Colorado Real Estate Journal - July 15, 2015
An emerging trend in commercial real estate is transit-oriented development. Initially concentrated in cities with highly developed rail transit systems, this type of development is now occurring in cities such as Denver; Dallas; Portland, Oregon; Minneapolis; and Charlotte, North Carolina. Transit-oriented developments tend to be higher-density, mixed-use commercial and residential properties that are close to public transit stops, particularly light rail, commuter rail or bus rapid transit. Residents, employees and visitors to TOD properties take advantage of “walkability,” reduced need for automobiles, proximity to services and the convenience of shorter commutes. All these factors tend to have a positive effect on rents and prices. In metro Denver, bus and rail transit is provided by the Regional Transportation District, a seven-county public agency. Initially the lightrail component had lines from downtown to Five Points and Littleton. Approval of the FasTracks expansion program by metro voters resulted in the construction of new light rail, commuter rail and bus rapid transit lines to most parts of the metro area, all of which will be operational by 2018. Transit-oriented development in metro Denver has been concentrated mainly in the apartment sector, taking advantage of low vacancy rates and strong demand. At the end of the first quarter of 2015, over 20,500 units were under c o n s t r u c - tion, of which about 7,200 could be considered transit oriented due to proximity to transit stations. In addition, d e v e l o p e r s had proposed 19,709 units, with TOD apartment communities accounting for 6,200 of those units. These TOD projects amount to nearly a third of the apartment units under construction or planned in metro Denver. Developers also are starting speculative office development. Most of the proposed buildings are downtown, especially near RTD’s hub at Denver Union Station, but others are being proposed along the Southeast light-rail line, in Boulder and Cherry Creek North. In addition, several major tenants recently announced plans to move downtown from suburban locations to take advantage of transit access, especially Denver Union Station. From a developer’s perspective, the benefits of TOD vary depending on property type and market. According to a 2014 study by Arthur C. Nelson, professor of planning and real estate development at the University of Arizona, “Planners and public officials have a s s u m e d that the largest share of market responsiveness to transit stations o c c u r r e d within the first quartermile and the rest out to about oneh a l f - m i l e . E m e r g - ing analysis is relaxing those narrow bands for apartments and office land uses, the premiums for which can extend well beyond a mile, with half or more of the premium found within the first one-half mile.” Another study of office rents completed by Nelson in 2014 was Office Rent Premiums with Respect to Distance from Light Rail Transit Stations in Dallas and Denver. The study found, “As the distance from a (light-rail) station increases, rents fall … but at a declining rate.” Based upon the data analyzed in this study, the distance threshold for the effect of lightrail station proximity on office rents for the Denver market is estimated at “about 3.3 miles.” Most analysts do not expect employees to walk three miles, but rather they use alternative transportation, such as bicycles or shuttles. Ridership is the key to the combined success of light rail and the associated transit-oriented develo p m e n t . A c c o r d i n g to a study by G.B. A r r i n g t o n , Light Rail and the American City, “A successful TOD can increase ridership at an individual station 20 percent to 40 percent and up to 5 percent overall at the regional level.” Transit usage is enhanced by bringing riders closer to transit facilities through well-planned, compact developments. Arrington further states that “successful TOD projects have to be successful without transit in order to be successful with transit.” He says projects should be “transit oriented” and not “transit dependent.” The value associated with the proximity to rail-transit stations is known as a “transit premium.” The Center for Transit Oriented Development examined several studies and concluded the impact on real estate values for “transit premiums ranged from a few percent to over 150 percent increase.” The study noted, “Increases were most dramatic for office and retail uses while singlefamily residential value premiums range from 2 percent to 32 percent, condominiums range from 2 percent to 18 percent and apartments from 0 percent to 45 percent.” Demographics also influence TOD viability. In a 2013 study by the American Public Transportation Association, nearly 70 percent of millennials use “multiple ways of getting around a city or suburb.” According to 54 percent of millennials polled, public transportation ranked highest as the “best mode to connect to all other modes,” including car-sharing, cycling, walking and car ownership. Millennials are among the best customers for TOD real estate, especially residential. Overall, several factors help make transit-oriented development feasible and successful. Based on experience with transit-oriented development in metro Denver and other comparable cities, those factors include: • Stations within walkable proximity to major employers, sporting and entertainment venues, shopping, medical centers, colleges and universities or other civic facilities. These types of stations become destinations. • Stations adjacent to, or within walking distance of, highdensity multifamily residential units or established residential neighborhoods. These locations also feature “drop-off” lanes and retail and restaurant uses that cater to arriving or departing passengers. In some cases parking garages also are provided. • Stations with convenient options for transfers to other modes of public transportation.