TOD Insights

TOD Insights are periodic email publications that provide perspective on creating successful TOD projects. They are purposefully kept short for easy digestion. New Insights will be added as they are completed.

Move TOD Forward by Harnessing the Power of the Market (Insight 1)

When community visions, zoning, and public investments are in sync with market forces development opportunities are created. Leveraging market forces leads to more completed projects that achieve long-term operating success. It can also speed project delivery, lower development risk, and result in more efficient allocation of resources. Obtaining a clear understanding of the market dynamics is the first step in moving TOD forward.

Meeting the Market (Insight 2)

Increasing development density around transit stations results in more ridership and a better return on transit infrastructure investments. The challenge is to push density as high as the market will allow without the need for substantial subsidy. General rules of thumb are useful for understanding the scale of development most likely to succeed in the market.

Apartment rents offer perspective about the appropriate scale for residential development. For example, in a market where apartment rents are $1.00 per square foot per month, wood-frame townhouses may be the appropriate scale of development. On the other end of the spectrum, in a market that is achieving rents of $3.00 per square foot or more, mid and high-rise development may be feasible.

Land values offer perspective about the type of parking that is economically viable. For example, when land values are less than the cost to create structured parking, it is economically attractive to build surface parking. Conversely, when land values are greater than the cost to create structured parking, money is more likely to flow to into structured parking.

A basic understanding of local market conditions, combined with a few general rules of thumb, provides insight into the scale of development that will be accepted in the marketplace.

TOD Advocacy – How to Have the Biggest Impact (Insight 3)

Transit agencies, particularly those that are actively expanding their transit systems, often end up with surplus property within close proximity to transit service. While these properties may represent great TOD opportunities due to their immediate proximity to transit service, they typically account for less than 2% of the total developable property within the 1⁄2 mile station area. They also tend to receive a disproportionate amount of planning resources, public policy focus, and stakeholder interest. The remaining 98% of the developable land generally receives less attention.

TOD advocates can have the biggest impact by focusing on the 98%. The development that occurs on land owned by others (much of it controlled by the private sector), is what will ultimately determine the character and density of the greater station area.

A few key initiatives to help create better TOD opportunities on these properties are:

  • Encourage frequent transit service.
  • Encourage transit routing that allows TOD occupants to reach a wide range of destinations.
  • Enhance walkability by removing barriers and improving the efficiency of the street grid.
  • Put plans, policies, and regulations in place that are consistent with market conditions.
  • Provide incentives for developers that contribute to the bottom line.

TOD Advocacy – Transit Agency Owned Properties (Insight 4)

To control costs, transit agencies work to minimize land acquisitions for new transit systems. Generally, there are three events that result in agency owned surplus real estate that can be used for TOD. The first happens when property acquired for construction laydown or staging is no longer needed. The second occurs when a park and ride lot is underutilized. In the third situation, market conditions are such that development of air-rights over existing facilities is feasible.

Transit agency owned property typically represents less than 2% of the roughly 500 acres of land located within the standard 1⁄2 mile transit station area. However, the properties can be ideal for TOD, offering immediate access to transit service and high visibility. In advocating for TOD on agency owned properties, recognizing the following dynamics leads to better project outcomes:

  • The public property disposition process is often complex.
  • Publicly owned properties are frequently subject to special regulations.
  • Market conditions play a role in all almost all TOD projects. For example, many affordable housing projects depend on the market for tax credits.
  • Transit infrastructure can influence the desirability of a TOD site. For example, a property located adjacent to an elevated guideway may be less desirable than a similar property located a block or two away.
  • Projects that align with market conditions can catalyze future development.

Catalyst Projects (Insight 5)

A catalyst project in an unproven market can pave the way for more development. There are two primary benefits to pursing catalyst projects. First, a catalyst project can generate activity to achieve placemaking goals. Second, project feasibility and financing are typically evaluated on the performance of similar developments. Successful market-rate catalyst projects can prove the market and reduce financing barriers by creating comparable rental rate data.

When evaluating catalyst opportunities, it is important to consider the following:

  • Recognize that real estate markets are cyclical and avoid catalyst projects that depend on top-of-the- market conditions.
  • Both the amount of, and location of parking within a catalyst project must be carefully considered. There is often a tension between market requirements and placemaking best practices. This is particularly challenging before new transit service is operational.
  • Avoid projects with large financing gaps, or that are so specialized that they don’t provide a relevant comparable for future projects.
  • There is typically a limited supply of subsidies and incentives – catalyst projects should aim to prove the market for economically self-sustaining projects.

Development Incentives (Insight 6)

Development incentives are often used to foster TOD projects. Incentives can take many forms; direct financial subsidies, zoning bonuses, property tax abatements, permit fee waivers, expedited project reviews, public infrastructure investments, and tax credits are examples of commonly used incentives.

If the property is owned by a public entity, other tools may also be available including land write downs, delayed closings, and development agreements designed to reduce uncertainty. Selecting the appropriate type of incentive(s) to use and determining how they are employed is worth careful consideration. Insights into how to get the most out of development incentives include:

  •  Keep it simple – Developers may not take the time and money required to deal with overly complex incentives.
  • Incentives should add real value. For example, a height incentive doesn’t add real value if the market won’t support the extra height.
  • Calibrate incentives to the market. The value of incentives may change with market conditions.
  • The supply of subsidies and incentives is limited – build a plan that aims to create an economically self- sustaining place.
  • Assess all available incentives to ensure that they are not countering one another.