A reliable, affordable and extensive public transportation system is vital to the continued health and future growth of our nation’s cities. But some of our largest metro areas face this big challenge: A significant backlog of underfunded transit capital projects.
Through a process called value capture, the private commercial property industry can play a critical role in funding transit improvements needed to keep cities strong. In turn, properties can grow in value from proximity to a new rapid transit station or other transit development.
Here’s how the process usually works. Municipalities secure partial funding for transit projects through these two forms of value capture:
- An ongoing tax or fee tied directly to the size and scope of the property. The most common methods are creation of a special assessment district, through tax increment financing or by floor area ratio marketplace factors.
- A pre-determined financial commitment from the developer, such as a joint development or project cost-sharing agreement.
Last year, a research team from the Urban Transportation Center at the University of Illinois at Chicago completed research into value capture practices in four major U.S. metro cities and produced a report, “Value Capture Coordination: Case Studies, Best Practices and Recommendations,”
Two key conclusions were drawn: Value capture practices can be successful if municipalities, transit agencies, community groups and developers agree to terms in the initial stages of the development process; and, if all parties support the concept and employ staff skilled in transit planning and funding.
Researchers prepared funding case histories in Chicago, Washington, D.C., New York and San Francisco and found out that the process was employed differently — often dramatically — in each metro area.
For example, in New York, two independent taxing bodies were created to manage funding and planning for the expansion of the Metropolitan Transportation Authority (MTA) Number 7 line subway to serve commuters and residents in Hudson Yards. The neighborhood, located on the west side of Manhattan, has experienced significant commercial, residential, and retail redevelopment in recent years and is close to the Jacob K. Javits Convention Center. Following negotiations launched in 2005, developers, the city and the MTA finalized three value capture mechanisms – floor area ratio, payments in lieu of property taxes and grants to negate mortgage recording taxes – to fund the $2.3 billion project, now 90% complete.
The process to build the NoMa-Gallaudet U Red Line metro station in Washington took a different, yet successful course. Years before work began on the station, the District’s Department of Housing and Community Development led coordination between area developers and Action 29, a private civic group. A special taxing district was established and $25 million was raised to fund station construction, which totaled $103.7 million. Since completion in 2004, there has been $3 billion in private investment near the station.
Public transportation improvements yield many benefits. Better transit can strengthen a business district, give workers greater access to jobs, improve accessibility and increase property values. Transit value capture offers commercial real estate developers a viable way to enhance their real property assets and improve livability within the community.
By: Stephen Schlickman (Guest blogger The Source)
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