Smart CRE brokers and investors are jumping on the TOD train en masse. Find out how CRE data tools can help them make the most of this growing trend.
If you live in or around a major urban area in the United States, you’re probably sick and tired of driving to work in bumper-to-bumper traffic. As writer and urbanist Jim Miara points out, “Traffic congestion has increased so much in virtually every metropolitan area that two-hour commutes are now routine. Attempts to alleviate the problem by constructing more highways almost always have led to more sprawl and, eventually, more congestion.”
Cities have long battled the challenges inherent to population growth, urban migration, and suburban sprawl — with mixed results. But one of the most consistently successful approaches to improving the livability of America’s biggest cities has been investing in transit-oriented development, otherwise known as TOD.
Developing More Livable Cities for All
Generally speaking, TOD is development that occurs within a quarter-mile — or roughly a five to seven minute walk — of a transit station. Though each developer’s approach is unique, TOD tends to result in compact, vibrant, sustainable communities that facilitate the use of mass transit and oftentimes even eliminate residents’ need to own a car.
TOD areas are typically characterized by minimal vehicular parking infrastructure, an abundance of bicycle parking (and more recently bike-share programs like Citi Bike), and a variety of intermixed property types (offices, apartments, retailers, civic structures), all of which contribute to especially pedestrian-friendly neighborhoods.
In addition to making life easier for local merchants and residents, well-executed TOD delivers a number of positive outcomes for cities themselves. By reducing residents’ need to drive by as much as 85 percent, TOD has been shown to decrease traffic congestion and air pollution by between 25 percent and 50 percent. Further, by increasing population concentration, TOD reduces — or at the very least stabilizes — municipal government expenses related to fire and police departments, road maintenance, public school busing, and snow plowing service.
As a result of these benefits, according to research conducted by Reconnecting America, over a quarter of American families — comprising around 14.6 million households — will look for housing in a transit zone between now and 2025. As of 2004, there were a mere 6 million households located within a half-mile of a transit station, meaning TOD represents a tremendous opportunity for real estate investors eager to capitalize on Americans’ gravitation toward transit-adjacent housing — and all of the commercial activity that this creates.
The Challenges of Transit-Oriented Development
1. It’s Expensive.
Though the wisdom of investing in TOD is clear, real estate professionals — especially those on the commercial side — face several challenges that they must surmount before becoming a major player.
Most obviously, properties located near transit stations are consistently assessed at a higher price point than comparable, less ideally located properties. This means that even if a commercial real estate investor gets involved with a TOD project early, they’ll still have their work cut out for them to find a profitable deal.
2. Navigating Zoning Requirements.
Further, TOD projects frequently encounter a number of regulatory hurdles that can quickly derail the entire development process. For instance, many municipalities’ zoning ordinances and land development codes express a preference for single-purpose, suburban-scale development. Provisions regulating things like a high floor-to-area ratio (FAR), building height, minimum front setback, and maximum lot coverage automatically disqualify many TOD proposals, and developers need to secure special permission from the municipal government in order to proceed.
Encouragingly, a handful of cities have begun to realize the benefits of this kind of development and have not only lowered troublesome regulatory barriers, but have actually incentivized TOD. As NAIOP highlights: “Seattle’s incentive zoning program provides added FAR for elements such as ‘green streets’ (those that give priority to pedestrian circulation and open space over other transportation uses), LEED certification, and performing arts space.” Other cities like Portland, Oregon’s offer density bonus programs that benefit builders who include public amenities like below-grade parking, day care facilities, and public art.
The Power of Extensive Data
In order to take full advantage of the growing popularity of TOD, CRE brokers and investors should keep a close eye on the regulatory trends in every major American city. Once it’s clear that a municipal government has laid the groundwork for TOD, CRE pros can began to seek out the opportunities that make sense for their portfolio.
Beyond the many inherent regulatory concerns, pinpointing regions and properties that are ripe for TOD requires gathering and organizing an unusually large amount of information, as many areas around older transit stations, especially, tend to be in varying states of disrepair. Finding the ownership information for a dilapidated property has traditionally been difficult, but with the help of platforms like Reonomy, it’s becoming increasingly easier.
Reonomy combines information from vast publicly-accessible records and extensive proprietary data to create a database capable of providing both the casual investor and the seasoned CRE professional with all the information they need to fully understand a property without setting foot on the lot. Especially when it comes to complex project types like transit-oriented development, this comprehensive, centralized repository of data is truly invaluable.