Long considered a leader in mass-transit innovation, Portland, Ore., is home to more than a half dozen mixed-use, transit-oriented developments (TODs), which feed off adjacent train and bus traffic, and America's growing love affair with nouveau urbanity. Dozens of TODs are planned or under construction nationwide, but no two are alike, as illustrated by the fate of two Portland projects hatched in the late 1990s.

In one deal, a multilayer partnership was struck that would give San Francisco-based Bechtel Corp. the exclusive rights to develop 120 acres near Portland International Airport into a high-profile haven for hotel, retail and office development called Cascade Station. Bechtel would fund $30 million of the extension of the Metropolitan Area Express (MAX) light rail line more than five miles along Interstate 205 to the airport, in an agreement forged with the city's Tri-Met system, the Port of Portland and the Portland Development Commission. As fate would have it, the line opened in September 2001 — the day before 9/11.

Across town, ground was broken in 1998 for a 4.8-acre urban brownfield project at Northeast 60th Avenue and Glisan Street called Center Commons. The rail-adjacent project wold feature a 314-unit affordable/senior housing development and 28 for-sale row houses with some light retail. The owner, Lennar Affordable Housing, planned to use tax credits, private money and state bonds to make its numbers work.

Fast forward to 2004 and the airport development remains fallow, while the 4-year-old Center Commons is almost fully occupied, except for a handful of senior units, says Phil Whitmore, manager of transit-oriented development for Portland's Metro Regional Government.

The timing of the airport development “was terribly unfortunate with 9/11 and the way the economy went into a slump,” says Michael O'Connell, development manager of the Portland Development Commission, which is helping market Cascade Station. “But things are cycling back and there's now a tremendous amount of interest.”

Why the Resurgence?

The explosive growth in new U.S. rail transit systems is creating unique opportunities for architects and investors who are nimble enough to jump aboard the sometimes tenuous TOD line, described by some as “new Urbanism on a train track.”

Transit-oriented development, a term coined by Silicon Valley mass-transit expert Peter Calthorpe in the early 1990s, is not easily understood by many lenders and often bogged down by regulatory layers, say architects and developers. But TODs can also be ornate, dramatic and pedestrian friendly, as well as potentially lucrative, the same groups say.

Helping drive the transit train is increasing frustration with choking traffic and cookie-cutter architecture of suburban America, says Andy Kunz, a Washington-based architect and director of NewUrbanism.org. “It's become the type of environment that sucks the life out of you.”

At the same time, Kunz says, developers are becoming more enlightened that urban, mixed-use development is where they can achieve the highest rents. Demographic shifts also play a factor. The average U.S. household size has declined from 3.1 persons per home 30 years ago to about 2.6, according to the Census Bureau. “And the share of families with kids is only going to continue to decline,” says urban planner Hank Dittmar, co-author of the book “The New Transit Town,” and CEO of Reconnecting America, which helps link transportation networks with their communities.

With numerous empty municipal coffers across the country, city subsidization of transit-related projects might seem a lower priority at first glance. But a growing realization that they address both environmental and traffic issues and add lasting value to the tax base “makes the series of pushes and pulls it takes to get these projects done” more palatable to the public and public officials, says Metro's Whitmore.

Seeking to Diversify

Once relegated to busy commuter stops in dense urban areas, TODs now fan out from Washington state to south Florida. “Not long ago, properties adjacent to trains were usually old, industrial, freight-oriented and under-utilized, but that's changed,” says Robert Paley, senior development director for AvalonBay Communities, an Alexandria, Va.-based REIT that specializes in urban apartments. Few TODs are alike. In fact, two AvalonBay projects a one-hour train ride from one another seem like worlds apart.

Manhattan's planned Avalon Chrystie Place, which will feature 712 high-end apartments, 138,000 sq. ft. of retail space and a community center, is under construction directly atop a subway stop between Bowery and Chrystie streets on former city-owned land. “It's a challenge, no doubt,” says Phil Wharton, AvalonBay's senior development director. “Some of these subway tunnels date from the early 20th century. It's time consuming, but it can be done.”

The mixed-use project, 20% of which will include affordable housing, is funded by $117 million in tax-exempt debt by the New York State Housing Finance Agency. It's also receiving tax abatements through a land-lease arrangement with the Empire State Development Corp.

By contrast, a second project, Avalon on the Sound, is helping recast New Rochelle's suburban CBD in Westchester County. Avalon is adding a 39-story, 588-unit apartment building to its just-completed 400-unit first phase along a transit stop. As part of the deal, AvalonBay helped fund an adjacent public park, which ties into a public library. “The key to revitalizing downtown areas is bringing people to them,” says Paley.

Paul Kissinger, a landscape architect and urban-design specialist with Ft. Lauderdale-based EDSA, an international architectural and urban-design firm, says developers and leasing agents must load as many convenience services as possible into TODs “to promote both ridership and retail synergy.” Riders shouldn't be forced to make several rail stops to do their dry cleaning, banking, and other errands, he adds.

Financial Obstacles

Lenders are far more comfortable doling out dollars for individual residential, retail or office developments than for mixed-use projects, says G.B. Arrington of the office of Portland, Ore.-based Parson Brinckerhoff, a national transportation consultant. “Mixed-use with or without transit is a hard egg to crack,” he says.

New Urbanism-style retail is “incredibly sophisticated and complicated, and I think very few developers can get it done right,” explained Robert Tindall, president of Callison Architecture Inc., during the annual International Council of Shopping Centers (ICSC) convention in May. “Those who've done them say they're exciting, fulfilling and that they were happy to be a part of them, and that they are a nightmare.”

Some TOD developers don't have to knock on quite as many doors seeking funding. CIM Group of Los Angeles, which specializes in high-quality redevelopment and urban-infill projects, manages the $676 million CIM Urban Real Estate Fund, fed by investments from the California Public Employees' Retirement System and the California State Teachers' Retirement System.

The fund gives CIM latitude to secure TOD investment to levels “where lenders are happy to partner with us,” says John Given, the Los Angeles-based company's senior vice president of development. Once projects become stabilized and lease to projected rates, institutional markets are usually more than willing to jump in for more permanent financing, he says.

AvalonBay has more financial leeway because of its REIT structure, but smaller developers bringing in new lenders and equity partners have more hurdles to clear to make lenders comfortable, Paley says.

The entitlement process also takes longer with TODs than conventional projects, plus zoning snags abound, says John Gish, an architect and principal with Callison. “You have to go through transportation authorities, municipalities, a number of legal entities and (DOT).” But increasingly, cities are willing to waive density laws and other restrictions to facilitate them, he adds. “They know the result will be a major asset for the urban area.”

Other Hurdles

A parking controversy still reigns at many of these sites. City and transit authorities frequently are reluctant to reduce standard parking requirements for TODs, even though their proximity to transit reduces vehicle demand, says Arrington.

For example, Ken Hughes, who developed the mixed-use Mockingbird Station in Dallas, which is anchored by the Angelika Theatre and dozens of shops, restaurants and living units, likely spent $6 million unnecessarily on excess parking next to the Dallas Area Rapid Transit (DART) rail stop, while many other TOD developments “also tend to be overparked,” Arrington says.

Not surprisingly, developers generally sell TODs to lenders based more on market fundamentals, not transit, Arrington adds. And partially as as result, the underlying real estate at most TODs “has intrinsically sound” fundamentals, and their mixed-use components serve as built-in risk mitigators, says Given of CIM. “If the office market or the retail market goes sour, you have the other components.”

Yields from TODs are essentially the same as conventional projects, although cost factors such as market, location and complexity can vary greatly from one TOD to another, Given says. “In those instances involving complex deal structuring, development cost and unproven markets, expect an investor to require higher yields.”

TOD lenders will generally agree to about an 80% loan-to-value ratio, says Whitmore of Portland Metro. TOD money is plentiful from a select group of lenders “who seem to pride themselves on doing unusual projects,” he says.

TODs are at stage where people “are starting to get them, but there are still barriers,” says Dittmar. “It's still quicker to develop garden apartments or strip centers. But it's just a matter of investors and lenders adjusting. Being near transit not only adds value to real estate, it creates a high-value, long-term land use.”

The new Dallas rail system, according to a recent University of North Texas study, has generated more than $800 million in development, and it projected that a completed system will generate $3.7 billion in economic activity once built out. DART added its first rail line in 1996 and is continuing to add regional links.

The Future

Despite winnowed city budgets, all signs point to continued transit and TOD expansion. Public transportation ridership has surged 22% in the last six years, reports the American Public Transportation Association, and for every $10 million invested in public transportation, $30 million is gained by local businesses, the organization says.

Cities that have recently incorporated TODs into new rail systems include Denver, St. Louis, Salt Lake City, San Diego, San Jose, Portland and Dallas, according to New Urbanism.org.

Isaac Manning, a former executive with Ross Perot Jr.'s Hillwood Co. of Fort Worth and principal of the commercial development advisory firm Trinity Works, says Hillwood eyed eight locations for its mixed-use Victory site, now anchored by American Airlines Center arena on the western fringe of downtown Dallas.

“The main reason we entitled 12 million sq. ft. of space was the potential DART line interface with the Tarrant Country (west) side of the DFW area,” he says. “We wanted to get the workforce to Victory from all over the area.”

Ultimately, transportation consultant Arrington believes that there is a growing demand for TODs throughout the U.S. driven by changes in demographics and by cities “that want to leverage the investment they already have in transit.”

Steve McLinden is an Arlington, Texas-based writer.

TODs: Complex to Create, but Easy to Navigate

Transit-oriented developments (TODs) may be elaborate to fund and build, but their patrons appreciate quaint simplicity, say designers.

Architects point to Gresham Station near Portland as a savvy blending of mainstream lifestyle shopping, including Gap, Old Navy and Bed, Bath & Beyond, in a New Urbanism-friendly environment, with seamless foot-traffic flow.

The 330,000 sq. ft. first phase has large front display areas, spacious glass canopies, rear parking and landscaped plazas. National transportation consultant G.B. Arrington of Parson Brinckerhoff's Portland office calls the approach “a way of making big boxes behave.”

Richard Higgins, principal of DLR Group of Portland, an architect on Gresham Station, says Transportation Equity Act monies — federal transportation funds that developers can tap into for transit-related projects — helped developers gussy up Gresham Station with gables and porches. The layout and shops meld “to let everyone enjoy the value of the system at the same time,” he says.

Communities offering a toolbox of planning and financial incentives usually have the most success with TODs, says urban planner Hank Dittmar, co-author of “The New Transit Town.” For example, Los Angeles-based CIM Group's planned $31.7 million 2nd & Santa Clara project, next to a San Jose downtown light rail/bus stop, received $7.8 million from the city's Redevelopment Agency for public parking and affordable housing as part of the “Heart of the City” revitalization. Designed by SB Architects of San Francisco, the project is slated for completion in late 2005 and will include 17,500 sq. ft. of retail space, 42 condos and a 31-unit apartment complex.

Public Relations Challenge

Urban redevelopment is an easier sell in parts of lot-starved California, says John Given, CIM senior vice president of development. Projects converting downtown office space to residential in Los Angeles are exempt from setback, height and other zoning constraints under the Adaptive Reuse Ordinance. But in other U.S. metro areas, developers must endure excessive zoning gyrations. You're treated “like you're trying to get away with something when you're really adding value,” says Given.

Transit authorities frequently opt for freeway-area land with minimal development potential for stations, says Bill Halter, principal in Atlanta's Thompson Ventulett Stainback and Associates. “Many of the train systems simply ID the cheapest locations, but sometimes they're the worst locations,” Halter says. But TOD designers and developers are demonstrating to transit officials “that they can enhance the value of land around stations.”

At the site of the 206-unit Pacific Shores Apartments in Santa Clara, which opened in early 2004 on a transit stop, a contaminated construction yard was converted to a community landmark, but developers were first forced to excavate more than half the land. The site's triangular shape and proximity to a massive cypress tree and a tidewater corridor complicated matters for project designer Steinberg Group Architects.

The solution: open the project on its widest side toward ocean views and place the community's recreational amenities in the resulting open space. Placing parking on the remaining sides of the project allowed residents direct access to the pool and a recreation center without having to dodge traffic. To cut down on automobile use, residents are offered bus passes and the use of scooters known as e-bikes.

DLR Group will participate in an elaborate regional mall/TOD project at Clackamus Town Center, when Portland's Tri-Met rail is extended five miles south to Clackamus County, says Higgins. Tri-Met cut a deal with center owner General Growth Properties to create a mall-adjacent transit center, which GGP will incorporate into a major expansion and renovation. The transit site, which will feature park-and-ride and retail/restaurant space, should be complete by 2007.
Steve McLinden