A rendering of Tysons Corner, a northern Virginia suburb
of Washington, D.C., in 2050. The traffic-choked area
is being remade into a walkable, mixed-use community
served by Metrorail.
Members of ULI’s Transit-Oriented Development Council discuss the prospects for development around transit nodes—and the obstacles that remain.
What are the prospects for transit-oriented development [TOD] in the next couple of years?
Chris Leinberger: The future of real estate is intimately intertwined with TOD and walkable urban development in general. What used to be a niche market is now the market. For at least the next generation, the bulk of real estate development will be higher-density, walkable urban places, and much of it will be served by rail transit. There is significant pent-up demand for walkable urban, ideally rail transit–oriented development. In a good year, we only add 2 percent to the built environment, so the pent-up demand will be there for another 30 years at least.
Steve Wilson: A disproportionate amount of future development will be transit oriented—fueled by investor interest in TOD, which is at an all-time high. There is certainly a movement back to the urban area. Some of that is related to demographic changes, because members of the gen-Y cohort generally want to live, work, and play in the same neighborhood. Further, TODs are socially, environmentally, and economically responsible. In California, I paid $4.50 a gallon this morning, and too often I’ve been stuck in traffic on the freeway going nowhere. AvalonBay’s TODs around BART [Bay Area Rapid Transit] stations in the [San Francisco] Bay Area have found residents are willing to pay a premium to live at those locations rather than face longer commutes. Somewhere between 30 and 40 percent of our residents at TOD communities use BART on a consistent basis.
John Hempelmann: TOD is happening with increasing speed all over the United States, and it’s even happening in places that are famous for being auto-centric, such as Los Angeles and Phoenix. Everywhere in the United States—from Seattle, Portland, San Francisco, and Los Angeles on the West Coast, to Denver, Phoenix, Dallas, Fort Worth, and Austin in the middle of America, to Atlanta and Charlotte in the South—there is a lot of new investment being made in transit and in TOD. We have long had TOD in cities like New York, Boston, and Chicago, we just did not call it TOD. In our newer TOD environments, such as Washington, D.C., the Metro is a relatively new environment for high-capacity transit. The region is rapidly expanding its heavy-rail lines, which are under construction now in northern Virginia out to Dulles Airport. They already have some of the best "new" TOD in the world on the D.C. Metro line.
Neal Sleeper: It’s something of a mixed bag. There are many developers who like the idea of transit-oriented development and feel that transit adds to the marketability and financeability of their projects. The flip side is that the most effective TOD tends to be mixed use—some combination of retail, multifamily housing, office, or hotel. Unfortunately, in this market, many lenders seem to have a preference for single-use deals. The mixed-use aspect often makes financing more difficult.
John Cigna: The prospects are good in terms of a desire to build walkable urban communities. In cities that have existing transit, the desire to build around rail stops is great. There are studies out now that show that rents around a TOD are significantly higher than elsewhere. And generation X and generation Y want to live in urban settings, where TOD exists. So development will follow demand. The problem is that local, state, and federal governments don’t have the money to build new light-rail lines and stations. That’s the huge disconnect. They can provide tax breaks, which are valuable, but most rail lines cross multiple municipalities. Getting municipalities to work together is difficult, and they still come up short when it comes to funding.
Do lenders recognize proximity to transit as a benefit?
Hempelmann: Yes, we are seeing remarkable investments in TOD despite the recession, and now that we are coming out of the recession, we see it happening with an accelerated pace. It’s happening very quickly here in central Puget Sound. We have more developers, both local and from around the country, trying to buy parcels that are within a quarter mile [400 m] of a light-rail station.
Sleeper: If you’re comparing a multifamily or office complex that is adjacent to transit with one that isn’t, yes, lenders see proximity to transit as a benefit. But just being adjacent to transit does not necessarily make a project a transit-oriented development. It is the thoughtful orientation of multiple uses to transit that makes the best TOD projects. With many lenders, mixed-use projects are more complicated to finance.
If you’re comparing a multifamily or office complex that is adjacent to transit with one that isn’t, yes, lenders see proximity to transit as a benefit. But just being adjacent to transit does not necessarily make a project a transit-oriented development. It is the thoughtful orientation of multiple uses to transit that makes the best TOD projects. With many lenders, mixed-use projects are more complicated to finance.
Beyond light rail, what kinds of transit are most likely candidates for TODs?
Wilson: The trolley system is an excellent alternative and quite effective—it’s essentially the reinvention of the streetcar—and we’re starting to see more of them because they need less infrastructure. They can use the existing street. Portland certainly has done well with its trolley system, and Los Angeles is working on the streetcar to great effect.
Leinberger: I predict the following will happen by 2030: to get to work and other activities outside the home, people will probably still rely on cars as their primary transportation option, but instead of 90 percent like today, cars will account for 30 percent of the trips from home. Their second option will be walking: probably 25 percent of us will be able to get to virtually anywhere we need to go by walking. Number three will be bicycles: 15 to 20 percent of people will be able to get around their metropolitan area by bicycle. Light rail, heavy rail, and streetcars together will probably make up 30 to 40 percent of transportation use in the course of a day. Standard buses will make up 10 or 15 percent. Bus rapid transit [BRT] is a real unknown. It is yet to be proven, so my guess is at best 5 percent. And commuter rail will be about the same.
Hempelmann: Out in Long Island and north of New York all the way into New England, TOD is experiencing a renaissance along the commuter rail lines. Historically there hasn’t been much development right around the station areas there. Now the owners of those rail lines and nearby properties are redeveloping the park-and-ride lots around the train stations. The high-speed rail initiative is intended for a few corridors, but it’s too early to tell if that will really happen. And there will be nowhere near the TOD opportunities that there are on the existing heavy-rail mass transit lines or on light rail. High-speed rail lines will be interurban, and TOD happens around urban lines.
Is there a role for bus rapid transit?
Leinberger: For both commuter rail and bus rapid transit, we don’t yet have documented evidence that they create economic development around transit stations. We do have proof that streetcars, heavy rail, and light rail do. Ultimately, the goal of building transportation, such as rail transit, is economic development; the means is moving people. We generally get the means and ends mixed up in deciding to build rail transit.
Sleeper: I’m not aware of any places where bus rapid transit has had the same impact as rail transit. There’s a certainty with a rail system in front of a project: people know that that rail line isn’t likely to be moved. That may not be the case with bus rapid transit.
Cigna: The fear with BRT is a lack of permanency. If I’m going to develop around a transit stop, I want to be assured that that the transit stop won’t leave. I think BRT can work, because it’s much more cost-effective, but the buses need a dedicated line. Maybe BRT can be a precursor to actually putting in rail: it can prove there is substantial ridership. But people still want to come to a platform and board a vehicle; they are less interested in buses that have to travel neighborhood streets.
What obstacles are there to meeting the demand for TOD?
Sleeper: In suburban markets and even in less dense inner-city markets, parking is often an issue. Developers of TODs often find themselves looking for some type of public subsidy to make the parking part of the equation work. That’s particularly hard given the state of public sector budgets these days.
The Washington area’s rail system is being expanded with
construction of new stations at Tysons Corner and, farther
from D.C., rail lines extending to Washington Dulles
Cigna: Congressional gridlock over the federal transportation bill was a big obstacle. Even with it passed, the majority—more than 80 percent—of the transit bill goes to roads and bridges. So there is a definite disconnect there.
Wilson: On the public side, the elimination of redevelopment agencies has been a big disappointment in California. That will be tough to overcome. Public/private partnerships are often the way to move projects forward, but the public side has very limited capital availability and thus is pushing more onto the private side. One way to offset that is the concept of value capture, based on the idea that if you build a station or transit hub on one parcel, the adjacent parcels will benefit. Tax increment financing, Mello-Roos financing, and other funding mechanisms can accomplish that. The prospects for those approaches are improving, but nowhere near as rapidly as they need to.
Leinberger: The first obstacle is that high-density walkable urban development is still illegal in most jurisdictions. So we have to change that legislation and zoning. The second is NIMBY opposition. We are understanding how to overcome that, and many NIMBY opponents are becoming proponents; they have become YIMBYS—yes in my backyard. This is because in the neighborhoods around walkable urban places, particularly the single-family neighborhoods, the quality of life goes up, which translates into higher price premiums for their houses. The third obstacle is infrastructure. We need to put in a new kind of infrastructure, and the federal government is not leading the way. There have been hundreds of local ballot initiatives over the last six to eight years to fund rail transit throughout the country. The amazing thing is that 70 percent of those have passed. The dysfunction of Capitol Hill is disappointing, but where there is a market will, there is a way.
Hempelmann: The major obstacle is finding the dollars. Light-rail systems are expensive to build. Seattle is spending $15 billion on phase two of its light-rail system, and 90 percent of that comes from local taxes. The other obstacle that we confront all the time is that most of the light-rail stations are in areas that have many different ownerships of property, so assembling the parcels you need for development is a big challenge. In a lot of cities, including Seattle, many of the property owners are hard to find. They might be in Europe or Asia, and they may not want to sell. There are few cities that want to condemn properties for TOD. To some extent, the third challenge is changing the way people live from an auto-centric culture to a culture where people will walk and take high-capacity transit. But that is happening, and it’s happening because the price of gas is rising and because the younger generations have nowhere near the affection for automobiles that my generation and my father’s generation had.