Management & Operations

Tapping real estate assets to maximize monetization

Posted on February 24, 2020 by Janna Starcic, Executive Editor

NJ TRANSIT is currently advancing mixed-use transit-oriented developments adjacent to Bayonne’s 34th Street Station on the Hudson-Bergen Light Rail system.
NJ Transit
NJ TRANSIT is currently advancing mixed-use transit-oriented developments adjacent to Bayonne’s 34th Street Station on the Hudson-Bergen Light Rail system.
NJ Transit
In November 2019, New Jersey Transit (NJT) hired Carmen Taveras as its first chief, real estate, economic development, and transit oriented development (TOD). The office will assess and develop recommendations for transit-oriented development opportunities for parcels of property in which NJ Transit holds an interest in, with the goal of increasing the agency’s non-farebox revenue.

Taveras has more than 20 years of diverse real estate experience managing real estate portfolios and land development across U.S. market sectors and asset class. We spoke with Taveras about her new role and the different ways agencies can monetize their real estate.

What is your role comprised of?
My role focuses on leading the Real Estate team and implementing a strategic plan that maximizes the value and revenue of our real estate assets. NJ Transit’s plan to monetizing real estate assess focuses less on funding a development and more on forming strategic partnerships whereby our partners are willing to assume a risk.  

How is NJT supporting the agenda of monetizing real estate?
We are positioning our high-profile developable sites, with the intent of engaging one or more real estate services firms to explore each site’s development potential, evaluate innovative options for capital requirements, and identify qualified business partners. The 'positioning' process is an internal process ranging from verifying NJ Transit’s ownership of the asset and ensuring the property in question is not required for the agency’s core business, to identifying easements or environmental issues and potential solutions, and coordinating with local municipalities.

What constitutes a 'qualified business partner'?
A 'qualified business partner' refers to a highly capitalized investor, or various entities, whose investment strategy and risk tolerance aligns with NJ Transit’s requirements. For instance, the TOD projects we are targeting will require 100% funding by others, in a structure where NJ Transit provides the land and has the potential to generate immediate capital to improve infrastructure around the projects, while sharing in the upside.

Taveras
Taveras

What project are you currently managing?
NJ Transit is collaborating with the respective municipalities to advance mixed-use transit oriented developments adjacent to Aberdeen-Matawan Station; Bayonne’s 34th Street Station on the Hudson-Bergen Light Rail system; and On the River Line, comprising 34 miles of diesel light rail system.
 
What are some ways agencies can monetize real estate?
Real estate can be monetized through outright sale, ground leases, easements, and development of raw land. Each transaction is structured around the party’s financial profile and risk tolerance. The agreed upon terms can vary greatly depending on the parties’ flexibility and willingness to compromise, to get the deal done.

All things remaining equal, a typical sale transaction has the potential to generate the most upfront capital for the seller, however, it can potentially eliminate the seller’s participation in future revenue/profits. In contrast, ground leases and easements are structured as a series of payments over a specified period.

With respect to the development of raw land, significant upfront infusion of capital is required in order to create long-term value and a steady income stream. NJ Transit is looking to partner with investors/developers and contribute the land, while retaining ownership rights and shifting the capital requirement to the investor/developer.

Forming alliances with global real estate firms with a robust lending relationship and extensive client base is key to maximizing the value of transit's developable properties.
NJ Transit
Forming alliances with global real estate firms with a robust lending relationship and extensive client base is key to maximizing the value of transit's developable properties.
NJ Transit

Discuss a recent transaction.
One recent transaction involves the sale to a developable track of land, in Somerville, which yielded approximately $11 million. The purchaser is in the process developing a mixed-use project on the site.

What are some key takeaways for transit agencies?
A successful strategy to the maximize value of our developable properties and realize a consistent revenue stream should aim to utilize the resources available in the market by means of forming alliances with global real estate services firm with a robust lending relationship and an extensive client base.

Best practices for revenue-producing properties

Di Maggio
Di Maggio

METRO asked Charles Di Maggio, CEO of New York City-based commercial real estate services provider, Greystone Management Solutions, whose clients include, New Jersey Transit and the Massachusetts Bay Transportation Authority, to provide best practices for public transit agencies looking to tap revenue from their real estate holdings.

1. Assessing what you own first. Insuring compensation for your existing portfolio is obtaining fair market value. NJ Transit, the MBTA, and now the MTA have engaged Greystone to audit and update rates for Pole Pipe and Wire agreements. Updating the valuation and auditing these PPW agreements can produce hundreds of thousands of dollars.

2. The best way to insure you are getting fair market value for your portfolio is to regularly “check in” with sister transit agencies. MBTA and NJT do this by participating at the Subcommittee for Real Estate at APTA meetings. This is a forum where pricing, programs and innovations are discussed for this unique class of real estate. It’s not like you can go onto CoStar and check the comp for a news concession, TOD, or PPW agreement.

3. Educate and keep operational stakeholders informed. At the MBTA, regular meetings are held with operational divisions to update them on Real Estate Projects, reviews and canvasses to inform them of goals, important revenue opportunities, and to ensure that their operational needs are listened to when sites are reviewed for “excessing.”

4. Review the use of percent rent for retail and concession compensation. Agencies  typically stayed away from percent rent due to the administrative burden. With more Point of Sale registers and modern reporting requirements percent rent allows agencies to administer the accounts to insure they benefit when a concession/location does surprisingly well and has a mechanism to adjust rent when demand decreases if service reductions occur. Additionally, percent rent attracts the market to riskier locations where sales reports are missing.

5. Field presence is a must. To ensure tenants and licensees are adhering to leases, identify trespassers and unauthorized assignments that require sites be inspected on a regular basis. Frequency is based on the impact on operations or proximity to stations.

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