary of Terms 149Â Â funding, and they benefit from joint development by deriving revenues, increased ridership, or transit improvements. Joint development agreement (JDA). As used in this guide, the JDA is the master devel- opment agreement that describes the physical project and the business transaction and sets forth the method of conveyance, the events and obligations leading up to the closing (generally including design, entitlement, and financing), the closing conditions, and the provisions that survive the closing. The JDA is negotiated during the exclusive negotiating period. (Some agencies use the terms âmaster development agreementâ or âdevelopment agreement.â) Joint venture (JV). A JV is a business entity formed for the purpose of a specific task by two or more parties that otherwise retain their distinct identities. JVs are characterized by shared ownership, risks, and governance, with each party owning a negotiated share of profits, losses, and costs. In a real estate project JV, the party that owns the land may use it as an equity contribution which is then reflected in its equity share. In the JD context, there is a business model in which the transit agency and the private developer form a JV, to which the agency contributes the development site. Land value discount. A land value discount is a reduction in land value that a transit agency may be willing to accept in order to facilitate the development of affordable housing. The willing- ness to consider a land value discount may be stated as part of the solicitation or reached in the negotiation process. The discount may be recognized as an explicit reduction below the appraised fair market value, or it may be factored into the appraisal as a requirement that reduces the fair market value. Leasehold. A leasehold, leasehold interest, or leasehold estate is the set of rights that a ground lease tenant (i.e., the developer) owns during the term of the lease. These include the exclusive right to occupy and use the property, to develop the property consistent with the development rights set forth in the lease, to use the leasehold estate as collateral for a mortgage, and, within limitations imposed by the lease, to sell the leasehold to a third party who will assume all of its rights and obligations. The buildings and other improvements built on the property by the developer are leasehold improvements. Limited liability company (LLC). An LLC is a business structure that combines the tax advan- tages of a partnership with the limited liability aspects of a corporation. LLCs can be advanta- geous in real estate development projects, especially when the partner entities have different funding sources, asset types, or tax structures. In certain types of JD projects, such as those involving the use of historic tax credits (which are only applicable to private devel opment), it may be advantageous for the transit agency and the developer to form an LLC. Local jurisdiction. A local jurisdiction is a municipality, county, special-purpose local or regional agency, or other political subdivision with relevant authority over a JD site or project. Of particular importance are local taxing jurisdictions, local land use planning and zoning jurisdictions, economic development agencies, and jurisdictions that own land or have the power to assemble land which could be used in collaborative JD initiatives. Mixed-use development. Mixed-use development is development that includes multiple land uses (residential, commercial, institutional, civic, entertainment) in a physically or functionally integrated setting. Mixed-use development usually includes residential and non-residential uses. Mixed-use development can occur: (i) within a single building, in which case the uses may be vertically âstackedâ with retail or other activating uses at ground level and housing or offices above; (ii) within a multi-building development, in which case the uses may be horizontally adjacent; or (iii) within a mixed-use planning and zoning district, in which individual buildings or clusters of buildings may consist primarily of one type of
150 Guide to Joint Development for Public Transportation Agencies use but the district is integrated by a walkable, interconnected public realm. Mixed-use development is a foundational characteristic of TOD. Monetize. To monetize an asset is to derive direct financial or monetary benefits from it. On-site JD is an asset monetization strategy, since the transit property in question is used to generate cash and in-kind payments for the agency. Net operating income (NOI). NOI is the net total of an income propertyâs annualized revenues minus its annualized costs (operation and maintenance, taxes, insurance, reserves, etc.). NOI may be calculated before debt service or after debt service; this distinction underlies different methods of calculating a projectâs capitalized value and return on investment. NOI is often used interchangeably with net cash flow. Non-station asset. Non-station assets are transit agency properties that are not directly asso- ciated with a passenger station. These may include maintenance yards and shops, agency office or police headquarters, remote park & ride lots, fueling facilities, chilled air or water plants, and so forth. Such facilities may present JD opportunities, which may or may not constitute TOD, depending on their location relative to transit services. Off-site joint development. Off-site joint development is JD that occurs in a station area but not on transit property. Examples include construction of a station, station improvement, or a station connection by an adjacent land owner, or projects involving the land of a sister public agency working in collaboration with the transit agency. (Note that it is the real estate development that occurs off-site, not the transit improvements.) On-site joint development. On-site joint development is JD in which the real estate devel- opment occurs on transit agency property. This may include development on land parcels, on air rights, or within a station. Opportunity cost. Opportunity costs are the tangible and intangible benefits on which a party âmisses outâ by undertaking one project rather than an alternative. For a developer or a transit agency involved in JD, opportunity costs reflect not only the hypothetical financial perfor- mance of one project versus another, but the finite availability of capital, staff, and intellectual resources. Park & ride. Park & ride is automobile parking dedicated, at least during peak commuting hours, to commuters who drive to a transit station and park for the work or school day while taking the associated transit service to and from their destination. The reuse of surface park & ride lots is a principal strategy for implementing JD. The extent to which the affected park & ride capacity should be replaced by structured parking, and at whose expense, is a common JD planning issue. Parking ratio. In zoning, a parking ratio is the prescribed number of parking spaces to be provided per unit of development (for example, 1.0 spaces per residential unit or 2.0 spaces per 1,000 square feet of office space). Parking ratios may be expressed as minimum require- ments (the most common), maximum allowances, or a range bounded by both. Parking ratio reduction, and the closely related concept of shared parking, are key planning and policy issues in facilitating TOD. Participation. Participation refers to a partyâs contractually defined share in the future revenues of a development project. The term has several specific technical definitions asso- ciated with different types of transactional structures. In this guide it is used broadly to describe a transit agencyâs share of future JD project revenues in cases where the develop- ment site is not conveyed by outright sale. In a long-term ground lease, the transit agency may participate in future revenues through a performance rent and/or a share of the proceeds
Glossary of Terms 151Â Â of a future capital event. In the case of the transit agency forming a joint venture or LLC in combination with the developer, the agencyâs participation is defined in the JV or LLC agreement. Performance rent. In a long-term ground lease, performance rent is a defined share of future project revenues to which the landlord (in the JD context, usually the transit agency) is entitled. Performance rent is generally negotiated in addition to base rent. It may be defined as a percentage of net or gross revenues; using gross revenues is generally the preferred practice because of its comparative ease of definition and monitoring. Preliminary developer selection. In JD, preliminary developer selection is the decision by a transit agency to choose its preferred developer and commence negotiations with them. Typically, the choice is recommended by the selection panel to the TOD/JD director or agency chief executive officer, who recommends it to the governing board. The board then authorizes the staff to enter into an exclusive negotiating period with the selected developer. On the suc- cessful conclusion of negotiations, the selection is converted to a final selection or award. (Some agencies use the term âpreliminary designationâ rather than âselection.â) Present value (PV). The PV is the value of an expected income stream as of the date of valuation. The present value is almost always less than the aggregate future value because of the âtime value of moneyââi.e., the principle that âa dollar today is worth more than a dollar tomorrow.â This reflects two conditions that erode the value of money received in the future: (i) the interest that could have been earned on a future dollar had that dollar been in-hand today, and (ii) the effects of estimated future inflation. These factors are used to specify a discount rate applied annually to convert future value into present value. PV is a core concept in real estate development. For example, in determining its financial return on a JD project, a transit agency would look not to the raw total of ground lease payments or increased farebox revenues (i.e., their future value) but to their present value. A developer, in evaluat- ing whether a potential project is financially feasible, calculates its net present value (NPV), which is the PV of its net future cash flows minus the initial capital investment. An annualized calculation of net present value, the internal rate of return, is a commonly used metric of return on investment. Pro forma. A development pro forma is a spreadsheet-based set of calculations that projects the financial return of a proposed development. It is a basic âgo/no-goâ analytic tool that a developer uses to decide whether to move forward with a project. It describes the project in quantifiable terms and estimates its costs and projected revenues over time. The resulting estimated cash flows, in net present value terms, are used to evaluate financial feasibility and the developerâs estimated return on investment, which can be measured in several different ways incorporated in the pro forma. A well-constructed pro forma enables a developer to compare alternative project scenarios and to test alternative cost, revenue, and return assumptions. Proponent. A proponent is a prospective developer that submits a statement of qualifications or a development proposal, as applicable, in response to an RFQ or RFP. Agencies also use the terms proposer, respondent, and bidder. Request for Expression of Interest (RFEI). An RFEI is a pre-solicitation request in which a transit agency seeks voluntary participation from the development community to help inform a subsequent RFQ or RFP. An RFEI may be helpful when a development opportunity is emerging but lacks clear definition; respondents are asked not only to express interest but to offer ideas or raise questions about the siteâs potential. Request for Proposals (RFP). An RFP is a developer solicitation requesting complete devel- opment proposals (in program, design, and financial terms) so that preliminary developer
152 Guide to Joint Development for Public Transportation Agencies selection can progress directly to detailed contract negotiations. The issuance of an RFP may be the second stage of a two-step RFQ/RFP process, in which qualified developers were first identified through the RFQ and are the only developers to receive the RFP. There is also a one-step RFP alternative with no prior RFQ. Request for Qualifications (RFQ). An RFQ is a solicitation of developers who wish to enter a competitive selection process. An RFQ does not request a complete offer, and, even if it includes preliminary proposal concepts, it does not include a financial offer and thus will not result directly in a contract, since at the very least financial terms will still need to be negotiated. An RFQ may be the first stage of a two-step RFQ/RFP solicitation. Alternatively, preliminary developer selection may be based on an RFQ alone, in which case the full proposal will emerge during the subsequent exclusive negotiating period. Residual land value (RLV). Residual land value is a method for calculating the value of devel- opment land. It consists of subtracting from the total value of a development all costs associ- ated with it, including profit but excluding the cost of the land. The amount left over is the RLV, or the amount a developer is able to pay for the land given the projected value of the development, its estimated costs, and a reasonable level of developer profit. Residual land value is one basis for determining fair market value, either as an appraisal method or in actual land value negotiations. In the JD context, RLV is a key concept because: (i) the development value reflects any internal subsidies for affordable housing, and (ii) the deducted costs include any in-kind developer obligations (such as replacement parking or other developer-funded station improvements). Return on Investment (ROI). Return on investment is a broad term encompassing several ways of measuring the profit that a developer or investor makes, or expects to make, on its investment in a development project. An acceptable return is expected not only to be positive (greater than zero), but to exceed the return that could be obtained from an alternative devel- opment project (see opportunity cost) or an alternative type of investment (such as treasury bonds or the stock market). The varieties of ROI metrics reflect, in different combinations, a series of basic project characteristics: cost, net operating income, debt service, discount rates, and future capital events. Some ROI metrics are constructed as an annualized rate of return (such as an internal rate of return). Others are constructed as a comparison of the projectâs eventual value to its original cost (such as the net present value or the ratio of capitalized value to cost). Satisfactory continuing control. Satisfactory continuing control is a defined term in the FTA Joint Development Guidance. It refers to the degree of control that a transit agency, as the FTA grantee, must retain over a property to be used for FTA-Assisted Joint Development. Such property will have been acquired or improved with FTA assistance, either in an earlier project creating the transit facility or contemporaneously with the proposed JD project. Satisfactory continuing control can be achieved whether the property is sold outright or leased; the key conditions involve the use of the JD site for the FTA-approved JD project, the prevention of any interference with the operation and maintenance of the transit facility, and the permanence of such requirements in any future transfer of the property or leasehold by the developer. Selection panel. As part of a developer solicitation, a selection panel may be appointed by the issuing and awarding authority to conduct the review of qualifications or proposals and recommend the short list or the preliminary selection, as applicable. The panel may consist only of agency personnel or may include representation from collaborating agencies. Shared parking. Shared parking is parking that is used for different purposes at different times of the day or week. It is possible when the peak demand periods for different uses occur at
Glossary of Terms 153Â Â different times, a condition often called âdovetailing.â Shared parking enables the combined parking needs of a mixed-use development to be satisfied with fewer physical spaces and, con- sequently, less land consumption or less cost. Shared parking is formalized in many TOD zoning provisions. Shared use. Shared use, like incidental use, is a defined term in the FTA Joint Development Guidance. It occurs when a project partner, separate from the recipient, occupies part of a facility and pays its pro rata share of the construction, maintenance, and operations costs. A shared use must be proposed and approved at the time of the applicable FTA grant. As with incidental uses, the revenue generated is retained by the transit agency. Short list; short-listing. A short list of developers may be chosen by the issuing and awarding authority (in JD, most often the transit agency) at any of three points in a developer solicita- tion: (i) after the RFQ in a two-step RFQ/RFP solicitation, in which case only the short list of qualified developers will receive the RFP; (ii) after a one-step RFQ; (iii) after the initial review of proposals submitted in response to an RFP. The need for short-listing will reflect the number of responsive submittals. Short-listed developers may be interviewed by the selection panel. Site readiness. Site readiness is the judgment as to whether a potential JD site is ready to advance into project planning and implementation. Site readiness is generally based on four criteria: site suitability, market demand, transit connectivity, and local jurisdictional support (favorable zoning and other conditions). Site suitability. Site suitability, a component of site readiness, is the extent to which a potential JD site provides sufficient and appropriate space to develop a project that is physically and financially feasible. This depends not only on nominal land area, but on physical conditions like soils, water table, or seismic issues; encumbrances that make portions of the site effec- tively off-limits; reservation of portions of the site for future transit improvements; and major cost premiums. Special assessment district. A special assessment district is a form of district value capture. A geographical district is drawn within which land owners pay a fee, tax, or levy over and above the taxes they would normally pay. The extra revenue is used to fund defined infra- structure improvements, either on a âpay-as-you-goâ basis or, more typically, by means of a bond issue whose debt service is paid by the stream of special assessment revenues. Special assessment districts are distinguishable from the other common form of district value capture, tax increment financing. Station access plan or policy. In the context of a station with associated JD, this term is meant to be understood comprehensively, encompassing access to both. It includes âmain lineâ transit services and âfeederâ routes, walking, cycling, car- and bike-sharing, TNCs, drop-off, and park & ride. Transit agencies may adopt a station access hierarchy that prioritizes these modes in an order reflecting agency and local jurisdictional policies. Station area development. Station area development is real estate development within the commonly understood walkshed of a station. It is not synonymous with TOD, since the latter is defined not only by proximity to transit but by certain use, density, urban form, and parking characteristics. JD (except for projects involving non-station assets not otherwise well served by transit) is a subset of station area development. Street-running transit service. Street-running transit services are those that run principally within public streets, whether in mixed traffic or in a reserved guideway. These include traditional bus services, most streetcar lines, some bus rapid transit services, and segments of light rail corridors that run in a median and function, within those segments, like streetcars.
154 Guide to Joint Development for Public Transportation Agencies The significance of street-running transit services for JD is that they have fewer off-street stations (or off-street transit property in general) available for joint development. JD oppor- tunities may arise at those off-street stations or stops that do occur, as well as through off-site joint development. Subordinated ground lease. A subordinated ground lease is one in which the development lender is placed ahead of the landlord (in most JD leases, the transit agency) in the event of a default. Normally, if the developer (as tenant) defaults on its ground lease payments, the landlord has the right to terminate the lease and reclaim the land. In a fully subordinated ground lease, the landlord is in second position, agreeing not to terminate the ground lease if the developer defaults on its lease payments. This facilitates the underwriting of the loan but places the landlord at risk of losing the land through foreclosure. Subordination of ground leases has become less typical in recent decades and is generally but not universally avoided by transit agencies and other public landlords. Survive the closing. In many JD projects, the joint development agreement (JDA) governs the period up to and including the closing, during which the design, entitlement, and financing of the project are completed. When the ground lease, deed of sale, or other conveyance instrument is executed at the closing, that document generally supersedes and terminates the JDA, since it contains most of the provisions governing the project from that time forward. However, the JDA may also contain certain provisions that apply to the project going forward. These provisions, identified in the JDA as provisions that survive the closing, remain in effect. Tax increment financing (TIF). TIF is a form of district value capture. A geographical dis- trict is drawn within which the yield from existing revenues in a given year is established as a baseline. The baseline year precedes either the construction or the placing-in-service of the infrastructure improvement to be financed. In subsequent years, for the life of the TIF district, the incremental revenue yield above the baseline is diverted, in whole or in part, to pay for the infrastructure in question, either on a âpay-as-you-goâ basis or, more typically, by means of a âTIF bondâ whose debt service is paid by the stream of TIF revenues. TIF is distinguishable from the other common form of district value capture, special assessment districts, in that the âcapturedâ revenues arise not from a new tax or fee but from a portion of the taxes that each owner would have paid anyway. TIF usually involves municipal or county property taxes, but some states also allow the inclusion of local sales taxes, if any. Term sheet. A term sheet is an outline version of a business agreement. The parties may choose to negotiate a term sheet as first stage of the process, enabling them to focus on and resolve the major substantive points of the transaction; the full agreement can then be drafted by counsel. In the JD context, a term sheet may be used as a first stage of negotiating a joint development agreement and/or a ground lease, deed of sale, or other conveyance instrument. TOD/JD Office, Policy, or Program. The acronym TOD/JD is used in this guide to indicate activities that involve both transit-oriented development in general and joint development in particular. The two terms, although different in meaning, are closely related and sometimes used interchangeably by government agencies and the public. TOD and JD represent over- lapping areas of policy, planning, and implementation that may be advantageously combined for organizational purposes. Note that this guide does not define JD as a subset of TOD (see station area development). TOD overlay district. An overlay district is a zoning layer that is applied âon top of â the existing or âunderlyingâ zoning in a specific area. The overlay establishes additional, super- seding standards, which may be stricter or more flexible than the underlying zoning, to promote a particular land use policy goal. TOD overlay districts are an important tool in areas where a complete TOD rezoning is either not achievable or not necessary. TOD overlays may
Glossary of Terms 155Â Â address some or all of the following: massing and density; allowable uses (promoting mixed- use development and discouraging stand-alone, automobile-intensive uses); a pedestrian- friendly urban form; and appropriate parking ratios. Transaction (or joint development transaction). In this guide, a defining characteristic of joint development is a transaction to which the transit agency is a party. Such transactions include, but are expressly not limited to, the use of transit agency property for on-site JD. Transit connectivity. Transit connectivity is the extent to which a given location in a transit system enjoys frequent, high-capacity connections to other system locations. This reflects several variables beyond the mere presence of transit service: its mode and frequency; the convergence of multiple corridors, routes, or modes; and the system location of key daily destinations relative to the place in question. Several metrics in the Center for Neighborhood Technologyâs AllTransit Data Base (https://alltransit.cnt.org/), which can be generated for any US location, touch on the concept of transit connectivity as defined here: transit access shed, transit connectivity index, jobs accessible in a 30 minute transit ride, and workers accessible in a 30 minute transit ride. Transit-oriented development (TOD). TOD is development that is clustered around transit and oriented to it in its urban form and mobility behavior. TOD is generally characterized by: (i) development that is compact and dense compared to its surroundings, so as to take optimal advantage of the transit resource; (ii) a minimization of stand-alone, automobile-dependent uses and an emphasis on mixed-use development, which promotes bi-directional use of the transit system during commuter hours and enables non-vehicular trips among daily activities; (iii) a public realm that is pedestrian- and bicycle-friendly, interconnected, and welcoming; and (iv) a reduced emphasis on parking through reduced parking ratios, use of shared parking, and the location and design of parking facilities so as not to conflict with the attributes outlined above. Transit-oriented development is often contrasted to development that is transit-adjacent but lacking in these attributes. Transportation Network Company (TNC). A TNC is a service that provides travelers with pre-arranged and on-demand rides for compensation, using an on-line enabled application or platform (such as smartphone âappsâ) to connect customers with drivers using their personal vehicles. Digital applications are typically used for booking, electronic payment, and customer ratings. Unsolicited proposal. An unsolicited proposal is a spontaneous proposal to undertake development on transit agency land or to enter into some other form of JD transaction with a transit agency. Unsolicited proposals may come from private developers or land owners, or from other public agencies. An unsolicited proposal policy establishes the procedure the agency will follow if an unsolicited proposal is received. Value capture. Value capture is the concept in which the enhanced real estate value attrib- utable to a public improvement (such as transit or other TOD-supportive infrastructure) is âcapturedâ to help fund that improvement. Joint development, as a real estate transaction benefitting a transit project or system, is often considered one form of value capture. The other is the family of methods known as district value capture, which includes tax increment financing and special assessment districts. Walkshed. The walkshed of a transit station or stop is the area within which people are prepared to walk routinely to and from the station, especially for daily commuting purposes. A walk- shed is sometimes described as constituting a specified radius (traditionally one quarter-mile, sometimes one half-mile), but a stationâs effective walkshed reflects local conditions such as topography, natural or built barriers, the public realm, and the station areaâs legibility in terms of view corridors and wayfinding.
156 Guide to Joint Development for Public Transportation Agencies Workforce housing. Workforce housing is a broad term, usually meant to describe affordable housing targeted to households in the middle or upper-middle range of Area Median Income (roughly speaking, from 80% to 120%). Some transit agencies and local jurisdictions with inclusionary requirements recognize workforce housing as satisfying some or all of those requirements. Zoning. Zoning is the regulation of land use by municipalities or, in some unincorporated areas, by county government. Zoning divides the land area of the jurisdiction into zones or districts, within which specific uses are allowed âas of right,â not allowed, or conditionally allowed. Zoning may also regulate the density, placement, dimensions, parking, urban form, or other aspects of new development or redevelopment. Projects that do not conform to current zoning cannot receive a building permit unless relief is granted in the form of a variance or special permit or the zoning is amended. Zoning is often part of a larger process of local land use regulation and approval; for convenience, this guide uses âzoningâ in refer- ence to that entire process.