By Mary Ebeling
The recent economic recession reduced available funding for every transportation mode. For transit, however, these funding reductions coincided with marked increases in ridership. This has pushed agencies to take a broad look at available funding options. Tapping agency-owned real estate as a revenue generator is one option. Excess real estate can create significant revenue streams for transit agencies, but not all transit agencies have the appropriate staffing expertise to manage real estate assets or to take full advantage of the capital to be gained from agency-owned holdings. Transit agencies may want to consider developing internal real estate capabilities or partnerships with local jurisdictions with existing real estate finance experience.
Land adjacent to transit services, particularly fixed route rail or Bus Rapid Transit, often carries an assessed value more than 40 percent higher than land that is more distant from transit access. This provides an opportunity to generate revenue for transit improvements. Transit systems have found a range of potential approaches to capitalize on the value of land assets. Selecting between a lease or an outright property sale may reflect a transit system’s goal: an immediate capital need could be met through a sale, whereas the desire for a long-term revenue stream could be satisfied through a lease. For long-term revenue, a lease offers the added benefit of a relatively stable funding stream that does not fluctuate like sales tax revenues, the source of operating funds for some agencies.
The Metropolitan Atlanta Rapid Transit Authority has chosen to improve its financing picture through pursuing leases on three underused parking lots adjacent to rail stations for mixed-use developments. In addition to the revenue from the leases, the transit-oriented development being planned will add 1,400 dwelling units and an estimated 50,000 square feet of retail space to the area transit shed, which is likely to increase ridership. Other transit authorities are pursing similar tactics: the rehabilitation of Denver’s Union Station effectively pursued a full scale renovation of the station, adding multimodal connections and facilitating mixed-use development at the station and beyond.
As transit agencies’ understanding of the enormous latent potential to increase revenue from land holdings matures, they would be prudent to develop real estate investment expertise or partner with municipalities to develop dedicated transit revenue streams based on capturing this increased value.
Mary Ebeling is a Transportation Policy Analyst at SSTI.
Location, location, location: Financing transit with real estate assets
By Mary Ebeling