National Academies Press: OpenBook

Guide to Joint Development for Public Transportation Agencies (2021)

Chapter: Chapter 7 - Economics of Joint Development

« Previous: Chapter 6 - Joint Development and FTA
Page 115
Suggested Citation:"Chapter 7 - Economics of Joint Development." National Academies of Sciences, Engineering, and Medicine. 2021. Guide to Joint Development for Public Transportation Agencies. Washington, DC: The National Academies Press. doi: 10.17226/26045.
×
Page 115
Page 116
Suggested Citation:"Chapter 7 - Economics of Joint Development." National Academies of Sciences, Engineering, and Medicine. 2021. Guide to Joint Development for Public Transportation Agencies. Washington, DC: The National Academies Press. doi: 10.17226/26045.
×
Page 116
Page 117
Suggested Citation:"Chapter 7 - Economics of Joint Development." National Academies of Sciences, Engineering, and Medicine. 2021. Guide to Joint Development for Public Transportation Agencies. Washington, DC: The National Academies Press. doi: 10.17226/26045.
×
Page 117
Page 118
Suggested Citation:"Chapter 7 - Economics of Joint Development." National Academies of Sciences, Engineering, and Medicine. 2021. Guide to Joint Development for Public Transportation Agencies. Washington, DC: The National Academies Press. doi: 10.17226/26045.
×
Page 118
Page 119
Suggested Citation:"Chapter 7 - Economics of Joint Development." National Academies of Sciences, Engineering, and Medicine. 2021. Guide to Joint Development for Public Transportation Agencies. Washington, DC: The National Academies Press. doi: 10.17226/26045.
×
Page 119
Page 120
Suggested Citation:"Chapter 7 - Economics of Joint Development." National Academies of Sciences, Engineering, and Medicine. 2021. Guide to Joint Development for Public Transportation Agencies. Washington, DC: The National Academies Press. doi: 10.17226/26045.
×
Page 120
Page 121
Suggested Citation:"Chapter 7 - Economics of Joint Development." National Academies of Sciences, Engineering, and Medicine. 2021. Guide to Joint Development for Public Transportation Agencies. Washington, DC: The National Academies Press. doi: 10.17226/26045.
×
Page 121
Page 122
Suggested Citation:"Chapter 7 - Economics of Joint Development." National Academies of Sciences, Engineering, and Medicine. 2021. Guide to Joint Development for Public Transportation Agencies. Washington, DC: The National Academies Press. doi: 10.17226/26045.
×
Page 122
Page 123
Suggested Citation:"Chapter 7 - Economics of Joint Development." National Academies of Sciences, Engineering, and Medicine. 2021. Guide to Joint Development for Public Transportation Agencies. Washington, DC: The National Academies Press. doi: 10.17226/26045.
×
Page 123
Page 124
Suggested Citation:"Chapter 7 - Economics of Joint Development." National Academies of Sciences, Engineering, and Medicine. 2021. Guide to Joint Development for Public Transportation Agencies. Washington, DC: The National Academies Press. doi: 10.17226/26045.
×
Page 124
Page 125
Suggested Citation:"Chapter 7 - Economics of Joint Development." National Academies of Sciences, Engineering, and Medicine. 2021. Guide to Joint Development for Public Transportation Agencies. Washington, DC: The National Academies Press. doi: 10.17226/26045.
×
Page 125
Page 126
Suggested Citation:"Chapter 7 - Economics of Joint Development." National Academies of Sciences, Engineering, and Medicine. 2021. Guide to Joint Development for Public Transportation Agencies. Washington, DC: The National Academies Press. doi: 10.17226/26045.
×
Page 126
Page 127
Suggested Citation:"Chapter 7 - Economics of Joint Development." National Academies of Sciences, Engineering, and Medicine. 2021. Guide to Joint Development for Public Transportation Agencies. Washington, DC: The National Academies Press. doi: 10.17226/26045.
×
Page 127
Page 128
Suggested Citation:"Chapter 7 - Economics of Joint Development." National Academies of Sciences, Engineering, and Medicine. 2021. Guide to Joint Development for Public Transportation Agencies. Washington, DC: The National Academies Press. doi: 10.17226/26045.
×
Page 128
Page 129
Suggested Citation:"Chapter 7 - Economics of Joint Development." National Academies of Sciences, Engineering, and Medicine. 2021. Guide to Joint Development for Public Transportation Agencies. Washington, DC: The National Academies Press. doi: 10.17226/26045.
×
Page 129
Page 130
Suggested Citation:"Chapter 7 - Economics of Joint Development." National Academies of Sciences, Engineering, and Medicine. 2021. Guide to Joint Development for Public Transportation Agencies. Washington, DC: The National Academies Press. doi: 10.17226/26045.
×
Page 130
Page 131
Suggested Citation:"Chapter 7 - Economics of Joint Development." National Academies of Sciences, Engineering, and Medicine. 2021. Guide to Joint Development for Public Transportation Agencies. Washington, DC: The National Academies Press. doi: 10.17226/26045.
×
Page 131
Page 132
Suggested Citation:"Chapter 7 - Economics of Joint Development." National Academies of Sciences, Engineering, and Medicine. 2021. Guide to Joint Development for Public Transportation Agencies. Washington, DC: The National Academies Press. doi: 10.17226/26045.
×
Page 132
Page 133
Suggested Citation:"Chapter 7 - Economics of Joint Development." National Academies of Sciences, Engineering, and Medicine. 2021. Guide to Joint Development for Public Transportation Agencies. Washington, DC: The National Academies Press. doi: 10.17226/26045.
×
Page 133
Page 134
Suggested Citation:"Chapter 7 - Economics of Joint Development." National Academies of Sciences, Engineering, and Medicine. 2021. Guide to Joint Development for Public Transportation Agencies. Washington, DC: The National Academies Press. doi: 10.17226/26045.
×
Page 134
Page 135
Suggested Citation:"Chapter 7 - Economics of Joint Development." National Academies of Sciences, Engineering, and Medicine. 2021. Guide to Joint Development for Public Transportation Agencies. Washington, DC: The National Academies Press. doi: 10.17226/26045.
×
Page 135
Page 136
Suggested Citation:"Chapter 7 - Economics of Joint Development." National Academies of Sciences, Engineering, and Medicine. 2021. Guide to Joint Development for Public Transportation Agencies. Washington, DC: The National Academies Press. doi: 10.17226/26045.
×
Page 136

Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

91   7.1 Introduction This chapter is the second of three that address key topical issues cutting across the sequential stages of the JD process. Chapter 7 seeks to enhance the reader’s practical understanding of JD economics. What are the chal- lenges affecting the ability of transit agencies and developers to converge on projects that deliver worthwhile benefits for the former while “penciling out” for the latter? How can these issues be mitigated? When a transit agency initiates a JD solicitation, how can it optimize the chances of concluding an agreement? Transit agencies undertake JD to advance a range of goals, affecting both agency finances and broader public policy. At the end of the day, how- ever, a JD project must be market-receptive and financially feasible, or it will not happen. If a solicitation portrays a project that the market finds infeasible—or that offers too little reward for its risk and opportunity cost— then it will not attract credible proposals. If a developer is selected but the transit agency’s negotiating position would make the project infeasible, an agreement may never be reached. And if a project is infeasible unless the transit agency makes major concessions on land value or other business terms, its enabling act might or might not allow such an outcome and the governing board might or might not accept it, depending on the agency’s hierarchy of JD goals. The underlying push-and-pull of any development project on the value of land controlled by a public agency can be exacerbated by policy issues that affect costs or revenues. Two issues in particular have emerged as key challenges for JD: • The cost of structured parking, whether to provide park & ride replacement or to satisfy park- ing requirements applicable to the JD program itself; and • Affordable housing, which many local jurisdictions and an increasing number of transit agen- cies require or encourage as a matter of public policy. This chapter begins with a review of goals, perceptions, and expectations expressed by the transit agencies and private developers surveyed for this guide. It then turns to a dis- cussion of four strategies that are recommended, based on successful practice, as ways to enhance project feasibility by better aligning the goals of the two parties. Section 7.4 and Section 7.5 provide detailed discussions of parking and affordable housing in the economics of JD projects. C H A P T E R 7 Economics of Joint Development Hub stations Sister public agencies Adjacent owners JD and value capture New corridors Non-station assetsLand value Parking Affordable housing Economics of Joint Development Chapter 7 Chapter 6 Chapter 8 Joint Development Horizon Joint Development and FTA

92 Guide to Joint Development for Public Transportation Agencies 7.2 Goals, Perceptions, and Expectations The surveys of transit agencies and developers asked respondents not only to discuss specific issues and methods, but to discuss their big picture understanding of TOD and JD. Some highlights of particular relevance to JD economics and finance are summarized below. For a more complete review of the findings, see Appendix B and Appendix D. Transit agencies. As discussed in Chapter 2, agencies in our survey were asked a series of questions about what gains they expect to realize from JD. Across the 32 agencies, a menu of goals and values emerged, including the monetization of developable assets, mostly through cash proceeds but also through in-kind contributions and cost avoidance; the enhancement of ridership and farebox revenue; and other policy goals, generally lying outside the transit agency’s core business, such as equitable development, smart growth, placemaking, and sustain- ability. Transit agencies differ in how they prioritize these goals. Many, but not all, place some combination of monetization and ridership at the top of their hierarchy; most but not all recog- nize TOD-related public policy goals as well. Agencies differ in the mechanics of how they define and account for in-kind contributions by developers, especially big-ticket items like replacement parking. They generally support afford- able housing but differ in whether they have affordability requirements of their own and whether such requirements can be reflected in the price they accept for their land. In some cases, there are competing expectations within an agency about how to resolve these tradeoffs; these competing expectations may exist among members of the governing board, or between board and staff. Developers and lenders. When asked what attracts private- sector energy and capital to the TOD/JD arena, developers and lenders expressed a remarkable convergence of perceptions and motivations. Many spoke about a major shift in the real estate market toward cities, transit, and walkability, reflecting, at least in part, a generational change spearheaded by millennials and a desire by retired empty-nesters to “age in place.” Some said that access to transit is so essential in metropolitan real estate markets that TOD “may be the only game in town” or that in dense, transit-rich legacy markets, “everything is TOD anyway.” A second principal theme was that TOD helps lower the cost of mobility for people who are able to both live and work near transit. This was articulated by all the affordable housing devel- opers and by others as well. As one explained, “in a dense, high-value metro area, it’s hard for people to live next door to their job. A TOD location can shift $1,000 a month from a car into rent.” This is the “location efficiency” principle, recognized in many housing programs and in the Center for Neighborhood Technology’s Housing and Transportation Affordability Index.1 Key public policy differentiators are seen as favoring TOD. Funding and financing programs for affordable housing and economic development often prioritize TOD opportunities, as do the portfolio requirements of many social investors. Zoning, to the extent that it favors density anywhere, tends to do so in TOD locations. All these factors apply to JD as well as to TOD in general. However, several respondents offered additional reasons for seeking out JD opportunities. Some saw institutional and commercial advantages in dealing with a transit agency as land holder. Transit agencies are able to hold onto a site, shield it from speculation, and advance its entitlement process before putting it on the market. From a developer’s perspective, this creates higher value relative to land cost. Some public land- lords, moreover, can discount their land prices to facilitate affordable housing. Several developers also cited a competitive edge in pursuing JD projects, describing a specialized skill set that, once formed and used, is self-fulfilling. They see themselves operating in a smaller competitive space with fewer rivals. “A TOD location can shift $1000 a month from a car into rent.”

Economics of Joint Development 93   Some developers cited two institutional drawbacks that can arise in dealing with transit agencies. One is the perceived unpredictability of scope and schedule associated with multiple internal departments, the maze of community stakeholders clustered around JD projects and impacting entitlement decisions, and, where applicable, the FTA/JD process. The other is the perceived absence of development-savvy staff at some agencies and, in particular, a failure by agency staff to understand the key concept of residual land value, described below. Taking all these perceptions into account, most (but not all) of the for-profit developers said that they do not require a higher return on investment for JD projects. That is, they find that an acceptable return for JD is generally in the same range as for other complex projects in the same regional market. The question is: what does it take for a JD project to generate an accept- able, risk-appropriate return on investment? Interests that Overlap and Compete Most of the transit agency and private sector respondents said that converging on a mutually acceptable land value is a challenge. As in any real estate project involving a separate land owner and developer, land value is important to both parties; their interests, while overlap- ping enough to envision an agreement, are by no means identical. Not only are they negotiating over the same dollars, but they define their interests differently, as illustrated in Figure 35. • The transit agency is seeking a return that meets its JD goals and values. This may consist in part of traditionally measured financial benefits, in part of enhanced ridership and farebox revenues, and in part of external public policy goals like TOD placemaking and equi- table development. These goals can create complex tradeoffs, and agencies value them in different ways. • A for-profit developer’s expected return is based on standard commer- cial expectations, the risk/reward profile of the project, and opportu- nity cost (the relative tangible and intangible merits of an alternative project that could have been undertaken instead). A developer also pursues the creation of value that can be harvested in future project performance and eventual sale or refinancing. Even a non-profit devel- oper needs to operate the project in the black, pay the mortgage, and maintain the business. Figure 35. Competing interests in a joint development project. Strategies to Enhance Feasibility 1. Strategically define agency financial return based on residual land value, downstream participation, and enhanced farebox revenues. 2. Make the pie bigger by working with the zoning jurisdiction to increase allowable density before initiating a project. 3. Make the gap smaller by seeking state, regional, and local infrastructure or gap financing. 4. Create a culture of predictability across all stages of the JD process.

94 Guide to Joint Development for Public Transportation Agencies As noted earlier, this push-and-pull is further complicated by two factors increasingly common to JD projects: the cost of building and operating structured parking, and the economics of including affordable units in residential or mixed-use projects. These are addressed in detail in Section 7.4 and Section 7.5. The ability to agree is often influenced by a third party, local government. Through their control of the zoning envelope and their ability to target public infrastructure and finance programs, local and regional jurisdictions can tip the economics of a JD project one way or the other. 7.3 Strategies to Enhance Feasibility The financial tensions affecting the feasibility of a JD project, and the ability of a transit agency and its development partner to converge on fair value, can be mitigated through several strategies. Strategically Define Financial Return The first is to determine, within the agency’s staff leadership and governing board, how the agency’s financial return is to be defined. This is a broader concept than the developer’s proposed lease or sale payments alone. An inclusively defined financial return is the agency’s business case for undertaking the project. To approach this issue effectively, the agency should cultivate staff and consultant resources that have credibility with the board and bring a professional understanding of how developers evaluate risk, reward, and costs. Based on the research team and project panel’s experience and the transit agency and developer interviews, several factors guide a reasonable definition of financial return. Cash payments are just one part of financial return. The others are farebox revenues and in-kind developer contributions. Farebox revenues generated by JD users are not the same as lease or sale proceeds and should not be conflated with them. That said, net new farebox collec- tions constitute a revenue stream closely aligned with the agency’s primary mission of ridership and mobility. Where relevant, agencies should also take into account that successful JD can establish a market location, inducing additional TOD (whether JD or not) that creates still more future farebox revenue. JD as a catalyst for broader station area placemaking is an important non- financial goal, but its downstream financial benefit should also be recognized.2 (Estimating future ridership growth attributable to a particular development can be complex, in part because transportation demand models are geared to changes more regional or sub- regional in scope. For ridership gains that have already occurred, determining how much of the increase was “net new” with respect to a particular set of TOD/JD investments is complex as well. The corrective is to use conservative assumptions rather than to dismiss the farebox effect of successful JD as a catalyst for additional TOD.) In-kind station improvements are often required as part of a JD project. As noted in Chapter 3, a developer required to design, build, or maintain a station component is not necessarily obli- gated to fund it as well. But when the developer does have that obligation, the avoided capital or O&M cost should logically be recognized as part of the agency’s financial return. Whether the full cost of the improvement or a portion of it should be seen as an avoided cost depends on the extent to which the construction in question is an enhancement or expansion compared to pre-existing conditions, as opposed to being needed only to accommodate the JD. (In the case of replacement park & ride structures, even if the original capacity is held constant or reduced, the structured parking may represent a significant customer amenity compared to the surface lot.)3

Economics of Joint Development 95   Differentiate fair market value, appraised value, and residual land value. The challenges posed by replacement parking and affordable housing are, as much as anything else, issues of land value. When both factors are present in a deal, they can create valuation issues not found in most real estate development projects. The point is not that projects with affordable housing requirements, replacement parking, or other on-site transit improvements should be avoided; rather, that the transit agency should understand that to the degree the development is funding those requirements, the dollars remaining to pay directly for the land through the lease or sale are inevitably diminished. (For that reason, it is important that replacement parking or any other transit improvement included in the JD project be right-sized.) Transit agencies leasing or selling property for JD generally seek to obtain a land value at least equal to FMV. Many are required by law to do so; dispositions of FTA-assisted property require a documented FMV outcome; and governing boards may include an FMV requirement in agency by-laws and policies, whether strictly required by law or not. Even agencies that do not have a formal FMV requirement are likely, as a matter of practice, to use FMV as a benchmark for whether they are getting reasonable value for their land. (Among the exceptions are those agencies whose enabling laws and official policies allow the discounting of land value below FMV to support the development of affordable housing, as discussed in Section 7.5 below.) For agencies that rely on the FMV threshold, it is critical to distin- guish between two fundamentally different ways of defining it. One is a traditional appraisal based on highest and best use, assuming, in effect, that the site is ready to build and that there are no extraordinary cost premiums. The other is an appraisal or a negotiated outcome based on residual land value, taking into account all costs and revenues, including, where applicable, the cost premiums associated with required station improvements such as replacement parking and the net income constraints sometimes associated with affordable housing. The distinction is not an academic one; expecting the developer to pay the unadjusted land value and fund several hundred spaces of replacement parking and provide an internal cross- subsidy for the affordable residential units is likely to create a misaligned negotiation and a dis- appointing land value. At the extreme, these factors can drive the residual land value to zero (absorbing what the land would otherwise be worth) or even below, creating a negative value. This relationship is illustrated in Figure 36, in which the high-level components of a typical development pro forma are represented in grey and red (revenues and costs, respectively); residual land value in yellow; and the impact of in-kind station capital or O&M obligations and inter- nally subsidized affordable housing in green. Capture downstream value. One of the reasons most transit agen- cies prefer long-term ground leases to outright sales is that it enables them to accept a lesser up-front return in exchange for participation in the project’s future performance. A lease of this type, described more fully in Chapter 5, may include a base rent with automatic escalation; a performance rent based on a percentage of gross revenue; and partici- pation in any capital event. Similar benefits may be achieved through a joint venture or LLC in which the transit agency is a member by virtue of contributing the land. The list at the right summarizes the components of an inclusively defined financial return from a transit agency perspective. Achieving Expecting the developer to pay the unadjusted land value and fund replacement parking and internally cross-subsidize affordable housing will create a misaligned negotiation. An Inclusive Financial Return • Lease or sale payments by the devel- oper (reflecting residual land value) • Net present value of the agency’s participation in future project revenues • Value of capital investments in transit infrastructure funded by the developer • Avoided O&M costs to be funded by the developer • Net new farebox revenue from trips directly involving the JD project • Net new farebox revenue from TOD induced by the JD project

96 Guide to Joint Development for Public Transportation Agencies such a return requires both the technical capacity and the appetite to monitor the project’s per- formance on an ongoing basis. More fundamentally, it assumes that a project will perform well enough that the present value of the agency’s return over time is worthwhile, particularly if a con- servative discount rate, commensurate with the degree of uncertainty, is applied. The point is not to engage in wishful thinking about land value, but to frame realistically the present value of the best deal that can be achieved now. The alternative is to conclude that the site cannot yet generate sufficient value and leave it for a future time. Make the Pie Bigger The decision to leave a site for a future time is best made before initiating a project rather than at the end of a fruitless negotiation. The first step, at the outset of the planning process, should be to use the site readiness criteria established in Chapter 3 to assess realistically if it makes sense to advance a project in the near term. These criteria include site suitability, market demand, transit connectivity, and jurisdictional support. If the site cannot generate enough density to produce a feasible project, create sufficient land value to meet reasonable agency expectations, or satisfy the development criteria that the transit agency and local planning officials envision— then the best strategy may be to give it time. If the site is adequate from a market demand and site suitability perspective, then it is very important, as described in Chapter 3, for the transit agency to work with local land use and zoning Figure 36. Affordable housing, in-kind station costs, and residual land value.

Economics of Joint Development 97   authorities in the planning stage of the project. This helps align the developer solicitation (and the resulting proposals) with community expectations and the prospects for expeditious approvals. In addition to enhancing predictability, this strategy may also present an opportunity to change a site’s value equation by increasing its allowable density. This could occur through traditional up-zoning, through a TOD overlay, or through a new adopted master plan with zoning to follow. In the survey of transit agencies for this guide, one-third of the agencies indicated that they have worked with local authorities to get JD sites up-zoned or the equivalent or have a strategy for doing so. Up-zoning is not always necessary or practical. It cannot create a market by itself if underlying demand is lacking. In such cases, zoning is already aligned with market density or even exceeds it, making up-zoning a poor use of time and effort. In other cases, the prevalent institutional and community politics make up-zoning unlikely to succeed. But where supported by market demand and politically achievable, a proactive up-zoning strategy is a better alternative than soliciting developers on the basis of existing density limits and hoping for future zoning relief. Make the Gap Smaller In most transit markets, there are state, regional, and local economic development programs that are available, at least in part, for TOD/JD projects. These programs support development through site assembly and remediation, infrastructure, or gap financing. They may be targeted, as a matter of policy, either to TOD per se or to TOD-friendly settings like downtown revitaliza- tion, affordable housing, or brownfield redevelopment. These programs are particularly important when transit agencies and their local government partners are trying, through JD and other strategies, to draw investment into a soft market. A soft market may be an entire metropolitan area where economic activity and real estate investment are lagging, or a specific corridor, community, or station area within a metropolitan market that is otherwise doing well. A transit agency should work with its economic development counterparts—before devel- oper solicitation to secure up-front support for the JD project or its supporting infrastructure (ideally in the form of a commitment, subject to successful developer selection). The transit agency can then support the developer, once selected, in securing awards for which the latter is the proper applicant. Examples of applicable programs, just among the 18 local and regional governments surveyed for this guide, include: • Project-specific infrastructure grants, such as the MassWorks program of Massachusetts, the Livable Centers Initiative Implementation Grants of the Atlanta Regional Commission, or the TOD program of Hennepin County; • Land assembly and disposition, including traditional urban renewal powers retained by agen- cies like the Boston Planning & Development Agency and the Pittsburgh Urban Redevelopment Authority; • State and regional grants, loans, or technical assistance for brownfield remediation; • District value capture (tax increment financing or special assessment districts), which can help finance placemaking infrastructure, public land assembly and site preparation, and, in some states, gap financing for development itself. Tax increment financing has been used to support TOD in the Chicago, Denver, Dallas, and Pittsburgh transit markets (among many others), and the Georgia special assessment districts known as community improvement districts are a major placemaking resource; The decision to leave a site for a future time is best made before initiating a project, rather than at the end of a fruitless negotiation. The first step is to use the site readiness criteria to assess realistically if it makes sense to advance a project in the near term.

98 Guide to Joint Development for Public Transportation Agencies • Special TOD planning and tax increment districts, like the Transit Revitalization Investment District program in Pittsburgh and other Pennsylvania cities and the Northwest Indiana Regional Development Authority’s Transit Development Districts, authorized by state law for all stations on the region’s two commuter rail branches; • Revenue bond financing, either through a local jurisdiction’s own enablement or through its access to the state’s economic development finance agency; • Oregon Metro’s TOD program, which funds land assembly and gap financing for projects including JD; and • Targeted tax abatement incentives and impact fee reductions or waivers. Programs like these complement the menu of affordable housing subsidies (addressed in Section 7.5), as well as the federal tax code incentives provided in the widely-used New Markets Tax Credit and the Opportunity Zone Capital Gain Credit. (The latter, enacted as part of the 2018 tax reform, is still emerging.) Create a Culture of Predictability Predictability is valued by developers. It affects their business calculations on a given project as well as their perception of an agency’s overall JD program. A transit agency should strive to achieve consensus among its internal stakeholders and to demonstrate that it has effec- tive working relationships with local government, can act in a timely fashion, and above all, can speak with one voice. This culture of predictability should be fostered throughout all stages of the JD process described in the preceding chapters: planning, developer selection, and project execution. Effective steps include: • Establish an in-house coordinating committee or process, chaired and staffed by the TOD/JD office, that includes all departments whose buy-in is required—rail or bus operations, facilities maintenance, legal, finance, risk management, public safety, accessibility, and any others that are applicable. Through this structure, the TOD/JD office can minimize or eliminate the possibility of internal vetoes later in the process (Chapter 2). • In the planning stage—before issuing an RFQ or RFP—work with the local jurisdiction to clarify entitlement, up-zone to greater den- sity where appropriate and achievable, and vet the JD concept with the community under municipal auspices (Chapter 3). • Choose a solicitation format—a two-step RFQ/RFP, one-step RFP, or one-step RFQ with a longer exclusive negotiation period after selection—mindful of the time, resource, and predictability impli- cations of each. Get development community input in making this determination (Chapter 4). • Write a solicitation document that is clear and explicit about the process going forward, deal parameters, roles and responsibilities, and expectations (Chapter 4). • If FTA jurisdiction applies, consult with the FTA region early on to establish a clear path forward on JD approval or excess property dis- position (Chapter 6). • Set up the selection and negotiation process to reasonably minimize the steps that require board votes. • After selection, stay in the game with respect to entitlement and permitting—don’t get in the developer’s way, but don’t hand them the keys if it is the transit agency that has the jurisdictional relationships (Chapter 5). A Culture of Predictability • Establish an inter-departmental planning and evaluation committee. • Work with local officials in the planning stage to align entitlement with demand. • Choose a solicitation format with time, cost, and predictability in mind. • Write a clear, explicit RFQ or RFP. • Coordinate proactively with FTA when applicable. • Minimize steps needing board votes. • After developer selection, stay in the game for entitlement and permitting. • Speak with one voice.

Economics of Joint Development 99   7.4 Parking and Joint Development The relationship between JD and parking encompasses two distinct policy and planning issues, each with a significant potential bottom- line impact: • The location and replacement of park & ride capacity, and • The residential and commercial parking ratios applied to JD projects. Since most JD projects ultimately require structured parking for transit passengers, JD users, or both, the impact of parking on overall project costs—and the question of how parking facility costs are allocated— becomes a deal driver. Also, when physical space is limited, excessive parking, and the driving required to access it, can detract from a station area’s pedestrian and bicycle character. This section addresses these parking issues from both an economic and a policy perspective. Park & Ride In planning new or extended corridors, transit agencies confront the threshold question of which stations are appropriate park & ride locations in the first place and which are not.4 A generation ago, park & ride was located unselectively, leaving some stations with more capacity than they would ever need. Today, transit agencies are more likely to locate park & ride at or near the ends of radial transit corridors and at locations in the roadway network that are significant subregional collector points. On the other hand, stations in or near the downtown core, or in established transit-oriented neighborhoods accessed by local streets, generate minimal park & ride demand, are prime targets for TOD, and should not be used for parking. Some agency TOD/JD policies, such as MARTA’s and the MBTA’s, make this point explicitly.5 At existing stations, it is a common strategy to convert surface park & ride lots into JD parcels; for agencies with large, multi-site park & ride inventories, this is a core strategy. The key question is how much of the existing surface capacity to replace. Structured parking is expensive, and agencies understand that at the end of the day—unless funded by an external source—this cost will have to be absorbed in the value they realize from the land. It may be absorbed directly (in a lower land price) or indirectly (in the agency’s use of its sale or lease proceeds to fund the garage). There has been a sea change in how transit agencies approach this issue. Fifteen or 20 years ago, a 1:1 replacement policy was common. However, the high costs, the rise of alternative first- and last-mile station access solutions, and FTA’s clarification that it does not require 1:1 replace- ment as long as there is no net loss of ridership have combined to change industry thinking. As shown in Table 8, among the 32 transit agencies surveyed, only three maintain a 1:1 policy, while 16 prefer to make a case-by-case determination. Most of these indicated a predisposition to replace at less than 1:1 where possible, although many also acknowledge that there may be sound reasons for maintaining or increasing park & ride capacity at a particular location. A threshold question is how much of a station’s nominal capacity is actually needed for com- muter parking. If the lots are plainly underutilized, this is a less difficult question, although there may be an internal or external constituency for anticipating future growth in demand. If the lots are heavily used, the tradeoff is more complex, involving not only the revenue from the park & ride itself and its associated ridership, but the riders and fares to be generated by different TOD Parking and Joint Development 1. Provide new transit passenger parking at appropriate stations only. 2. Evaluate park & ride replacement on a case-by-case basis, allowing significant reduction or elimination where appropriate. 3. Pursue reduced, TOD-friendly parking ratios for the residential, commercial, and mixed-use JD. 4. JD parking should be shared among uses, including park & ride where feasible. 5. Parking should be located and designed so as to be compatible with TOD/JD.

100 Guide to Joint Development for Public Transportation Agencies scenarios, the value of the JD sale or lease, and the cost of a replacement parking structure. Several agencies have developed spreadsheet models that enable them to compare “all-in” revenue and ridership outcomes across alternative scenarios. The seminal work was the model created for BART by Professor Richard Willson. It allows the agency to input, for each scenario, a set of assumptions about the replacement parking tradeoff, including the amount of parking retained, the extent to which displaced park & ride patrons will shift to other stations or station access modes rather than driving to work, the JD program, the trip generation and transit mode share factors for each JD use, and the costs of building and operating structured parking. Each scenario can be compared to the others and to the baseline of existing conditions.6 Among the recent adaptations of this model is Caltrain’s Station Management Toolbox, which adds the ability to project changes in station area employ- ment and housing as well as station access/egress patterns by time of day.7 Figure 37 provides a simplified view of a park & ride replacement model. The purpose is to compare alternative scenarios against the existing baseline in terms of both net ridership and net revenue. Separate from the question of how much park & ride to replace, agencies were asked whether they prefer to have the developer design and build the replacement parking, as opposed to using the proceeds of the JD transaction (or other agency funds) to build it themselves. As a third alternative, the transit agency could decide to fund the replacement garage itself but contract with the developer to design and build it—serving as a “fee developer” for purposes of the garage. Of the agencies to whom this question was applicable, most preferred to have the developer deliver the parking facility. They cited, to varying degrees, the advantages of a more integrated design, more efficient construction, and a more readily available option to off-load the costs of design, construction, or operation and maintenance onto the developer. Developer-designed and built parking may also be more conducive to a shared-use facility, in which spaces are shared between the JD uses and park & ride. This arrangement is feasible if there are JD uses whose peak demand periods dovetail with park & ride—such as destination retail, entertainment, and, to some degree, multi-family housing. Where shared use works, it reduces the total number of spaces and the project’s overall cost burden for structured parking. Shared-use parking structures can be operated by either the developer or the transit agency; the party that operates the facility and collects the revenues is responsible for transferring the proper share to the other.8 Park & ride alternatives should be understood in the context of overall station access policy, as discussed in Chapter 3. Several agencies have adopted an access hierarchy, in which pedestrian, transit, shuttle, and bicycle access outrank park & ride as planning priorities. This by no means excludes park & ride as an outcome, but it supports a policy of evaluating its replacement on a case-by-case basis, allowing significant reduction or elimination where appropriate. Policy Number 1:1 replacement policy, with some flexibility 3 Case-by-case determination, with intent to reduce where possible 12 Case-by-case determination, with mixed intent 4 No replacement policy or not applicable 13 Table 8. Park & Ride replacement policies (32 transit agencies).

Economics of Joint Development 101   Parking for Development A body of research literature argues that the parking supply ratios required by traditional zoning were and are excessive if applied in transit-rich settings.9 Regulatory and market behavior are changing for the better, fueled not only by transit but by the re-emergence of mixed-use development (with its incentives for shared parking and walking) and by the millennial preference for car-sharing and TNCs over car ownership. That said, parking for the residential, commercial, and civic components of JD remains a potential friction point, where market behavior, neighbor- hood concerns, and zoning intersect. Developers and lenders who work in TOD and JD generally support reduced and shared parking. In fact, several of those interviewed for this guide, when asked why they were attracted to TOD/JD in the first place, cited the bottom-line advantages of lower parking ratios and shared parking; these are recognized as reducing unit costs, enabling greater program density, and enhancing residual land values. But an underlying and sometimes countervailing issue lies in community perception. In their respective surveys, several transit agencies, developers, and local officials cited a common anxiety among neighborhood residents: that too much develop- ment will induce unwanted traffic, but that reducing parking requirements will bring a spill-over onto local streets. Figure 37. Summary of Park & Ride replacement analysis.

102 Guide to Joint Development for Public Transportation Agencies Transit agencies have both a philosophical and a financial interest in making TOD parking requirements as low as the market and the community will accept, with as much shared parking as practicable. Moreover, by insisting on reduced parking ratios and shared facilities in their own JD projects, transit agencies can set the standard for TOD in the larger station area. Two-thirds of the transit agencies surveyed for the guide indicated that they encourage, strongly encourage, or require such outcomes, to the degree consistent with zoning. Several have published parking standards as part of their TOD/JD policies. (BART and Miami-Dade, with their unique zoning control of JD sites, had such standards in place as of 2020.) The extent to which these policies are compatible with current zoning varies considerably across service area jurisdictions. A number of central cities have adopted progressive, TOD-friendly parking policies, at least in certain station or corridor districts. In addition to reduced minimum ratios and the allowance of shared parking, some jurisdictions have undertaken: • The complete elimination of minimums and/or the introduction of maximums within a given radius of a station; • Avoidance of private parking that is free of charge or “bundled” with residential units or office space; • A specific limit on surface parking within a given radius of a station; and • Bonus reductions associated with mixed-use development, affordable housing, and project- specific transportation demand management plans. On the other hand, several transit agencies characterized their service areas as still funda- mentally automobile-oriented, with little progress on reduced and shared parking; these transit agencies were more likely to report not having a TOD/JD parking policy of their own and deferring to local preferences. One way for a transit agency to increase the value of a JD site is to reduce its required parking capacity before soliciting developers. Where park & ride is involved, this means resolving the replacement issue within the agency. For the development itself, it means securing jurisdictional approval of reduced parking ratios and shared parking up-front through zoning, a TOD parking overlay, or an acknowledgement that parking relief will be readily approved. Developers in the survey were asked whether, in their experience, local zoning requires too much parking for TOD/JD and whether developers and transit agencies are generally in accord on the parking issue. The responses were roughly split between those who see zoning as “about right” or “changing in the right direction” and those who see parking requirements as still generally too high. Among the interesting observations: • On a constrained site, excess parking requirements not only impose a cost premium but create a physical conflict between parking and program. • In particular, housing affordability is enhanced by the avoidance of unnecessary parking costs. • Actual zoning has not always caught up with evolving policy. It is common for projects to achieve parking ratios below current zoning through relief, or through master plan or planned unit development overlays. • It is increasingly common for stabilized parking demand to fall short of the built supply, either because the zoning requirement was excessive or because the developer (or lender) “over- parked” the project. In multi-phase projects, the emerging strategy is to absorb the Phase 1 excess capacity in the later phases. As discussed in Chapter 2, transit agencies should include TOD-appropriate parking stan- dards in their overall TOD/JD guidelines. When preparing to market a specific site for JD, they should, as a best practice, require reduced parking ratios and encourage managed, shared parking to the greatest degree feasible, consistent with zoning, anticipated zoning relief, or

Economics of Joint Development 103   other applicable regulations. These site-specific standards should be part of the DRGs prepared in the planning stage (Chapter 3) and included in the eventual solicitation document. If zoning does not provide maximum parking ratios, the transit agency should consider including a range of maximums in their overall TOD/JD standards and in project-specific DRGs. The DRGs should also address basic design principles for parking structures in TOD/JD settings. Whether structured or at grade, parking should be located, oriented, and accessed so as to be compatible with TOD/JD, avoiding conflicts over the most strategic development parcels. Blank walls should be avoided, particularly in plain sight of pedestrians. Parking should be screened by development and animated by ground-floor retail or similar uses where feasible. TOD/JD parking facilities should be required to include electric vehicle charging stations. Finally, as of 2020, both developers and public agencies are aware of “future-proofing” the design of parking structures—an innovation that allows garage structures to be repurposable for com- mercial or multi-family use at a future time, anticipating that parking demand might decline enough that a structure could become a “white elephant.” By avoiding sloped floors, building the ramps outside the main structural frame so they can be demolished, engineering in sufficient load-bearing capacity to support commercial or residential uses (which are heavier than parking), and leaving space for future ductwork, a parking structure can be convertible. The governing ques- tion is whether a project can sustain the cost premium and larger parking footprints associated with these features in exchange for avoiding the risk of future obsolescence or demolition. Transit agencies should at least consider whether this strategy makes sense for new park & ride structures and encourage their JD partners to give similar consideration to their development garages. Examples The parking strategies described in this section have been applied in a number of projects. Among the most illustrative are these: • New Carrollton. New Carrollton Station, in Prince George’s County, Maryland, is an end-of- line WMATA rail station adjacent to a regional highway interchange (Figure 38). It was built in the 1970s with a large quantity of commuter parking, some of which has been consolidated into garages built by WMATA, the state, and the county but much of which is still in surface lots. New Carrollton is a connection point for Amtrak and the state’s MARC commuter rail system and the eastern end-of-line station for the state’s purple line circumferential light rail corridor. A WMATA JD project is converting the parking lots on the southeast and northwest sides of the station into a 1.7 million square foot mixed-use development program. The land for each phase will be conveyed to the developer through a series of 98-year ground leases. As of 2020, the initial phases include a 200,000 square foot office building already completed and occu- pied, a 250-unit multi-family building under construction, a shared parking garage built and operated by the developer, and 20,000 square feet of retail. To make way for this development, 650 surface park & ride spaces were removed, of which 150 were replaced in the shared-use garage. With a total capacity of 810 spaces, the shared-use garage will result in residential and commercial parking ratios consistent with TOD at a peripheral location. An additional office building for WMATA’s own use is about to begin construction and a large multi-family building is proposed adjacent to it.10 Subsequent phases would remove additional surface park & ride capacity, the extent of its replacement to be determined as part of those approvals. The entire multi-phase project is expected to yield WMATA net lease proceeds in the tens of millions of dollars.11 • King County Metro. Metro owns and operates the bus system in Seattle and its King County suburbs. Metro’s opportunity to engage in JD arises from its portfolio of park & ride/transit center properties. Four projects (in Redmond, Renton, and South Kirkland) were delivered between 2002 and 2015. Built on or adjacent to Metro facilities, these projects include

104 Guide to Joint Development for Public Transportation Agencies mixed-income multi-family housing, retail, and improved transit center facilities. Each includes a shared-use parking structure built and operated by the developer, in which specific spaces are reserved for Metro park & ride customers. Metro has a significant presence at Northgate Mall. Located in northern Seattle, Northgate is a regional commercial destination with a key Metro transit center directly accessible from Interstate 5 and a station on Sound Transit’s northerly light rail extension, under construction as of 2020. In two previous transactions, Metro secured the long-term use of park & ride spaces in shared-use parking structures built and operated by developers. One belongs to the Northgate Mall ownership; the other is part of Thornton Place, a mixed-use residential and retail develop- ment just east of the Metro transit center and future light rail station.12 Metro also owns the large park & ride lot sandwiched between Thornton Place and the transit center. In concert with Sound Transit and the City of Seattle, Metro is planning for the con- version of this surface lot to JD. As of 2020, agreement has been reached for a first project, a 232-unit affordable housing development.13 • MARTA. Since 2014, MARTA has converted surface parking lots at three stations into resi- dential JD projects. Two of these, at Avondale and Edgewood/Candler Park stations, involved multi-acre park & ride lots that were significantly underutilized. The lots are being redeveloped through multi-phased, multi-family, mixed-income projects (of 503 and 459 units, respec- tively), accompanied by retail and community facilities. The park & ride was replaced not at its nominal capacity, but at its actual predevelopment utilization level. It is provided, in each case, within a shared-use parking structure built and operated by the developer. The cost premium normally associated with park & ride replacement was mitigated not only by the efficiency of shared parking, but by third-party funding from the Atlanta Regional Commission as part of its Livable Centers Initiative. The third project, at King Memorial Station, is located on a MARTA lot that was being used not for park & ride but as commuter parking for a nearby hospital under agreement with MARTA. In its place, a 300-unit multi-family development is under construction as of 2020. Figure 38. WMATA’s New Carrollton joint development project.

Economics of Joint Development 105   The development will include 335 parking spaces, with no park & ride. All three projects have residential parking ratios of between 1.10 and 1.25 per apartment, below MARTA’s suggested maximum of 1.5 and low for their respective districts.14 • Fridley Station. Fridley Station in Fridley, Minnesota, is on Metro Transit’s Northstar commuter rail line. There are two park & ride lots with a combined capacity of 668 cars. A TOD master plan prepared for Metro Transit and the city envisioned JD on the two sites, with most of the commuter parking originally to be retained or replaced. In the face of low utilization, the public agencies embraced a proposed 267-unit, mixed- income residential development on the East Lot, with far lower park & ride retention. East Lot park & ride will be reduced from 330 to 80—few enough to be provided at-grade. As of 2020, construction is imminent; JD on the West Lot is planned at a future time.15 • Repurposable TOD parking structures. The Denver design and development community has produced two distinctly different examples of parking structures that could be converted to future residential or commercial use. The smaller is part of the Denver Denizen Apartments, a JD project on a former RTD park & ride lot at Alameda Station. The 275-unit development was financed and built with one parking space per unit, but the developer and RTD recognize that a surplus may arise in the future. Therefore, 30 of the spaces are provided in the ground floor of one of the buildings, with floor-to-ceiling height and façade design suitable for conver- sion to 7,000 square feet of neighborhood retail. The other example is at the new World Trade Center Denver campus being built at the 38th & Blake Station, on the A Line connecting Union Station and Denver International Airport. The first phase of this mixed-use development includes an above-ground 600-car parking structure, designed for full convertibility if and when market conditions so indicate. Although not a JD project, this is a TOD project located in close proximity to the station.16 7.5 Affordable Housing and Joint Development Several U.S. metro areas recognize a crisis of affordability, and many more see the rising land values associated with TOD as a double-edged sword—combining needed reinvestment in urban neighborhoods with gentrification and the threat of displacement.17 In cities where the cost of housing is a front-line concern, support for affordability has broadened into the “equitable TOD” movement, and it is common for community groups to advocate for more affordable units at deeper affordability levels near transit. That said, there remain some traditional neighborhood groups that conflate TOD/JD with affordable housing and advocate for less of both. It was recommended in Chapter 2 that an agency’s official TOD/JD policy include a policy on affordable housing appropriate to local condi- tions and priorities. The question is not only whether and how to pro- mote affordability within JD projects, but how the economics of those projects are affected for both the transit agency and the developer. The subsidy required to make a block of units affordable may not be fully available through federal, state, and local programs. Even where public policy strongly favors affordable housing, the transit agency embraces it, and specialized developers compete to build it, a portion of the subsidy cost may have to come from the land value or elsewhere within the deal. In the survey conducted for this guide, affordable housing developers, both for-profit and non-profit, expressed an attraction to JD for several Affordable Housing and JD 1. Promote affordable housing in JD projects. This may involve inclusionary requirements if the transit agency or zoning jurisdiction finds such measures appropriate. 2. Reflect the economics of affordable housing in setting or negotiating an acceptable land value. 3. Work with housing agencies to prioritize the site for applicable affordable housing subsidies. 4. Work with local jurisdiction to secure density bonuses and reduced parking requirements.

106 Guide to Joint Development for Public Transportation Agencies reasons, beyond their own commitment to equitable development. These included the opportunity to acquire sites with exceptional transit access at less than top-of-market prices. They also recognized, as noted earlier, that affordable housing finance programs and other develop- ment incentives may be targeted to TOD settings, and that lower car ownership rates and reduced residential parking requirements create extra rental value. There is a widening expectation that transit agencies engaged in JD will play an intentional role in promoting affordable housing.18 This expectation may come from local government, community stake- holders, and the agency’s own governing board or senior leadership. At the same time, agencies recognize that the economics of affordable housing, in which every below-market unit must be subsidized in some fashion, may impact their bottom line when leasing or selling parcels. In determining a program-level affordable housing policy, and in applying that policy to specific projects, transit agencies should consider three interrelated strategies. Inclusionary Policies Inclusionary policies are those that require or strongly encourage residential developments to include minimum percentages of affordable units. The level of affordability of a given unit is typically defined as a percentage of the Area Median Income (AMI) published by the U.S. Department of Housing and Urban Development. (Some inclusionary programs allow the requirement to be satisfied by paying into an affordable housing fund or by developing the units in a less expensive off-site location.) Local government jurisdictions are increasingly open to inclusionary requirements, and in recent years several transit agencies with robust, multi-station JD programs have adopted their own targets, goals, or outright requirements for projects on their property. In such cases, the transit agency is not acting as a zoning authority but as a sponsor and land owner deciding what type of housing it wishes to accommodate.19 Transit agency inclusionary requirements can be set at levels more or less demanding than those adopted by local zoning jurisdictions; more important, they are meant to apply to JD projects anywhere in the transit system, regardless of whether the host jurisdiction has adopted an inclusionary requirement of its own. Of the 32 transit agencies surveyed for this guide, as of 2020 nine had adopted inclusionary policies. As summarized in Table 9, these are BART, Caltrain, LA Metro, MARTA, MBTA, Miami-Dade Transit, the San Diego Metropolitan Transit System (MTS), Sound Transit, and the Santa Clara Valley Transportation Authority (VTA). In all nine cases, at least one of the central jurisdictions in the agency’s service area has also adopted inclusionary zoning or an equivalent policy at the local level. As shown in Table 10, of the agencies in the survey that have not adopted inclusionary policies, 13 are in markets with local or state inclusionary requirements. Examples include the Chicago Transit Authority, all of whose stations are covered by the City of Chicago’s Affordable Require- ments Ordinance; WMATA, whose projects are covered by the inclusionary requirements of the District of Columbia, Montgomery County, and other jurisdictions; and New Jersey Transit, whose JD is subject to the individual affordable housing obligations incurred by each municipality under New Jersey’s Mount Laurel litigation. In other transit markets, inclusionary requirements are not in use at any level, but local and regional governments offer affordable housing incentives. Transit agencies undertaking JD programs in regions with significant housing cost issues should play an active role in advancing affordability. This may include adopting an inclusionary Even where public policy favors affordable housing, the transit agency embraces it, and developers compete to build it, a portion of the subsidy may have to come from the land value or elsewhere within the deal.

Economics of Joint Development 107   Transit Agency Inclusionary Policy BART • At least 20% of all JD units at a given station must be affordable. • Goal is 35% of overall JD portfolio. • Emphasis on low-income (less than 80% Area Median Income or AMI) and very low income (less than 50% AMI). Caltrain • At least 30% of all JD units must be affordable. • Breakdown: at least 10% up to 50% AMI; 10% up to 80% AMI, 10% up to 120% AMI. LA Metro • 35% affordable goal portfolio-wide, defined as 60% AMI. MARTA • Average goal of 20% in each project; usual project-specific requirement is 20% as well. • May be “workforce” (up to 80% AMI for rental, 100% AMI for ownership) or “affordable” (60%). MBTA • In general: 20% requirement at “workforce” (100% AMI) or “affordable” (60% AMI). • If 20% determined unfeasible, MBTA can set alternative requirement of 10% at 80% AMI. • If municipality has higher percentage or deeper AMI requirement, MBTA will generally defer. Miami-Dade Transit • Within the Rapid Transit Zone, 12.5% workforce. San Diego MTS • 20% low-income (80% AMI) in each project. Sound Transit • Equitable TOD amendments to Enabling Act. • Of those surplus sites deemed developable for housing, the “80-80- 80” policy applies. • 80% of such sites must first be offered to public agencies, housing authorities, or non-profit developers that will make 80% of the units affordable at 80% of AMI or below. Santa Clara VTA • At least 20% of all JD units in a given project to be affordable at 60% AMI, half of these at 50%. • Goal is for 35% of overall JD portfolio at or below 60% AMI. Source: Survey of transit agencies, published policies.20 Table 9. Summary of sample inclusionary policies. Policy Number Agency has its own inclusionary policy; at least one major local jurisdiction has inclusionary policy as well 9 Agency does not have inclusionary policy but at least some local jurisdictions do 13 Neither agency nor local jurisdictions have inclusionary policy 8 Not applicable 2 Source: Survey of transit agencies. Table 10. Joint development inclusionary policies (32 transit agencies).

108 Guide to Joint Development for Public Transportation Agencies requirement, but that is not necessarily the appropriate practice in every case. If local govern- ment has its own inclusionary program, the transit agency may defer to it, incorporating its applicable requirements into their JD solicitations. To be effective, inclusionary requirements, whether adopted by the zoning jurisdiction or the transit agency, must be backed up by other tools and incentives, as described below. Land Discounts Affordable housing development on public land sometimes involves a willingness on the part of the public owner to accept a discounted land value. Attitudes on this policy vary among transit agencies; moreover, within a transit agency, there may be divergent views between the governing board and staff leadership. The survey of transit agencies revealed three general approaches. Of the 32 agencies surveyed, over half stated a “no discount” policy. Eight agencies, by contrast, explicitly acknowledged the need to discount land value in at least some affordable housing projects and have adopted a policy of doing so. Where possible, the policy should state the param- eters of the available discount but not prematurely guarantee the maximum discount (or any at all) in a given project. Examples of specific discount frameworks include: • Sound Transit’s “80-80-80” equitable TOD policy, outlined in Table  9, is mandated by enabling act amendments that took effect in 2016. That same provision directs not only that 80% of surplus properties deemed suitable for residential development be made available for affordable housing, but that these properties “must be offered for either transfer at no cost, sale, or long-term lease first to qualified entities that agree to develop affordable housing on the property, consistent with local land use and zoning laws.” For each affected project, the implementing policy directs the staff to prepare for board approval a financial assessment, gap analysis, and recommended discount recognizing that the discount in a given case could be the maximum—that is, transfer at no cost.21 • LA Metro’s JD policy includes a structured discount of up to 30%, pro-rated by the per- centage of affordable units in the project. A project with 30% affordable units or greater is eligible for the maximum discount of 30%; a project with 20% affordable units would be eligible for a discount of 20%. This formula represents the maximum discount; the specific discount to be offered for a given project is determined case-by-case.22 • In 2020, BART adopted a policy under which a land discount of up to 60% below FMV can be provided for projects that advance BART’s 35% portfolio-wide affordability goal. The dis- count for a given project is determined based on the percentage of affordable units, the depth of affordability, and need.23 Several agencies maintain a nominal “no discount” policy, either because their enabling acts require them to receive fair market value or because their governing boards have imposed that parameter. However, these agencies indicated that an inclusionary requirement on their part or that of the local zoning jurisdiction would generally be reflected in a lower FMV, either at the appraisal stage or in the range of bids received. Even if a transit agency cannot provide an outright discount, it can tailor the terms of a ground lease (especially the length and the payment structure) to support the financing of an affordable housing development. (For example, in a mixed-use project, it may be helpful for the developer to attribute the land cost to the uses most able to absorb it; this may require the transit agency’s help in structuring when and how payments occur.) Unless a discount in any form is legally unavailable, the best practice is to recognize the economics of affordable housing in setting or negotiating the land price for a given project. This

Economics of Joint Development 109   recognition could take the form of an explicit discount, as illustrated by the Sound Transit, LA Metro, and BART examples outlined above, or the implicit recognition of affordable housing subsidy requirements in the definition of FMV. Incentives and Subsidies Even if a transit agency is willing to accept a land discount, affordable housing development usually requires further support in the form of zoning incentives and financial subsidies. From a JD perspective, there are two types of affordable housing development: • Projects that are either 100% affordable or mixed-income with a majority of affordable units. These projects are typically undertaken by developers (either for-profit or non-profit) that work in the affordable housing sector and are familiar with established subsidy programs, such as the federal Low-Income Housing Tax Credit, New Market Tax Credit, state and local housing finance programs, and participation by community development corporations and their non-profit funding sources. • Market rate projects with a percentage of income-restricted affordable units, usually in the 20% to 35% range. The affordable components in these projects may be required by inclu- sionary policies or encouraged by favorable evaluation criteria. The affordable units in such projects are often subsidized within the deal itself, through the high profit margins of the most attractive units and by density bonuses included in zoning codes as an incentive. These two models of affordable housing development are not mutually exclusive, and some projects include elements of both. For example, BART’s JD project at MacArthur Station, and their project planned at Lake Merritt Station, each include separate all-affordable and market rate mixed-income developments. This strategy is an efficient way to bring the two different types of financing resources to the overall site.24 Both types of development benefit from reduced parking. In metropolitan markets where parking structures may cost upwards of $30,000 per space, removing that burden from the cost of affordable units (or the cost of the market rate units that subsidize them) is impactful. Evaluation and minimization of parking is a best practice in all forms of TOD/JD, but in the case of afford- able housing, it promotes both equity and sustainability. Households experience affordability as a combination of housing and transportation costs.25 Affordable units in immediate proximity to transit serve households that lack access to an automobile and therefore do not need parking, and those that would abandon the cost of car ownership (including parking costs passed on in their rent) if they could. Thus, one way a transit agency can enhance the financial feasibility of an affordable housing JD project is to secure, at the earliest possible stage, the incentives of a density bonus and reduced parking requirements. If these outcomes are already enabled by local zoning, the project plan should include them, to the maximum degree appropriate for the site in question, from the outset. If zoning falls short, the transit agency, as discussed in Chapter 3, should work with the local jurisdiction to secure a rezoning or overlay up-front or an agreement that relief will be available. The other way a transit agency can support affordability is to be an active partner in pursuing financial support from other levels of government. In addition to the infrastructure and eco- nomic development programs discussed previously, states and cities offer a menu of affordable housing finance programs: tax-exempt mortgage bonds; allocation (by state housing finance agencies) of the federal Low-Income Housing Tax Credit (and, in some states, parallel tax credits of their own); gap funding grants or below-market loans from affordable housing trusts; tax increment finance incentives; and others.

110 Guide to Joint Development for Public Transportation Agencies In most cases, the applicant for these programs is the developer, and the transit agency rightly assigns that responsibility to them as a precondition for signing a JDA or closing on the convey- ance. However, to the degree appropriate for each program, the transit agency should work with the relevant state or local officials to support worthy JD projects. The proper level of support may vary from simply being “on record” with a letter of endorsement to more active collabora- tion. In cases where the transit agency is able to provide a land value discount, that amount, once negotiated, may help qualify the JD project for other programs or even constitute part of the “local match.” This support is warranted because of the cost of subsidizing affordable housing, especially in expensive regional markets. A 2017 analysis of BART’s affordable housing policy, applied to the agency’s remaining portfolio of developable sites, estimated that 6,200 new units for low- and very-low income households would be required and that the cumulative subsidy costs could reach $36.5 million.26 In the survey of transit agencies, about one-third (including all of those that have adopted their own inclusionary requirements) indicated that they work with state, local, and regional housing finance agencies to one degree or another. For example: • MARTA worked with Invest Atlanta (the City of Atlanta’s development agency) to line up affordable housing subsidies for the Edgewood/Candler Park and King Memorial JD projects cited in the preceding section (see Figure 39). • Sound Transit works with affordable housing funders such as the City of Seattle, King County, and A Regional Coalition for Housing to align the affordable housing goals of a given site with funding incentives controlled by those entities. • Oregon Metro, the regional planning and service agency in Greater Portland, administers a robust TOD/JD program of its own that includes gap financing for affordable housing on Figure 39. MARTA’s King Memorial Station joint development.

Economics of Joint Development 111   privately owned sites. Oregon Metro also administers a regional housing bond, whose funding can be applied to eligible projects on private or public land. • Miami-Dade County has undertaken JD through a coordinated effort of Miami-Dade Transit (a county division) and the county’s Department of Public Housing and Community Devel- opment (County Housing). In 2016, a JD RFP for a portion of the Okeechobee Station park & ride lot was issued by County Housing, which committed to make bond funds available and support the developer’s pursuit of additional funding and financing. Endnotes 1. Center for Neighborhood Technology; see: https://htaindex.cnt.org/; http://locationefficiency.cnt.org/. 2. If the transit agency is supported in part by property tax contributions from member municipalities, the impact of induced TOD across a station area or corridor is reflected there as well. 3. When mandatory developer-funded improvements are recognized as part of the developer’s financial offer, there are methodological alternatives as to how it relates to the price the developer bids for the land. Some agencies instruct their appraiser to take the estimated cost of the required contributions into account, lower- ing the appraised FMV by a corresponding amount. In this method, the developer’s in-kind obligations are not part of the bid price but an addition to it. Alternatively, some agencies prefer to have the appraisal ignore in-kind contributions, leaving the valuation at a “natural” level recognizable to developers and then crediting the in-kind contributions as a “deduct” against the bid price. There are pros and cons to each approach; the key is for these obligatory costs to be recognized one way or the other and for the RFP to clearly tell proponents how their financial offer is to be structured. 4. Kilcoyne et al., 2015 (see Appendix E). 5. MARTA: https://www.itsmarta.com/uploadedFiles/More/Transit_Oriented_Development/TOD% 20Guidelines%202010-11.pdf, (p. 91 ff); MBTA: https://www.mass.gov/files/documents/2017/10/17/TOD_ Policy.pdf. 6. Willson, 2005B (see Appendix E). 7. Caltrain model: https://railvolution.org/wp-content/uploads/2018/11/Melissa-Jones-TOD-Parking.pdf. 8. Examples of parking facilities shared by park & ride and joint development uses include the WMATA, MARTA and King County projects described in Section 7.4 and the RTA projects described in Chapter 8. The research team is aware of several other examples, including the MBTA Beverly Depot commuter rail garage, shared with a JD apartment project, and the MBTA McGovern Intermodal Center in Lawrence, MA, in which commuter rail parking is shared with the public and with the mixed-use mill redevelopment across the street (which swapped the multi-modal station/garage site for a share of the parking). 9. Shoup, 2018; Willson, 2005A; Arrington and Cervero, 2008 (see Appendix E). 10. As of 2020, there is a proposal to demolish an existing, aging parking garage and replace it with a new and larger WMATA-owned garage to offset the loss of surface park & ride and provide parking for WMATA employees in the new office building. That new garage might include a new bus loop, enabling the existing loop, in a prime position adjoining the station, to be replaced with more development. 11. WMATA: https://www.wmata.com/initiatives/upload/New-Carrollton-FINAL-EE_2016-10-14.pdf. This project is also featured in the FTA joint development brochure: https://www.transit.dot.gov/sites/fta.dot.gov/ files/docs/funding/funding-finance-resources/joint-development/64731/joint-development-brochure.pdf. 12. See Cervero et al., 2017 (Appendix E). 13. King County Metro interview: https://kingcounty.gov/depts/transportation/planning/tod.aspx; https:// www.kingcounty.gov/council/news/2015/October/10-26-JH-PSRCaward.aspx; and Kilcoyne et al., 2015 (Appendix E, https://www.apta.com/wp-content/uploads/Standards_Documents/APTA-SUDS-UD-RP- 008-15.pdf). 14. MARTA, Atlanta Regional Commission, and Columbia Ventures interviews; https://courbanize.com/ collections/marta; https://atlanta.curbed.com/atlanta-development/2020/2/18/21141159/atlanta-apartments- marta-king-memorial-marta-transit-affordable. 15. Fridley: Metro Transit interview and https://railvolution.org/wp-content/uploads/2018/11/Pierce-Canser- TOD-Parking-RVPGH.pdf; https://www.metrotransit.org/Data/Sites/1/media/blog/nscorridor_report.pdf. 16. https://www.rtd-denver.com/projects/tod/alameda-station. 17. See, for example, Chapple and Loukaitou-Sideris, 2019 (Appendix E). 18. Among the pertinent literature, see: Hersey and Spotts, 2015, and Kniech and Pollack, 2010 (Appendix E). 19. As noted in Chapter 2, the principal exception to this statement is BART, which under a landmark enabling act amendment passed in 2019 (AB 2923) is granted certain zoning powers over land it owns within a

112 Guide to Joint Development for Public Transportation Agencies half-mile of a station. Miami-Dade Transit, through its parent county government, has direct input on zoning within certain station area territory. 20. BART: https://www.bart.gov/sites/default/files/docs/C-%20Affordable%20Housing%20Policy%20 Adopted%201-28-16_0.pdf; VTA: https://www.vta.org/sites/default/files/2020-01/Transit-Oriented%20 Development%20Policy%20%20-%20VTA%20Board%20Adopted%2012.05.2019%20Accessible.pdf; LA Metro: https://www.metro.net/projects/joint_dev_pgm/affordable-housing/; MARTA: https:// www.itsmarta.com/uploadedFiles/More/Transit_Oriented_Development/TOD%20Guidelines%202010- 11.pdf; Sound Transit: https://www.soundtransit.org/st_sharepoint/download/sites/PRDA/FinalRecords/ Resolution%20R2018-10.pdf. 21. https://www.soundtransit.org/st_sharepoint/download/sites/PRDA/FinalRecords/2018/Resolution%20 R2018-10.pdf. 22. https://www.metro.net/projects/joint_dev_pgm/affordable-housing/. 23. https://www.bart.gov/sites/default/files/docs/TODPolicy_BoardPresentation_2020-04-23.pdf. 24. BART interview. 25. See the Center for Neighborhood Technology’s Housing and Transportation Affordability Index (https:// htaindex.cnt.org/). 26. https://www.bart.gov/sites/default/files/docs/Funding-Affordable-Housing-Near-Transit-in-the-Bay-Area- Region_5917.pdf.

Next: Chapter 8 - Joint Development Horizon »
Guide to Joint Development for Public Transportation Agencies Get This Book
×
MyNAP members save 10% online.
Login or Register to save!
Download Free 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.

The TRB Transit Cooperative Research Program's TCRP Research Report 224: Guide to Joint Development for Public Transportation Agencies is designed to expand the successful use of joint development in North American transit systems—in the volume and variety of projects undertaken, the diversity of transit agencies participating, and the quality of outcomes achieved.

Supplemental to the report is TCRP Web-Only Document 73:Guide to Joint Development for Public Transportation Agencies: Appendices, the Executive Summary, and a long version presentation and a short version presentation of "Guide to Joint Development for Public Transportation Agencies."

  1. ×

    Welcome to OpenBook!

    You're looking at OpenBook, NAP.edu's online reading room since 1999. Based on feedback from you, our users, we've made some improvements that make it easier than ever to read thousands of publications on our website.

    Do you want to take a quick tour of the OpenBook's features?

    No Thanks Take a Tour »
  2. ×

    Show this book's table of contents, where you can jump to any chapter by name.

    « Back Next »
  3. ×

    ...or use these buttons to go back to the previous chapter or skip to the next one.

    « Back Next »
  4. ×

    Jump up to the previous page or down to the next one. Also, you can type in a page number and press Enter to go directly to that page in the book.

    « Back Next »
  5. ×

    To search the entire text of this book, type in your search term here and press Enter.

    « Back Next »
  6. ×

    Share a link to this book page on your preferred social network or via email.

    « Back Next »
  7. ×

    View our suggested citation for this chapter.

    « Back Next »
  8. ×

    Ready to take your reading offline? Click here to buy this book in print or download it as a free PDF, if available.

    « Back Next »
Stay Connected!