The pandemic has been devastating for public transit. According to the American Public Transportation Association, transit ridership in 2020 was down 79% nationally compared to pre-pandemic rates. And though no public transit agencies in the United States get all their revenue from ridership alone, the shortfall of riders is putting many transit agencies in a bind. Agencies face a collective budget shortfall of nearly $40 billion through the end of 2023.
This has pushed some transit agencies to think creatively about how else they can pull in revenue from diverse sources, with many transit agencies now looking at land development. It’s a path that can help the bottom line and maybe even turn more people into transit riders.
“They’ve lost a lot of ridership, and this is going to substantially impact their operational abilities,” says Robyn Brown, an associate director at IBI Group, an urban development professional services firm. “They often own a lot of land around their stations. I think you’re going to see them become bigger players in transit-oriented development not only because they need the revenue, but also to support larger operational and ridership goals.”
Developing transit-agency-owned land is not just a pandemic reaction. Some agencies have been doing it for decades. But now, at one of the darkest times for public transit systems, there’s growing interest in tapping agency resources to safeguard themselves from collapse.
In California’s Silicon Valley, the Santa Clara Valley Transportation Authority, or VTA, has started to look differently at the roughly 140 acres of land it owns in what has become one of the most expensive housing markets in the country.
“For almost 20 years the portfolio has sat vacant. And the opportunity that our agency and some agencies have from a transit-oriented development perspective is there’s a lot of assets that are associated with transit,” says Jessie O’Malley Solis, VTA’s transit-oriented development program manager.
For VTA, and many other agencies, that means parking lots. “In the ’80s, our transit agency built seas of parking, and the theory was if you build it they will come, meaning they’ll park here and ride. That’s not how it worked in our area,” says O’Malley Solis. “Just building seas of parking wasn’t going to generate ridership. You needed to generate connectivity along the system to make it valuable for riders. That’s been a missing element.”
Now VTA is filling in that missing element. It has identified about 25 sites it owns in the densest parts of Silicon Valley and has a long-term plan to turn them into new transit-adjacent community hubs. O’Malley Solis says there are half a dozen sites with developers already attached, including a 569-unit apartment development that will soon break ground at Tamien Station, just south of downtown San Jose. In total, the targeted sites could create about 7,000 housing units in the valley, including 2,500 affordable units, as well as millions of square feet of commercial and office space.
“They have been doing some real goal-setting in terms of how they can impact the areas around their stations with, instead of just asphalt, creating really vibrant new communities,” says Lauri Moffet-Fehlberg, senior principal at Dahlin Group Architecture Planning, which led the planning for several VTA development projects.
The development effort, which was initiated in 2016, will see its first groundbreakings next year and an average of two to four new projects every year after that. O’Malley Solis says the two dozen sites the agency plans to develop will be fully built out by 2040 and will generate roughly $250 million in initial revenue for the agency. And because VTA is retaining ownership of the land and a stake in the developments through ground leases, the projects will continue to generate revenue for decades to come.
But it’s not just about making money. O’Malley Solis says the development is always geared toward improving ridership and making more transit-oriented communities—whether it’s on land the agency owns or not. “We believe the work we’re doing has a ripple effect in private investment in and around our station areas,” she says. “And once you hit that critical mass of a transit-oriented community, you really bring ridership numbers up significantly.”
Some studies have shown transit-oriented development projects increasing transit ridership by 20% to 40% at individual stations. One study in California found that when people moved to within a half-mile of a train station, more than 50% switched their commutes from cars to transit. When done well, these projects can make an impact. But they also come with risks. One notorious project initiated in the mid-1990s in Beaverton, Oregon, bankrupted two different developers and suffered through more than a decade of delays and stalled construction. Not every transit-oriented site is necessarily a good fit for development.
But in big and growing cities, transit-oriented projects have a better chance of success. In Atlanta, the development of land owned by the Metropolitan Atlanta Rapid Transit Authority, or MARTA, has helped offset the short-term impacts of the pandemic, providing a steady stream of income as revenue from trains, buses, parking, and concessions have plummeted.
It has also underscored the agency’s importance as a steward of taxpayer money, according to Jacob Vallo, MARTA’s senior director of transit-oriented development and real estate. “What drives our entire team on the TOD side is really an impact investment approach, which is two strategies: Let’s figure out how we can help the authority by unlocking the value of our existing land and air rights holdings, but let’s also do good for the community,” he says.
A key element of that approach is to build affordability into every housing development on its land. MARTA owns about 400 acres of land across the region, including at park-and-ride lots, as well as the air rights over existing stations. With that, the agency has 18 development projects at various stages and has requirements at 7 of them that at least 30% of housing units are affordable. About 1,400 units are now in various stages of planning. Two apartment complexes next to rail stations are now under construction, and the agency has several previously built projects next to stations that continue to provide revenue.
But new projects take time, often five to seven years to go from planning to construction. Vallo says the need for affordable housing is much more imminent, especially during the pandemic. And though the agency’s TOD projects have good intentions, new development near transit also creates pressure on existing homes in the area, exacerbating displacement. Vallo, who previously worked in the private sector doing real estate investment and private equity management, saw an opportunity for private money to work in conjunction with the agency’s broader community development goals. That led to a partnership between Morgan Stanley and the National Equity Fund to create the Greater Atlanta Transit Oriented Affordable Housing Preservation Fund, which will invest $100 million of private capital to preserve affordable housing within a mile of MARTA transit stations.
“We just wanted to stand that up so that by the time we bring on these other projects on MARTA land that there be some semblance of stabilization in the community with respect to the existing affordable housing units,” Vallo says.
In the longer run, these projects are about the financial sustainability of the agency, as well as its role in the community.
“What the pandemic showed everybody is every single transit agency is so fragile in the way that we’re operating because of the reliance on these variable income streams. I think of ridership almost like the hotel business, where you have to make a sale every day,” says Vallo. “To the extent that we can build long-term ground leases into these projects, those are locked in for 99 years. You know that you’re going to get that revenue.”
For transit to survive the pandemic—and whatever future shocks it will face—agencies are finding they need to look beyond just their core capacity of moving people from place to place.