Working Better, Together: Improving Joint-Development Agreements for Transit-Oriented Development

For transit agencies, joint-development projects can look like an easy win. Agencies extract value from their incredible real estate assets, enliven station areas, and boost farebox revenues from new riders. Developers also have much to gain – incredible locations, built-in foot traffic, unique uses, etc. – but the complexity of partnering with a transit agency through joint-development agreements can leave them slightly wary.

These trepidations stem from the increased difficulty, time, and costs typically associated with joint-development. But, transit agencies can offset these risks and increase value by building greater confidence with developers – establishing clear expectations, minimizing delay from process, and sharing an appropriate amount of risk for necessary improvements.
 
Earlier this year, we sat down with the Washington Metropolitan Transit Agency (WMATA) and a group of local real estate developers to discuss how each party could create better opportunities for successful joint-development agreements. The agency is a leader in advancing joint-development since it began rail service in 1976. Now, under the leadership of Nina Albert, Director of Real Estate and Parking, WMATA is continuing to push innovative approaches toward leveraging its real property to build ridership and create value for the agency.
 
Our conversation was enlightening and productive, revealing concerns and seven practical solutions that can increase confidence and create better outcomes for both parties.
 

1. Signaling: Policies and Support for a Feasible Concept

To attract development partners, transit agencies can start by defining their expectations and requirements through a set of clear policies, procedures, and development guidelines. This reduces uncertainty and helps developers understand the costs of requirements like transit infrastructure, parking, and affordable housing.
 
Understanding the real estate market conditions and gaining support from the local community and municipality is paramount before pursuing development. This step is crucial for decreasing the risk of project derailment – especially where there are community pressures and concerns about density, gentrification, displacement, and congestion. This involves identifying a range of feasible development concepts through a market analysis, along with generating support from local communities and authorities through well-thought out, community-driven planning.
 

2. Procuring Better Odds

An ideal procurement process allows developers to deliver higher-quality responses with strong financing proposals. To get the most out of a procurement, agencies can increase the number and quality of respondents by reducing the difficulty and cost burden of the solicitation process. 
 
One strategy includes employing a two-step solicitation process – a request for qualifications followed by a request for proposals – that narrows the field of respondents to a small group of well-qualified candidates.  Rather than developing detailed proposals against an unknown and/or large field of competitors, respondents can better justify investing the time and resources to respond to a much more rigorous Request for Proposals with a unique offer that is truly the right fit.

 

3. Empowering Teams to Work at the Speed of Development

Once an agency selects a development partner, the development team must be empowered to “work at the speed of development.” To reduce the risk of missing a favorable property market, transit agencies must enable their development staff to make routine decisions along an established timeline that is responsive to private sector. Also, teams should be positioned to addressed unexpected obstacles without delay by bringing key transit agency decision-makers (real estate, rail operations, bus operations, safety, etc.) to the table when meeting with development partners.

 

4. Leveraging Outside Real Estate Capacity and Support

To execute tasks confidently and quickly and inform key decisions, transit agencies need reliable information and analysis. While transit agencies regularly communicate and work with private developers to increase ridership and promote transit-oriented development, a trusted real estate advisor can provide support, capacity, and expertise to pursue more advance real estate tasks including the negotiation and structuring of complex public-private partnerships. When transit agencies can rapidly increase capacity and make data-based decisions in partnership with a real estate advisor, development partners trust that a fair and timely deal can be made.

 

5. Increasing Demand Through Placemaking

In WMATA’s case, many of its remaining development sites don’t attract enough foot-traffic or activity – think stations surrounded by huge surface parking lots in suburban locations. To increase the desirability of dormant sites to potential users and developers, WMATA and other transit agencies can direct resources into placemaking. A particularly innovative approach could involve sponsoring a Business Improvement District focused on site activation and branding during the initial years of a new development.
 

6. Sharing Risks: A Partnership for the Necessary Infrastructure

Many large sites with development potential often require a significant infrastructure investment to support new development. These costly up-front investments are a large financial risk for developers, however transit agencies – in partnership with local municipalities– can help address this risk and cost burden. Solutions might involve working with the municipality to provide the infrastructure financing for  and creating a tax increment finance or special assessment district by which the eventual development reimburses the costs.  Alternatively, transit agencies themselves can explore strategies for establishing a revolving TOD infrastructure fund to enable co-investing in projects that create value and ridership for the agency.
 

7.  Creating a Toolkit for Success – Structuring the Deal

Ground leases for joint-development are complex documents that must address numerous uncertainties about the future real estate market. Ensuring that the terms and conditions are reasonable for both sides can be a drawn-out affair, and mistakes can be very costly. By creating a familiar, financeable ground lease template from a particularly successful joint-development, transit agencies can create a replicable and market-tested toolkit that reduces uncertainty for development partners, expedites the negotiation period, and enables a fair allocation of risk and value.
 
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Executing a successful joint development project is inherently challenging as agencies balance the needs of transit riders while also creating commercial development opportunities to attract new riders and revenue.  But, getting this balance right can reap considerable rewards and an opportunity to provide incredible benefits for agencies, developers, neighbors, and riders.

 

As transit agencies look to build more transit-oriented developments through joint-development agreements, it’s important to consider best practices for minimizing risk for themselves and their development partners. By ensuring internal process are well-communicated and designed to reduce obstacles and delays, transit agencies can use joint-development as a tool to maximize value from their real estate assets and achieve shared development and policy goals.

 

Thanks for reading! If you’re interest in learning more about our joint-development and transit-oriented development advisory services, contact Stan Wall to discuss how HR&A can help your organization navigate the joint-development process.