Value Capture in the Context of Transit Oriented Development: Looking Beyond Price Effects to Value Creation. January 12, 2016

Transcription

1 in the Context of Oriented Development: Looking Beyond Price Effects to Creation January 12, 2016 W.H. Corbett, 1913 Transbay Center, Pelli Clarke Pelli, 2015

2 in the Context of Oriented Development: Looking Beyond Price Effects to Creation January 12, 2016 MOTIVATION: Many factors (market, public policy, and consumer preference) suggest growing demand for the economic and real estate Development aspects of TOD. Rail transit ridership continues to expand in the United States. Many TOD projects have underperformed expectations. infrastructure investment is increasingly challenging. agencies increasingly look toward value capture as a potential funding source, but realized VC revenues have been modest (in the U.S.) Reliance on perceived real estate transaction price premiums as reflective of economic opportunity may reinforce an inappropriate sense that if we build it they will come.

3 in the Context of Oriented Development: Looking Beyond Price Effects to Creation January 12, 2016 capture strategies can create opportunities to: Induce virtuous cycles of value creation and capture Focus on value creation as a primary infrastructure investment objective To engage public and private sectors more broadly in support of investment Effective value capture strategies require deeper understanding of value creation VC strategies can create market incentives rather than disincentives VC strategies can mitigate adverse impacts where they arise TOD value creation is a function of velocity and intensity as well as price premiums are a function of factors in addition to unit transaction price Bill Bishop bill@abetterplace.us

4 in the Context of Oriented Development: Looking Beyond Price Effects to Creation January 12, 2016 Bill Bishop Non-Traditional Stakeholder Bishop & Buttrey Mining, embankment fill material Master-planned community development Infrastructure Investment-Induced Creation, Requisite for Effective Strategies GoTriangle - DOLRT LRT station development potential value creation and value capture potential Consideration of Economic Development Potential: Light Rail in Durham and Orange Counties TCRP guidebook: - Financing for Public Transportation Projects

5 Orange County, CA - Sacramento, CA - Phoenix, AZ - Boise, ID Las Vegas, NV - Denver, CO - Austin, TX - Dallas, TX Tampa, FL - Orlando, FL - Research Triangle, NC Planning and financing solutions for horizontal and vertical infrastructure Real estate market analysis and fiscal and economic impact analyses 2,100 land secured public financings $15 Billion bonds to construct public infrastructure 100 redevelopment projects 600 project cash flow, valuation and feasibility analyses 100 development impact fee reviews and project entitlements

6 in the Context of Oriented Development: Looking Beyond Price Effects to Creation January 12, 2016 Bill Bishop Non-Traditional Stakeholder Bishop & Buttrey Mining, embankment fill material Master-planned community development Infrastructure Investment-Induced Creation, Requisite for Effective Strategies GoTriangle - DOLRT LRT station development potential value creation and value capture potential Consideration of Economic Development Potential: Light Rail in Durham and Orange Counties TCRP guidebook: - Financing for Public Transportation Projects

7 in the Context of Oriented Development: Looking Beyond Price Effects to Creation January 12, 2016 capture in the context of transit-oriented development The value proposition regarding transportation infrastructure investment Capital, funding, financing challenges Infrastructure under-investment Evolution of transit-relevant technologies, consumer preferences, market responses Ambiguous political environment transit-oriented development Development Expanding market opportunity Economic development opportunities as well as challenges Shifts in demographics, workforce requirements, and consumer preferences Compelling public policy objectives development-oriented transit

8 in the Context of Oriented Development: Looking Beyond Price Effects to Creation From a development-oriented transit perspective: CREATION: Can become a principal factor motivating infrastructure investment decision Has significant implications for how value capture strategies and opportunities are conceived, priced, and implemented CAPTURE strategies (dependent on value creation): January 12, 2016 Need not be merely another capital-stack component used to close funding gaps Can be structured to induce virtuous cycles of value creation Can drive community and political support

9 Virtuous Cycles of Creation Feedback Loop Diagram + TRANSIT LOCAL GOV T + + Crea7on + LOCAL GOV T + + Capacity + Demand + Accessibility +

10 TRANSIT

11 Direct Investment Infrastructure TRANSIT

12 Direct Investment Infrastructure TOD Crea7on TRANSIT DEVELOPER

13 Direct Investment Infrastructure TOD Crea7on TOD Premium TRANSIT DEVELOPER

14 Direct Investment Infrastructure TOD Crea7on TOD Premium TRANSIT DEVELOPER

15 Direct Investment Infrastructure TOD Crea7on TOD Premium TRANSIT DEVELOPER

16 Direct Investment Infrastructure TOD Crea7on TOD Premium TRANSIT LOCAL GOV T DEVELOPER

17 Direct Investment Infrastructure TOD Crea7on TOD Premium TRANSIT LOCAL GOV T DEVELOPER

18 Direct Investment Infrastructure TOD Crea7on TOD Premium TRANSIT LOCAL GOV T DEVELOPER OTHER PUBLIC SECTOR

19 Direct Investment Infrastructure TOD Crea7on TOD Premium Transfer TRANSIT LOCAL GOV T DEVELOPER OTHER PUBLIC SECTOR

20 Direct Investment Infrastructure TOD Crea7on TOD Premium Transfer TRANSIT LOCAL GOV T DEVELOPER OTHER PUBLIC SECTOR

21 in the Context of Oriented Development: Looking Beyond Price Effects to Creation January 12, 2016 A focus on value creation requires us to look beyond transaction price Where value is proxy for opportunity, price value Price alone is insufficient to inform optimal value capture strategy Hedonic Price Models: Estimate consumers willingness to pay Estimate/predict transaction prices, irrespective of cost to deliver Assume that individuals have the opportunity to choose specific/ alternative combinations of desirable attributes they prefer (that these are not inflexibly bundled)

22 in the Context of Oriented Development: Looking Beyond Price Effects to Creation January 12, 2016 Many cross-sectional hedonic price models reveal significant TOD price premiums. Premium prices may be driven by higher development costs associated with: Pre-development land speculation Building height/density Intensity of development regulation Increased construction, market, financial risk/complexity Premium prices may: Suppress velocity and market share Reflect greater risk as well as opportunity We require greater understanding of the value creation impacts and opportunities of TOD (or DOT). This includes adverse impacts and opportunities to mitigate them.

23 Direct Investment Infrastructure TOD Crea7on TOD Premium Transfer TRANSIT LOCAL GOV T DEVELOPER OTHER PUBLIC SECTOR

24 in the Context of Oriented Development: Looking Beyond Price Effects to Creation January 12, 2016 capture strategies can create opportunities to: Induce virtuous cycles of value creation and capture Focus on value creation as a primary infrastructure investment objective To engage public and private sectors more broadly in support of investment Effective value capture strategies require deeper understanding of value creation VC strategies can create market incentives rather than disincentives VC strategies can mitigate adverse impacts where they arise TOD value creation is a function of velocity and intensity as well as price premiums are a function of factors in addition to unit transaction price THANK YOU. Bill Bishop bill@abetterplace.us

25 Engagement Partnership Exchange Agency Other PRIVATE SECTOR Other PUBLIC SECTOR TOD Private Developer Local Government Land Owner