Management & Operations

Hot Projects Highlight Rising Trend in Transit-Oriented Development

Posted on February 1, 2002 by Steve Hirano, editor

At the corner of Hollywood Boulevard and Highland Avenue in the heart of Hollywood, Calif., a splashy retail/entertainment complex jointly developed by TrizecHahn, the L.A. Community Redevelopment Agency (CRA) and the Los Angeles County Metropolitan Transportation Authority (MTA) is ready for its close-up. “I always tell people that this will be the highest-profile transit-oriented development in the world,” says G.B. Arrington, a transit-oriented development specialist for Parsons Brinckerhoff. The MTA hopes so. One of its Metro Red Line rail stations is situated directly below the $615 million development, which covers 1.2 million square feet and includes 70 retail shops and restaurants, a six-screen multiplex and the 3,500-seat Kodak Theater, the new permanent venue for the Academy Awards. The Red Line subway portal, with its swooping metallic canopy, emerges on Hollywood Boulevard, sandwiched between a Tommy Hilfiger shop and a Banana Republic outlet. The MTA would be pleased but not surprised if the Hollywood/Highland station becomes a popular destination spot. Early indications are in the affirmative. After the complex opened on Nov. 9, 2001, boardings and alightings at the Red Line subway station more than doubled in the following week, from 9,276 to 18,552. “The Hollywood and Highland development project is a good example of what really works well in transit-oriented development,” says Arrington. “It’s helping to revitalize Hollywood. That’s where transit-oriented development becomes so powerful — when it becomes part of community building, not just moving people.” The MTA is also generating significant income from its participation in the project. Real estate developer TrizecHahn is leasing 1.35 acres of MTA property for nearly $500,000 per year. The 55-year lease allows for rate increases every five years based on the Consumer Price Index. “We also get a small percentage of the net cash flow from the retail revenue,” says Carol Inge, MTA’s deputy executive officer for transportation development. Although getting a fair return on the use of the land was important to the MTA, there were other considerations. “First and foremost, it’s an enhancement of the transit system, not only to attract new riders, but also to help create a lively destination,” Inge says. Two years of negotiations among the MTA, CRA and the city of Los Angeles were required to finalize the project. “It all happened fairly smoothly for such a big development project,” Inge says. “The CRA and the MTA worked very well together.” Adds Arrington: “It’s the most complicated real estate transaction in the history of Southern California.” The Hollywood and Highland project is only one of a series of joint developments involving the MTA. Approximately $1 billion has been spent on joint developments, and several other projects are in the works. WMATA’s progress The MTA isn’t the only transit property aggressively pursuing joint development projects. The Washington Metropolitan Area Transit Authority (WMATA) has a long history of joint development at its Metrorail stations. Since 1979, WMATA has completed more than 40 joint development projects, all of which generate revenue that helps to offset operating costs. “We probably have the most extensive joint development program in the nation,” says Philip Scales, development specialist at WMATA. Although the overall revenue varies from year to year, Scales says the contractual minimum is $6 million per year. “But revenue has been as high as $11 million to $12 million,” he adds. And revenue will continue to grow. Last December, WMATA approved a joint-development project at its Rhode Island Avenue Metrorail station, one stop north of Union Station. According to Scales, the project will include the development of a 270-unit apartment complex and 65,000 square feet of retail space. “We’re trying to create a village-like atmosphere,” Scales says, explaining that the neighborhood is undergoing gentrification, partially due to its proximity to the Catholic University of America. “The demographics are changing,” he says. “We’re seeing people moving into the area to live near the university.” The three-floor apartment complex will be built on top of the retail facilities. Scales says the housing will not be subsidized. “We’ve been very adamant about seeking market-rate housing, which we feel helps to stimulate the economy.” In coordination with WMATA’s project, the District of Columbia has approved a revitalization plan for an adjacent parcel that will create what Scales describes as “big box retail,” including a home-improvement store, grocery store and electronics and appliance retailer. The two parcels will be connected, both physically and visually. To help coordinate the design, one of the architects for the D.C. project is also on the development team for the WMATA project. In return for allowing development of its land, WMATA will receive long-term ground-lease payments and a percentage of the retail revenue. It also will benefit from what it hopes will be a healthy increase in ridership at the station, which currently registers about 5,100 daily boardings. Arrington of Parsons Brinckerhoff describes WMATA’s joint development projects as the “gold standard” in the transit industry. He says more than two dozen other projects are in the pipeline. By 2005, revenue from WMATA’s array of developments could reach $15 million to $17 million. “But there’s a plus and a minus to these types of joint developments,” he adds. “If your focus is on developing your own real estate, you can miss a bigger opportunity, which is to help transform communities within walking distance of transit.” Arrington says there are many fine examples of transit-oriented development on privately owned land that do not generate revenue for the transit authority, except perhaps through increased ridership. Tri-Met in Portland, Ore., is a good example of an agency that has cultivated several development projects on non-agency-owned land through financing incentives, collaboration among public agencies and advocacy from local citizens groups. “Most transit agencies are going to fall somewhere between Washington, D.C., and Portland,” Arrington says. “Those are two success stories at the opposite ends of the spectrum.” DART’s Mockingbird In the case of a major development in Dallas, private property adjacent to the Mockingbird light rail station operated by Dallas Area Rapid Transit (DART) has been converted into a 10-acre mixed-use project that includes 153,000 square feet of office space, 190,000 square feet of retail shops, restaurants and movie theaters, 211 luxury loft apartments and 1,580 parking spaces. The grand opening was held last fall, and early indications suggest that the project will thrive. “Mockingbird Station is a spectacular example of transit-oriented development,” says Arrington. “It’s a privately driven project that offers a mix of uses and active public spaces.” Although not developed on DART property, the agency collaborated with the developer and the city of Dallas to bring the project from concept to reality. “We worked with the developer in the formative stages so he understood transit-oriented development,” says Jack Wierzenski, DART’s economic development specialist. “We also designed the station so that the pedestrian crossing would fit in with his plans.” Although DART was unable to provide shared parking, due to a strict city ordinance, the success of the Mockingbird Station development could help to persuade Dallas officials to rewrite the law. “We’re headed in that direction with the city,” Wierzenski says. Wierzenski estimates that ridership at the Mockingbird Station has increased by 50%, from 1,600 to 2,400 per day since the opening of the development. It’s the first high-profile transit-oriented development to surface in Dallas, according to the developer, Ken Hughes. “At some point, somebody had to build a first-rate project at a rail station,” he says. “I didn’t intend for it to be a demonstration project, but it turned out that way.” Hughes, who bought the property in 1997 during construction of the light rail line, credits its proximity to the DART station with helping to fill the loft apartments. Many of the apartment dwellers work in downtown Dallas, a three-mile traverse down either the Red Line or the Blue Line, which converge at Mockingbird Station. Although a “nasty office market” has kept Hughes from filling the office space beyond two-thirds full, he says the $110 million project has been a huge success. “I’m just ecstatic,” he says. “There was a lot of risk involved. I can’t believe how great it’s turned out.” Hughes describes the architecture of his development as “urbanesque,” a departure from the suburbs that dominate the landscape of Dallas and its suburbs. Hughes says he owns another large tract of land adjacent to a rail line planned by the Fort Worth Transportation Authority. He’s hoping for a similar opportunity to develop that parcel and is staying tightly in the loop. “We are not only being cooperative, but we’re being proactive about how the station should interface with our development,” he says. TOD gaining steam With the call for smart growth to alleviate increasing congestion in American cities, transit-oriented development has become extremely fashionable in the past decade. Arrington says transit-oriented development gained momentum in the 1990s as transit properties began to shift their focus away from development of agency-controlled land. When the Federal Transit Administration began to give special consideration to New Start projects that promised strategic development along the proposed route, transit agencies began to see the value of transit-supportive land use in bolstering their chances to receive full funding. “And land use is a major factor to assure the long-term success of these transit investments,” Arrington says.

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