Transit Related Development Approaches

Transit related development is viewed differently by different agencies and regions depending on the status of the transit facility when the development is committed. However, the common thread between all of these definitions is that transit related development involves pedestrian-friendly, higher-density development near transit facilities. Within the transit industry, transit related development is generally defined as "a pattern of dense, diverse, pedestrian-friendly land uses near transit nodes that, under the right conditions, translates into higher patronage." 7 Transit related development typically includes higher density residential, commercial, and/or retail developments within a ¼- to ½-mile radius of transit stations and stops. Mixed use development is a common element of transit related development.

Transit related development can provide financial support for transportation infrastructure through four formalized development opportunities:

• Transit-Oriented Development;

• Joint Development;

• Business Improvement Districts; and

• Tax Increment Financing.

These opportunities are discussed in greater detail below.

• Transit-Oriented Development. Transit-oriented development (TOD) is commercial and residential development that is a consequence of proximity to an existing or recently opened transit station or terminal. TODs may involve the partnership of private developers with local governments, development agencies, and transit agencies in order to enhance the land use surrounding a transit facility. Transit agencies or local governments frequently own land located near existing or future transit facilities that is not being used, or could be put to a higher use. Developers are continuously looking for new development opportunities, and the location of available land with good access to transit is attractive for new development or re-development. With TOD, the private developer is solely responsible for the financing and risks associated with constructing the development on publicly owned land. Local governments may also play a role beyond that of land owner; they can provide incentives to developers in the form of density bonuses, rezoning, relaxing parking requirements, and streamlining regulatory requirements. It takes the commitment, communication, and coordination of all these public and private groups to make TOD successful.

The benefits of TOD are quite varied and extend well beyond transit usage. Exhibit 2.6 summarizes the primary and secondary benefits from the perspective of the public and private sectors.

Exhibit 2.6 Public and Private Sector Benefits and Risks of Transit-Oriented Development

• Joint Development Agreements. In a joint development agreement (JDA) a transit agencies works directly with a private developer in planning and executing a project, prior to its completion. A JDA is project specific, dealing with the development on, above, or adjacent to land owned by a transit agency. With joint development, the transit agency provides developers with the right to design and construct a residential, commercial, retail, or mixed use building on or above transit property in return for a negotiated payment. Developer payments to transit agencies vary significantly and may include an annual lease payment for a specified period of time as well as the construction of transit facilities, such as portals to transit facilities, parking facilities, and station facility improvements.

The form of joint developer payments are project specific and depend on the benefits and needs of the developer and transit agency. The many forms of payment arrangements include:8

- Ground Lease - A ground lease involves an annual rent payment to the transit agency for the right to develop property owned by the transit agency. The length of the lease agreement must be long enough for the developer to receive an acceptable return on investment from the rents it charges to the occupants of the development. When the lease expires, ownership returns to the transit agency.

- Air-rights Lease - An air-rights lease is similar to a ground lease in that it involves an annual rent payment to the transit agency for an agreed upon period of time; however, the lease is for the right to build the development above the transit station. The length of the lease agreement must be long enough for the developer to receive an acceptable return on investment from the rents it charges to the occupants of the development. When the lease expires, ownership returns to the transit agency.

- Operations Cost Sharing - Operations cost sharing involves the sharing of certain operations costs between the transit agency and the development. Common examples include ventilation systems, parking, and utilities.

- Construction Cost Sharing - Construction cost sharing involves the developer paying for portions of the transit agencies construction costs, such as parking facilities, building foundations, access portals, transit centers, and bus shelters. Construction cost sharing is one type of joint development that is easily applied to bus service as well as rail.

- Station Connection Fee - A fee (may be one-time or annual) charged by transit agencies to a developer for the right to connect its development directly to the transit station. The connection allows riders direct access to properties without having to go outside the transit station.

- Negotiated Private Contribution - Transit agencies negotiate directly with developers to receive private contributions to transit facility improvements. The value of the contributions is based on the benefits received by the private developer from the transit investment. These contributions are generally a one-time payment.

- Benefit Assessment District - A geographic benefit district is established around a transit station. Property owners within the benefit district are then assessed a fee based on the benefits they receive from the transit facility or improvement to help finance its construction. Residential properties are frequently exempted from the assessment.

- Equity Partnership - Equity partnerships involve the exchange of certain assets between the transit agency and the developer, such as a land sale. Some joint development agreements enable transit agencies to keep land sale proceeds, particularly if the development is supportive of public transit.

- Incentive Agreement - Incentive agreements involve the developer contributing or sharing the costs of transit investments, such as station connections or improvements, in return for density bonuses that allow the developer to add additional floors or space to their development, rezoning of property, or relaxing parking requirements.

The primary benefits of JDAs for public transit agencies include increasing agency revenues through increases in ridership, the generation of lease payments, capital or operating contributions, or one-time fees, as described below:

- The mixed use development at transit stations attracts additional riders to the transit system, thereby increasing fare revenues;

- JDAs may generate private sector capital and operating contributions as well as annual lease payments for transit agencies. These additional annual revenues and capital and operating contributions diversify transit agency funding and help offset some of the agency's on-going capital and operating expenses.

In addition to the revenue benefits, JDA offer other secondary benefits or societal improvements, including:

- Increased economic activity and vitality of station areas;

- A safer environment around transit stations or terminals; and

- A more aesthetically pleasing place to live, work, and visit near transit stations or terminals.

These benefits may be secondary for transit agencies, but they are the primary benefits for private developers. Without these economic, safety, and attractiveness benefits, the private developers would not be interested in participating in joint development activities because the developer would not be able to attract the residential, commercial, and retail tenants necessary to make their investment profitable.

• Business Improvement Districts. Business Improvement Districts (BIDs) assess properties located within a defined geographic area to finance a variety of enhanced services in the area including security, maintenance, marketing, economic development, parking, transportation, and special events. BIDs usually are managed by a quasi-public agency or a nonprofit organization under the direction of a board composed of representatives from the various business and property interests within the district. Historically, BID transportation projects have focused on pedestrian facilities and movement within the district; however, as accessibility and congestion levels increase and impact economic development, BIDs have started to take on a greater role in transportation planning and initiatives. In some areas, BIDs have contributed to the financing of new or expanded transportation services in order to enhance the economic activity and growth in the district. In addition, some BIDs have sponsored transportation enhancements or improvements to take advantage of available government grants to fund transit project costs.

If the businesses and property owners within BIDs understand the benefits of transportation programs on economic activity and property values in the district, BIDs are more likely to contribute funding to transportation projects. In new developments, transportation initiatives offer the ability to provide better access to the district, generating more traffic and economic activity. Additionally, as congestion levels increase in existing districts, transportation improvement initiatives can move more people more efficiently through the district and increase economic activity. From the public transportation agency perspective, the potential benefits of including BIDs in transportation infrastructure projects include:

- Providing access to property tax assessment revenues;

- Increasing revenue diversification;

- Creating partnerships with businesses and property owners within the district; and

- Coordinating transportation services with other services provided by the BID.

• Tax Increment Financing. Tax Increment Financing (TIF) is a tool used by municipalities to help finance the redevelopment of areas within a community through increased property taxes from the enhanced value of property (both developed and undeveloped) resulting from the implementation of infrastructure and service improvements. Localities may establish TIFs with the approval of property owners in the district. A TIF district is usually administered by local government officials or a quasi-public agency with the direction of a board or commission that makes the decisions on how and where the revenues will be applied. Tax increment financing uses the future increases in property tax revenues to finance current infrastructure investments (including transit and other transportation facilities). The idea behind the TIF is that the infrastructure investments will increase the value of existing property within the district as well as encourage new development that expands the tax base. As a result, private investors are willing to provide upfront capital for these investments because the debt service will be repaid through the increase in future property tax revenues.

A TIF does not increase the property tax rate in the district; rather, it dedicates a portion of future growth in the district's property tax revenues due to an expanded tax base for a specified time period (usually 20 to 25 years) to meet the debt service payments for the infrastructure investment. The primary benefits associated with using TIF to fund transportation investments include:

- Providing access to capital financing markets with a dedicated revenue stream for debt repayment; and

- Providing access to new revenues without increasing taxes.

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7 Cervero, Robert (Principal Investigator). TCRP Report 102: Transit-Oriented Development in the United States: Experiences, Challenges, and Prospects. Transportation Research Board, 2004, p.7.

8 Cervero, Robert (Principal Investigator). TCRP Report 102: Transit-Oriented Development in the United States: Experiences, Challenges, and Prospects. Transportation Research Board, 2004, pp.25-32.