With most major American cities struggling with traffic congestion, air quality concerns, and workers weary of suburban sprawl and long commutes, housing within walking distance of public transportation is in demand. According to the Federal Transit Administration ("FTA"), by 2025, almost 15 million U.S. households will want to reside within halfa- mile of existing or developing rail systems. This demand for transitoriented development - or TOD - presents a significant opportunity for developers, particularly since local governments often view the expansion of mass transit (like light rail systems) into their communities as a catalyst for initiating development or redevelopment activities. By partnering with local governments, TOD developers can receive assistance with land assemblage, tax increment financing, enactment or modification of zoning or other land use restrictions (such as deed restrictions), funding infrastructure, and rallying community support.
While TOD is not a new concept in the United States, its growing popularity can be seen most clearly in places like Texas, where mass transit is just starting to gain acceptance. South Side on Lamar, adjacent to the Dallas Area Rapid Transit ("DART") Cedars Station in Plano, includes 457 loft units, fitness center, grocery market, coffee bar, and retail stores in an historic, renovated Sears catalog merchandise center. Mockingbird Station, a TOD located near Southern Methodist University in Dallas, includes residential lofts, restaurants, health club, movie theater, retail shops, and over 500,000 square feet of office space. Both are viewed as successful examples of TOD, creating a sense of community and a full range of services of which convenient public transportation is a vital part.
This sort of development, in turn, spurs the further expansion of mass transit. DART is working on a 35- mile expansion of its light-rail system that is one of six projects that has received a "recommended" rating from the FTA and may be approved for a full funding grant for fiscal year 2006 if satisfactory progress is made in the project's development. Houston's light rail system celebrated its first anniversary in January and the Metropolitan Transit Authority of Harris County ("METRO") plans to expand the 7.5- mile "starter" line into an expansive 80-mile light rail system. In January, METRO received a $1.96 million grant from the FTA to fund environmental impact studies on the expansion.
Not Just For-Profit
TOD can also benefit non-profit organizations, which often can take advantage of opportunities to sponsor developments that include affordable housing or community services. To help finance these types of projects, non-profits may qualify for tax credits or other private and public funding sources not always available to for-profit developers.
An excellent example of this type of project is Fruitvale Transit Village, built adjacent to the San Francisco Bay Area Rapid Transit District ("BART") Fruitvale Station in Oakland, California. Fruitvale Transit Village was a collaborative effort among BART, the Unity Council (a non-profit organization serving the area's Latino community), Fruitvale Development Corporation (the Unity Council's development arm), and the City of Oakland. The project was constructed in part on BART's existing surface parking lots, with parking spaces being relocated to structured parking. Fruitvale Transit Village includes senior and family housing (affordable and market rate), retail and office space (including a branch of Citibank, which provided the conventional lending for the project), a child development facility, a senior center, health care facilities, a computer technology center, and a branch of Oakland's public library, and features a broad pedestrian plaza linking the BART station to the project's central shopping district.
Issues To Overcome
While the potential benefits of TOD are significant, the legal hurdles can be as well. All normal development risks are present, but if the project involves mixed uses, those risks can be magnified. For instance, not only does the developer have to worry about the timing of the residential market, but also of retail and office markets, which may be moving in different directions. The same may be true of "NIMBY"-ism -- nearby residents may support housing development, but not office or retail, or they may welcome office or retail, but be concerned about high-density housing, particularly low- or moderate-income projects. In addition, zoning or other land use restrictions may not permit all of the contemplated uses, and the developer must evaluate the cost and difficulty of getting a variance in such cases.
The developer may face other hurdles unique to TOD. While some development sites may be owned by private parties, some or all of the land may be owned by the transit or redevelopment agency, or the developer may need governmental assistance for things like vacation of streets or government-financed infrastructure. Projects should be pedestrian-friendly, which may mean reducing the required parking ratios for residential or other uses and requiring that parking be located away from storefronts or housing entrances, being located instead underground or on the interior of the site.
In addition, the transit agency will have significant concerns regarding its operations if the TOD is in close proximity to transit facilities. Those concerns include making sure its trains run on time and without interference, its facilities (rail lines, power sources, platforms, station, etc.) are not impacted by construction or on-going operations, and its patrons have safe, convenient, and uninterrupted access to the station. The transit agency will want to monitor construction activities near its facilities and be able to step in and remedy critical problems in emergencies (such as damage to the rail line that prevents trains from running). If the transit agency has control over the land, as ground lessor or seller, it also may want to prohibit uses at the site that are not transit-oriented, such as large-box retail. The project may share parking facilities with transit patrons, in which case the developer and transit agency will want uses to be compatible with transit activities. For instance, parking needs for residential, retail, dining, and entertainment users are compatible with those of transit patrons (since their highest needs tend to be at opposite times), unlike the needs of office users.
TOD Is Worth The Work
Nonetheless, with the right vision, TOD can be advantageous to developers, residents, and communities. The benefits to developers are obvious: profits and an enhanced reputation. Transit agencies benefit by increased ridership, improved security through increased activity, and (when owners of the sites) income generated from ground lease payments or sales proceeds. Finally, communities benefit through increased property and sales tax revenue, increased property values, creation of a sense of place for residents, and, in some cases, neighborhood revitalization.
With the expansion of light rail and other forms of mass transit in many metropolitan areas across the country, combined with the success of TOD projects already built, expect to see a marked increase in TOD projects in the coming years.
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