Pleasanton Economic Outlook

1
Streetcar Economic Development Study PRELIMINARY
FINDINGS Presentation December 10, 2008
2
Overview of Scope

• Background Review, Corridor Tour
• Team BAE Warren Associates Integra Realty
  Resources
• Assess value premium for system financing
• Interview stakeholders (property owners,
  developers, CDCs, institutions)
• Literature review
• Limited literature on streetcars
• Need to borrow from light rail studies
• Case studies (both quantitative and qualitative)
• Little Rock, AR
• Seattle, WA
• Memphis, TN
• Portland, OR

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Overview of Scope

• Estimate amount and location of new development
  in Charlotte along streetcar route
• Four segments to reflect local markets
• Improvement-to-land ratio (I/L) as first-cut to
  identify underutilized land
• Identify development potential (current zoning)
  and prototype projects
• Result - summary of location, type, and timing of
  development in 5 year increments, 2010 to 2035
• Estimate increased tax revenues
• Estimate amount of system potentially paid
  through value capture
• One-time capital costs
• Assessment districts, Tax increment financing
  (TIF), etc.
• Report

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Streetcar Corridor and Segments
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Overview of Streetcar Financing Tools

• Federal Small Starts strict cost rules have led
  to only 3 approvals. May be revised with
  SAFETEA-LU reauthorization
• Proposals to consider economic development
  benefits when reviewing
• Approved extension to date Portland (after
  multiple tries)
• Approved new systems to date Fort Lauderdale,
  FL Tucson, AZ
• State and regional capital improvement programs
  funded through various sources
• Most common are gasoline and sales taxes
• Multiple local sources typical taxes, parking,
  surcharges
• General funds, sales taxes parking meters,
  parking garages, surcharges at served public
  arenas and venues (Portland, Ore 8 sources)
• Institutional or private donations because of
  benefits received
• Ohio State contributing 12.5 million to Columbus
  streetcar. Cincinnati raising 30 million in
  donations Grand Rapids 50 million

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Value Capture Literature Review

• Numerous studies on property value increase close
  to transit
• Most studies about light or heavy rail
• Limited literature about streetcar value capture
• Findings
• In US, value can increase 5 to 20 for housing
  units within ¼ mile of transit station
  (light/heavy rail)
• In US, office rents can increase 5 (confirm)
• Depends on business cycle, noise and nuisance
  from trains
• New Center for TOD study emphasizing tax
  increment over TOD premium
• Financing based on value capture
• Idea is that property values will go up, and
  property taxes will go up too
• Value capture translates into higher property
  taxes to support Tax Increment Financing (TIF)
• TIF captures increment (growth) in taxes above a
  baseline amount. Can be pledged for repayment of
  bonds
• Has been used only on limited basis so far
  Portland, Seattle

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Overview of Streetcar Financing Tools

• Local land-value based sources to capture
  transits enhancement to real estate value
• Tax Increment financing (TIF) capture increment
  (growth) in taxes above a baseline amount. Can be
  pledged for repayment of bonds
• Assessment Districts, e.g., Local Improvement
  District (LID), Municipal Service District (MSD)
  etc. direct tax assessment on area receiving
  benefit bondable
• Can be based on benefit by lineal foot of
  frontage, sq. ft. in walkable zone (LID) or as
  added rate onto property tax rate (MSD)
• Development Impact Fee or Service District Charge
  broadly used, typically require nexus study
  linking fee to benefit received
• Charlotte has transportation impact fees. Equity
  issue for those who pay vs. those who dont but
  still get benefits
• Joint Development publicly owned developed to
  benefit from increased land value. Streetcars
  typically have less land available for this
• North Carolina law only provides for TIF, MSD,
  TAD, impact fees. Legislative approval likely
  needed for additional tools

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Value Capture Primary Research

• Portland
• Opened in 2001
• Extensive development along line (e.g., Pearl
  District)
• More than 9,000 riders average (weekday)
• Managed by unique non-profit on contract with
  City (Portland Streetcar Inc.)
• Capital Funding

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Value Capture Primary Research

• Portland, contd
• Extensive analysis of impact on amount and timing
  of development, not land value increases
• 2005 report for Portland Streetcar, Inc. analyzed
  new development patterns as a result of downtown
  Westside streetcar
• Most of the downtown area has FAR more than
  double long-term market potential
• Between 1997 and 2004, density of new development
  was greatly increased total of 4.6 million sq.
  ft. near streetcar
• Density greatest within 1 block of streetcar
  built to 90 of FAR post-1997 pre-1997 existing
  development only at 34 of FAR
• Sites within 1-block had 19 of neighborhood
  development pre-1997 captured 55 of all new
  development in their neighborhoods post-1997
• Net result less intensively developed area was
  built up to average density elsewhere in the
  downtown area

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Value Capture Primary Research

• Seattle
• 1.3 miles through South Lake Union (bio-tech
  corridor near downtown)
• Part of larger initiative to develop South Lake
  Union neighborhood (substantial recent investment
  in Fred Kettering Cancer Research Center, lofts,
  retail, office, R D)
• Opened in Dec 2007
• Ridership has surpassed projections ( 350,000 a
  year, need full year of operations to get to
  average)
• Total cost 50.5 M
• 25 M funded by Local Improvement District (LID)
• Balance from public sources (local, state,
  federal)
• Funding works well due to major property owners
  (U of W, Vulcan)
• Value capture analysis not feasible due to recent
  opening (one year)
• Appraiser study to calculate LID benefit
  effectively assumes transit value premium that is
  created is 1.3 of baseline assessed value

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Value Capture Primary Research

• Memphis
• Original line opened in 1993 along riverfront as
  part of riverfront redevelopment
• Expanded in late 1990s, and again in 2003
  (Madison Street line, runs perpendicular to
  river, through downtown). Refurbishes historic
  (heritage) trolley cars
• Total system now 7 route miles. Ridership more
  than 3,200 per day
• Frequent headways are key to high use (peak hour
  headways - 10-12 minutes)
• Most recent extension serves growing
  medical/bio-tech corridor
• 1 B development by 5 hospitals, U of TN research
  facilities, U of Memphis Law School
• 450 new housing units nearby more in area
  (related to strong real estate market as well)
• Transit Authority believes streetcar established
  Class A amenity due to development pattern with
  bio-tech R D at/near streetcar, creating
  vibrant urban environment
• Multiple funding sources
• BAE looked at 2002, 2008 tax appraisal data for
  Madison Street line. Land value for commercial
  land increased 70 in value
• Residential properties increased 780 due to
  condo building boom (vs 24 City-wide however,
  existing commercial buildings decreased in value
  (vs. City-wide 17 increase)

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Value Capture Primary Research

• Little Rock
• Opened in late 2004
• 2.5 miles, half is bridge across Arkansas River
• Financing relied mostly on FTA Smart Starts
• Limited ridership primarily tourists, 300
  riders per day
• Most new development along line is non-taxable
  (Clinton library, parks, baseball stadium)
• Quantitative analysis of value capture not
  feasible due to timing of assessments (properties
  reassessed 9 months after opening, next
  reassessment in 2009)

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Charlottes Light Rail Experience

• Special analysis by Integra to study value
  increases along LYNX Blue Line
• Approx. 9.5 mile route with 15 stations
• Total of 65 land sales along corridor between
  2002, 2008, including 11 paired land sales
• Reflects land with, without TOD zoning
• Annualized change (per year) ranged from 37 to
  143for parcels with TOD zoning
• Annualized change ranged from 5 to 17 for
  parcels without TOD zoning

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Charlotte Stakeholder Interviews

• Local developers, property owners, brokers,
  community members on interest in streetcar, link
  to economic development
• Blue Line has convinced people of transit
  benefits and value that accrues to land
• Transit entitlements for greater density
  attractive to developers. However, developers
  caution transit is an amenity, not a demand
  generator
• Amenities can enhance project success, developer
  returns
• Streetcar seen as critical to east/west corridor
  economic development, so competes with NoDa and
  South End
• Developers have acquired sites and paid prices
  that have a streetcar premium built-in up to
  50 per sq. ft. of land
• Affects ability to do redevelopment, attract
  equity and debt investment
• Support for both TIF and MSD institutions
  opposed to LID
• Expect Gold Rush line replacement by streetcar
  continues fare-free zone

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Streetcar Corridor Overview

• Most of the corridor is subject to an Area or
  other plan completed since 2000
• Downtown segment has same zoning controls as rest
  of downtown, allowing tall, dense development
• PED zoning overlay applied to many parcels
  outside Downtown allows moderate density
  mixed-use development
• More flexible on mix of uses, other requirements
• Starts with 40 base height, allows height
  increases at ration of 1 height for each 10
  distance from adjacent residential
• Maximum height limit of 100
• Reduced parking requirements, flexibility in how
  can be met a key factor for enhancing
  development feasibility

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PED Zoning Overlay Outside Downtown
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Infill Development Potential

• Streetcar corridor is fully developed, so new
  projects are either redevelopment or infill
  development
• These types of projects can face numerous
  challenges
• Finding or assembling large enough parcels
• New development can create enough additional
  value to justify risks, giving up existing income
  from property, etc.
• Potential complex issues infrastructure,
  environmental remediation
• Challenges of neighbor and other public
  acceptance
• A big plus is increasing premium by residents and
  businesses on convenient locations closer to
  downtown areas
• Particularly older nearby areas with high quality
  or historic building stock, unique character,
  etc.
• Increasing emphasis on quality of place and
  experience

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Estimating Development Capacity

• Evaluated entire corridor to identify
  underimproved properties most likely to redevelop
  or have infill development
• Based on PED, other applicable zoning, calculated
  development potential for opportunity sites
• Corridor sites with greatest potential in next 25
  years could support 10,000 20,000 new dwelling
  units in all segments 500,000 - 1 million sq.
  ft. commercial outside Downtown
• Sites with longer-term potential (25 years)
  could accommodate 5,000 10,000 new dwelling
  units, 200,000 400,00 sq. ft. commercial
• New development does not include renovation of
  existing buildings
• Residential range affected by rate Charlotte
  supports future development at greater densities
  compared to lower density past, present

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Market Support for Development

• Infill site analysis answers question of how much
  development might fit in the streetcar corridor
• Market analysis seeks to answer the question of
  how much development activity is likely to occur
• Challenge in looking at market potential is,
  except Downtown, historical trends show modest
  development activity
• Midtown area, esp. Elizabeth Avenue, now showing
  strong development interest, proposed projects.
  Initial phases being constructed
• Can look to experience of other cities, including
  Charlotte, on how transit has helped accelerate
  development
• While not market-based, can look to future
  regional growth projections to think about how to
  capture a larger share

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Projecting Market Support

• Work with Warren Associates to consider
  alternatives
• Started with Centralina COG projections for
  growth 2010 2035 for local areas around
  streetcar corridor segments
• Used this to define a baseline scenario
• Aside from Downtown, higher growth than
  historical and recent trends based on supportive
  policies, public investment, etc.
• Assess portion of local area potential each
  segment captures
• Further allocate residential by ownership vs.
  for-sale, product type
• Office space based on employment growth, adjusted
  for proportion of office employment in various
  economic sectors
• Retail based on household growth, spending
  patterns
• Also created an accelerated scenario assuming
  corridor captures .5 more of growth in 9-County
  region
• Rapid growth, multiple corridors limit share
  growth
• Likely upper limit for region 1 - 2 chose more
  modest figure to not overestimate TIF and MSD
  potential

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Market Projections

• Figures are preliminary, for 2010 2035, subject
  to revision based on staff and other technical
  review
• For residential, based on growth in one household
  generates one new housing unit
• Baseline scenario Streetcar corridor captures 6
  of all household growth in 9 county region
• Accelerated scenario Streetcar corridor
  captures 6.5 of all household growth in 9 county
  region
• Retail calculated based on number of households,
  household expenditure patterns
• Figures show more buildable capacity available
  than potential demand to absorb sites
• i.e. development capacity is not constrained by
  current zoning

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Market Projections

• Share of development by segment for each product
  type (baseline, accelerated scenario is similar
  /- 1 - 2)

Segment For-Sale Residential Rental Residential Retail Office

West 16 14 5 4
Downtown 53 54 59 78
Midtown 19 19 28 10
East 13 13 8 8
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Funding Sources for Value Analysis

• NC Constitution recently amended to allow
  district-based Tax Increment Finance (TIF),
  limited state-wide experience
• Previously limited to synthetic TIF --
  essentially repayment of developer-advanced
  funding for public improvements
• Once district is okd, baseline assessed
  valuation is set, City collects its share,
  .46/100 on increases in valuation (excludes
  County share)
• Does not provide funding for increased public
  service costs
• Municipal Service District (MSD)
• Collected as additional rate on property tax. For
  4 existing Downtown MSDs, rates vary from .017
  to .056 (latter is South End)
• For Downtown MSDs in streetcar corridor, added
  MSD rate of approx..04 combined with existing
  MSD would match South End rate
• No other sources modeled not allowed / no
  policy direction
• Critical Infrastructure Needs Assessment District
  legislation would include exempt properties

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Scenarios for Modeling

• Three scenarios created that combine multiple
  variables for development, TOD premium,
  appreciation, other investment
• Low baseline growth, low appreciation, no TOD
  premium
• Medium baseline growth, historic
  appreciation, modest residential reinvestment, 5
  TOD premium
• High accelerated growth, historic
  appreciation, modest residential reinvestment,
  10 TOD premium
• Existing assessed value for corridor properties
  used to set assessed value
• TIF is increment, next reassessment cycle
  expected before setting base value, so doesnt
  affect calculation of increment
• To identify MSD rate to calculate receipts,
  assumed three potential rates based on current
  Downtown MSD rates
• Modeled .02, .04, .06
• Only .06 rate would set a new peak rate for
  Downtown MSDs

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Model

• Created year-by-year cash flow model for 2010
  2035 to calculate annual and cumulative increase
  in TIF, MSD
• Model is linked to parcel database, assumptions
  to allow modeling of multiple scenarios
• Assumes no TIF, MSD collected from tax-exempt
  properties (CPCC, Presbyterian, Johnson C. Smith
  University, Johnson Wales, churches)
• Incorporates market projections, current market
  values
• Calculated in constant 2008 dollars
• Answer provides input to consideration of
  potential bonding or other financing tools
• Have not attempted to estimate potential bonding
• Needs depend on project timing and cost. May
  require interim borrowing from other City
  accounts, or credit guarantees
• Bonding costs, underwriting requirements will
  mean that total increment is not available for
  bonding, financing improvements

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Modeling Results

• Potential streetcar capital cost of up to 400
  million. Potential 25-year receipts per
  preliminary model, for City share only

• Does not include existing synthetic TIF repayment
  agreements
• Relative to other cities, this is a much higher
  potential proportion of funding due to
  Charlottes higher growth rate
• Changes in assumptions can significantly change
  findings
• Development assumptions based on proactive public
  policy and supporting actions to stimulate
  revitalization

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Next Steps

• Submit draft report for review
• Technical, policy, other review by City staff
• Following submittal of consolidated comments,
  revise report and model runs as needed
• Final report produced in January for
  consideration by Advisory Committee, City Council

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Discussion