RV 2014: HSR for Midsize Cities: TOD Lessons from Near and Far by Eric Eidlin
RV 2014: TOD Market Dreams + Reality by Christine Maguire
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Transcript of RV 2014: TOD Market Dreams + Reality by Christine Maguire
TOD Market Dreams + Reali1es Rail-‐Volu1on 2014 Minneapolis, MN September 22, 2014
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Discussion Agenda
§ TOD in (my version of) context
§ Current trends in the marketplace
§ Key Actor PerspecHves on TOD
§ Lessons Learned
§ Discussion / Q&A
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TOD: A Brief (revisionist) History
Development Pattern Technology Time Frame ExampleSteam-powered commuter rail
mid-1800s New York, San Francisco
Electric streetcar and horse-drawn carriage
late 1800’s to early 1900s Pacific Electric Railway in
southern CA, Chicago “L”)
Auto-oriented Development
Auto dominance Post WWII Suburbs spurred by Federal Interstate Highway System
Transit-Related Development
Rail and bus transit Post Urban Mass Transit
Act of 1964
Lease-revenue focused joint ventures with transit
agencies
Transit-Supportive Development
Rail and bus transit 1980s - present Lease-revenue and
ridership focused joint ventures
Development-oriented Transit
Source: Institute of Urban and Regional Development Working Paper 2009-02
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Which One is It?
Development-oriented Transit (transit-lead high density development)
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Which One is It?
Right: Santa Clara Valley Light Rail Authority Top LeQ: Phoenix Metro (Tempe) BoSom LeQ: Dallas Area Rapid Transit (DART)
Transit-related Development (auto-lead low density development)
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Which One is It?
Transit-supportive Development (high density mixed use development)
Right: Norfolk, VA Top LeQ: Capital Metro proposed Leader StaHon BoSom LeQ: Murray, UT proposed Fireclay StaHon
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It’s about the residen1al
density, darn it!!
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Market Demand: The Two Key Demographic Cohorts Want TOD
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But This TOD Stuff is Expensive
Development Costs § Higher density building costs – elevators, building codes for safety and energy efficiency § Upgrade exisHng infrastructure if urban infill § Need structured parking
Market Rental Rates § First project must “prove up” the market § Retail si1ng requirements rule regardless! § Dictated by space supply and demand
Entry Costs § Regulatory “brain death” factor (by-‐right density?) § Land cost and ability to assemble § Few developers can successfully carry this off
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Developer Perspec1ve on TOD
§ Debt is scarce, Equity is expensive and Costs are substanHal When: Costs > Debt + Equity
§ “Finance, finance, finance is the new locaHon, locaHon, locaHon.” (Kirk Williams, Cypress EquiHes)
§ Intense compeHHon for expanding development “market share” requires product differenHaHon: sense of place
§ City Policy through comprehensive planning and zoning regulaHons (ease of obtaining density?)
§ LiSle to no appeHte to construct speculaHve commercial development -‐ established markets with demonstrable (not proforma) demand
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Lender’s Perspec1ve on TOD – RISK!! § Banks have liSle to no appeHte to finance specula1ve development
§ Bank regulaHons limit the amount of construcHon financing
§ Small pool of seasoned developers & contactors
§ Underwrite on the separate parts and as a whole: Can the other piece carry the retail porHon?
§ Credit quality important for commiSed tenants on the commercial piece
§ RelaHvely long financing and en1tlement lag -‐ higher carry costs and higher risk
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Retailers Perspec1ve on TOD § Banks have liSle to no appeHte to finance specula1ve development
§ Main focus = successful business operaHons = WORKING CAPITAL
§ Banks have liSle to no appeHte to finance specula1ve development
§ Main focus = successful business operaHons = WORKING CAPITAL
§ Rent and tenant improvements take away from working capital
§ If making a profit requires walk-‐in customers, needs to be criHcal mass of walk-‐in customers in the near term (density and access)
§ Does more retail make sense? Synergy or starva1on
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Lesson #1: Public Subsidy is Essen1al
Reducing Development Costs § Federal tax credits for housing and/or energy efficiency § By-‐right higher density zoning § Expedited permigng and review § Fee waivers § City CIP investment in infrastructure § Tax Increment Financing (TIF) and tax abatements § Federal/Regional/State grants Removing Barriers to Entry § Land assemblage/swaps § Below market land lease § ROW/street abandonment
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Lesson #2: Residen1al Density Leads
Transit Type DU/AcrePersons/ Sq. Mile
Bus - minimum service 4 6,192
Bus - Intermediate Service 7 12,096
Bus - Frequent Service 15 25,920
Light Rail 9 15,552
Rapid Transit 12 20,736
Source: Mineta Transportation Institute
§ Need high residen1al density (approximately 15,000 persons/ sq. mile) to sustain light rail
§ Synergy between housing, retail and transit only if easily walkable
§ People only willing to walk 2,300 feet for general purposes
§ Commuter support of transit needs residen1al density at both ends
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Lesson #3: Retail Follows § Retail is a business opera1on
– rent subtracts from service
§ Retail site loca1on science: (cluster, scale, access, visibility, zoning, consumer preferences, compeHHon and capture)
§ Free rent won’t change bad fundamentals
§ A vacant development is worse than no development
§ MANAGE EXPECTATIONS
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Chris1ne Maguire, AICP, EDFP Senior Manger ◊ DPFG
609 Castle Ridge, Suite 310 AusHn, TX78746
512-‐732-‐0295
Discussion and Q&A
“If you ask me a ques1ons I don't know, I'm not going to answer.” -‐-‐-‐ The Immortal Yogi Berra