For those of us who attended the annual ULI Fall Meeting that occurred in New York City this October, there were plenty of value capture stories floating around the Javits Center that perked our ears. For one, the conference took place next to the construction site of Hudson Yards. A public-private partnership coordinated by the Hudson Yards Development Corporation, the project's unprecedented scope and scale (the developer's description is much more compelling) is made possible by an extension of the MTA's 7 Subway line from Times Square to the heart of the development area. In addition to building on-site public amenities, the developers are paying for the air rights over the MTA West Side Rail Yards. It's well worth a visit. Comparisons between Hudson Yards and value capture opportunities across the U.S. were frequently made by ULI session panelists. In one newsworthy instance, the head of Amtrak discussed opportunities to monetize their real estate assets along the Northeast Corridor in the same manner as Hudson Yards and Atlantic Yards in New York. “We own a ton of real estate assets, and they’re all in center-city areas in very active, vibrant places where development is a true opportunity,” Coscia said at the conference. Selling or leasing sites “would have the benefit of helping urban development in places where we have a very significant service area, but equally a financial value to Amtrak, because we could monetize real estate assets.” Amtrak is undertaking feasibility assessments through the first part of 2015. It will be interesting to see how many markets can support the level of infrastructure required to build over active rail yards.
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I'm always amazed at how frequently the extreme case of Hong Kong's MTR introduces people to the concept of value capture and excites them enough to write about it in the public realm. In another such case, a writer at Market Urbanism has taken the bait and gotten hooked! In the process, Jeff Fong's two part post (part 1, part 2) also provides some insights from the economist's perspective.
Fong discusses the market efficiency of the Hong Kong's institutional structure. He suggests that high TOD transaction costs motivate consolidated/integrated firms like MTR (which he contrasts to vertically disintegrated firms that have relatively low transaction costs while coordinating to produce Apple's products). By owning property near its transit stations and acting as land developer, MTR significantly reduces the costs that would be borne by separate entities. In the US, where such institutional combinations are improbable due to the politics surrounding private property rights, we're unlikely to see an MTR-like agency arise. Thus, based on Fong's arguments, we won't see transaction costs internalized and reduced by a property-oriented transit agency and we won't see transit agencies achieve market efficiencies in the ways experienced by MTR in Hong Kong. Jarret Walker over at Human Transit just laid out an argument to develop park-and-ride lots. It's a classic value capture scenario because the agency already owns the land and gets to charge the vertical developer for use of the property. There's more to Jarret's arguments than one might read, and even more nuance to interpreting the ideas than Jarret might have intended. Here's some of Jarret's argument: Let's start with the basic math. Well, there are some nuances worth discussing if we're thinking about applying this generally across the U.S. context. For example, he uses "really great transit" to qualify what generates high land values. The United States doesn't actually have a lot of really great transit out there. Therefore, I wouldn't expect there to always be a high increments of value generated by transit.
Second, presuming low land value around stations makes some sense. As noted above, there's some pretty bad transit out there (that doesn't add much value) and some pretty low land values in the United States. Sometimes the two shall meet. Therefore, in the U.S. context, presuming low land value around some transit stations is appropriate and assuming high land value around all stations is inaccurate. In many cases, a surface parking lot or a structure parking facility could be determined to be the highest and best use of the land around a transit station. Additionally, there are some fundamental issues with the relationship between parking prices, land values, and higher/better/optimal land use set forth in the argument. For one, relying on land value to signal when there is a higher use is not a very useful statement because it is so difficult to quantify such things and land value may be an inaccurate measure of higher/better land uses. We generally don't see public or private institutions accurately quantifying land value because it's data intensive, relatively difficult, and highly volatile. In fact, people generally talk about land value in hypothetical or relative terms. So, unless your in the rare county that is required to maintain updated land value assessments, you're relying on instincts and best guesses to determine land values. Also, it's not so easy to use land value to determine when there is a higher use. For one, there are no hard and fast rules on what land values correspond to what land uses. Further, the value of a parking lot to a transit agency or to society may not be fully reflected in the land value and it might be the case that a parking lot is an optimal use from some perspectives (though not Jarret's). There's certainly an analysis that can be done from the transit agency's standpoint to determine if a "higher use" exists besides free or "underpriced" parking (it's much harder from society's vantage point because of all the variables and the subjectivity of many of the measures). To argue for the reduction in ridership at stations that might occur after replacing park-and-rides with development (see Duncan's work for a grounded scenario or Levinson's back of the envelope argument that refers to Jarret's post), you'd have to argue that the dollars paid by the vertical development more than offset the loss in fares and ridership-based subsidies earned by the transit agency (recall that transit subsidies in the U.S. cover capital costs and operating costs largely based on ridership numbers--arguably a poor practice but our current reality nonetheless). Essentially, the vertical development can pay for access to the land and more. As noted above, there are many stations located in places where land values are low and vertical real estate development is financially infeasible such that real estate subsidies would be required (hence all of the direct TOD subsidies, tax credit programs, etc.). Finally, saying that free or underpriced parking is making a higher investment in parkers than other riders could also be described as price discrimination, a regular practice (e.g., cable bundle prices) that respects the demand curve to optimize efficiency and revenue yield. Consumers' demand for for goods and services varies. Some are willing to pay more and others less. To serve more, you can lower the price for everyone (e.g., free transit) or you can discriminate by offering different prices to different people. Those people who drive to a park-and-ride facility are exhibiting one willingness/ability to pay while those who take the bus to the station are exhibiting another willingness/ability to pay. With different options, transit agencies are able to cater to different market segments while maximizing ridership and maybe agency revenues (including subsidies). Furthermore, to offer different options for transit station access, including appropriately priced parking (which is sometimes free in the U.S. context), is the same argument that transit advocates often make for offering transit as a travel option more generally. Please let me know if you find other issues with these arguments, mine or Jarret's. The annual Rail~Volution conference--and event that promotes expanded rail transit capital investment, transit operations investment, and transit utilization--consistently highlights value capture as a theme. This year's september meeting was no different. However, the Minneapolis-St Paul conference location did make it easy for David Levinson, a big value capture researcher/proponent also know online as the Transportationist, to participate in the session. Here's his post on the event with a link to his presentation from the session.
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AuthorIan Carlton is a transportation and land use expert specializing in transit-oriented development (TOD). He helps clients - including transit agencies, planning departments, and landowners - optimize real estate development around transit. Archives
March 2019
CategoriesSpecial thanks to Burt Gregory at Mithun for permission to use the Portland Streetcar image above.
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