In the San Francisco Bay area, it often takes commuters an hour and a half to go from the tolls on the east side of the bay across the Bay Bridge into the city – a commute of less than five miles. In the Washington area, a rush-hour trip from Alexandria, Va., across the 14th Street Bridge and into the city – less than 10 miles – sometimes takes an hour.
In response to growing gridlock, which robs commuters of time and adds pollution to the atmosphere, more localities want housing, retail, and office space near mass transportation. Such communities reduce congestion by putting commuters within walking distance of trains. They help local transit authorities by increasing ridership. And, with more people riding instead of driving, other car commuters and the environment benefit.
The reward for multifamily developers building transit-based housing is premium rent. But the price tag can be costly. To start with, land near stations is 5 percent to 10 percent more expensive and difficult to come by. Plus, the office, retail, and parking elements, all of which many localities mandate, can push up development costs. Finally, many multifamily developers don't have the experience or expertise to build these additional elements.
Follow the Stations
The goal: Obtain premium rents. This can be accomplished by building near transit. A walk of three blocks or less to the subway can mean an extra $50 to $90 per month in rent, according to Al Neely, executive vice president for Archstone-Smith, a REIT based in Englewood, Colo.
Convenience is the primary reason people pay more. They like being able to hop on the train to go to work, for a night out, or just to run errands. As cities grow bigger and more congested, the ability to get around without a car will become more important, says Leonard Wood, president of Wood Partners, a multifamily developer based in Atlanta.
With a limited number of infill locations around transit stops, a developer with one of these spots owns a prime location, only increasing in value. "You are creating high-barrier-to-entry markets," Griggs says. "It's hard for others to compete with you."
Plus, there is a marketing advantage. With riders constantly arriving at and leaving from stations, apartments near those sites get great visibility. "You have built-in advertisement," Griggs says. "There's really efficiency as far as marketing and advertising. Your cost of finding customers goes way down."
Securing Land Availability of land is not the only hurdle for multifamily developers. Often, the transit authority owns the land adjacent to its stops, and acquiring this land can be a painstaking process. There must be a consensus among a number of departments before the agency will sell. "This can be a very prolonged process and cause your legal fees to escalate rather quickly," Griggs says.
After getting through the necessary steps, the developer often is required by the agency to abide by its contracting code, which includes using union workers. This can add as much as 20 percent to a firm's costs in construction.
But these requirements do not mean governments aren't open to innovative suggestions when they want communities to be built. For example, often the government will kick in the costs for parking or some other aspect of the development.
This happened to Michael Dieden, a principal with Creative Housing Associates, a Los Angeles-based firm focused on developing infill housing in California. His company partnered with Los Angeles' Metropolitan Transit Authority (MTA), the city of Pasadena, and the state of California to build on MTA's Gold transit line. Five million dollars of public money enabled the company to build public parking and underground utilities around the station site. The company also built 53 condominiums and 14 lofts.
When the land near a transit site is privately owned, one option is to do a joint venture with the owner. Wood partnered with a family that owned land near the 10th Street Metropolitan Atlanta Rapid Transit Authority station in midtown Atlanta.
"Buying sites is getting more expensive and complicated," Wood says. "[Partnering with a landowner] is an outstanding way to do it, but it's not for everyone because a lot of landowners just want to get their cash" instead of going into a joint venture.
Jumping Through Hoops Getting land is only half the battle. Many communities have detailed visions of how they want their rail stops to look. It's the developer's job to make it happen. "The development agency [or planning board] works with the transit authority on their comprehensive [development] plan," Neely says. Based on the consultation, the transit authority will have requests for retail services and a certain amount of housing. It also will want parking to increase ridership.
The need for parking becomes even more pronounced at some of the last transit stops on a line, where commuters will be driving in from distant suburbs and rural areas to get into a city. Parking costs can add $65 to $85 per square foot, according to Griggs. "You can only do it in areas where rents can substantiate the economics of doing replacement parking," he says. "In some of the outlying areas, it would be difficult if you can't get the rents to substantiate the cost of the parking."
A top priority for cities and counties is affordable housing. When BRE builds near transit, localities require it to build affordable housing, Griggs says. And, Dieden says, in some of his projects, cities will ask for as much as 20 percent of the units in a development to be affordable.
When this happens, there is usually an underwriting gap of approximately 20 percent between what the project will be budgeted at and what the developer needs to make it a reality, according to Dieden. "Affordable housing has to be absorbed by the public," he says. "There is a gap, and public financing has to close the gap."
The Retail Component
During the past five years, village-type environments have sprung up around many transit stops, featuring multifamily housing, shops, offices, and even gyms and movie theaters. The retail element aims to create a "see and be seen environment," says Tom Low, a director of town planning for the Charlotte, N.C., office of the architectural firm of Duany Plater-Zyberk & Co.
Unfortunately, most multifamily builders just aren't familiar with building retail. "Retail is a four-letter word for us," Griggs says. "We specialize in building high-density apartments."
Starting from Scratch For most developers, transit-oriented building simply means putting multifamily, retail, office, and parking around mass transportation. But for Wareham development, a commercial, residential, and office developer and manager in San Rafael, Calif., transit-based meant something more. It meant building the train stop. Wareham owned about 10 acres on the Amtrak rail in Emeryville, Calif., when it approached the city about the possibility of building a station on its land. After watching its industrial base slowly disappear in the 1970s, the city was eager for anything that could jump-start its morbid economy. It not only signed off on the idea but provided the financing for parking at the station. Wareham did the rest by building the station, which it owns, in 1994 and eventually a community with office, retail, and condominium space.
Now, 10 years after Wareham completed the Emeryville station, it is the second-biggest train stop in California, with about 90,000 commuters transferring there per month. Most of them move between San Jose and Sacramento on the Capital Corridor line and stop at Emeryville to take another train into San Francisco.
The company built a 101-unit condo development and finished selling it in November. Company officials think the transit nature of the area contributed to heavy interest among empty nesters and young professionals in its condos. "People want the benefits of an urban lifestyle and the convenience," says Geoff Sears, a partner in Wareham. "Many of the condo residents leave their cars parked during the day and take the rail into work."
The condos went over so well that Wareham may build more multifamily units. Sears is astounded by how the 10 acres of land evolved. "We have built 900,000 square feet of office, condo, and retail space focused around the station," he says. "This used to just be a station surrounded by a lot of empty land."