Browse Tag: value capture

Developers Can Help Build Value Through Transit Value Capture

Stephen E. Schlickman
Stephen Schlickman, Exec. Dir. UTC at UIC

[Guest blogging today is Stephen Schlickman, Executive Director of the Urban Transportation Center at University of Illinois at Chicago.  The relationships between property value and infrastructure are studied exhaustively, and UTC’s specialty is the factor of  transportation infrastructure in the outcome of property value. Today, Steve explores how real estate development can overcome funding challenges for infrastructure projects using a funding technique called “value capture”.  Mr. Schlickman has a law degree from DePaul University and an undergraduate degree from Georgetown University. In 1992, he was named to the prestigious “40 Under 40″ list by Crain’s Chicago Business. -WG]

A reliable, affordable and extensive public transportation system is vital to the continued health and future growth of our nation’s cities.  But some of our largest metro areas face this big challenge:  A significant backlog of underfunded transit capital projects.

Through a process called value capture, the private commercial property industry can play a critical role in funding transit improvements needed to keep cities strong. In turn, properties can grow in value from proximity to a new rapid transit station or other transit development.

Here’s how the process usually works. Municipalities secure partial funding for transit projects through these two forms of value capture:

  • An ongoing tax or fee tied directly to the size and scope of the property. The most common methods are creation of a special assessment district, through tax increment financing or by floor area ratio marketplace factors.
  • A pre-determined financial commitment from the developer, such as a joint development or project cost-sharing agreement.

Last year, a research team from the Urban Transportation Center at the University of Illinois at Chicago completed research into value capture practices in four major U.S. metro cities and produced a report, “Value Capture Coordination:  Case Studies, Best Practices and Recommendations,”

Two key conclusions were drawn: Value capture practices can be successful if municipalities, transit agencies, community groups and developers agree to terms in the initial stages of the development process; and, if all parties support the concept and employ staff skilled in transit planning and funding.

Researchers prepared funding case histories in Chicago, Washington, D.C., New York and San Francisco and found out that the process was employed differently — often dramatically — in each metro area.

For example, in New York, two independent taxing bodies were created to manage funding and planning for the expansion of the Metropolitan Transportation Authority (MTA) Number 7 line subway to serve commuters and residents in Hudson Yards. The neighborhood, located on the west side of Manhattan, has experienced significant commercial, residential, and retail redevelopment in recent years and is close to the Jacob K. Javits Convention Center.  Following negotiations launched in 2005, developers, the city and the MTA finalized three value capture mechanisms – floor area ratio, payments in lieu of property taxes and grants to negate mortgage recording taxes – to fund the $2.3 billion project, now 90% complete.

The process to build the NoMa-Gallaudet U Red Line metro station in Washington took a different, yet successful course.  Years before work began on the station, the District’s Department of Housing and Community Development led coordination between area developers and Action 29, a private civic group. A special taxing district was established and $25 million was raised to fund station construction, which totaled $103.7 million.  Since completion in 2004, there has been $3 billion in private investment near the station.

Public transportation improvements yield many benefits. Better transit can strengthen a business district, give workers greater access to jobs, improve accessibility and increase property values.  Transit value capture offers commercial real estate developers a viable way to enhance their real property assets and improve livability within the community.

Study: Building Inland Port Might Drive Industrial Property Value

Images of UTC study web page

The Urban Transportation Center at the University of Illinois at Chicago released a study this year that suggests the construction of an inland port may have driven industrial property value higher along its service area.

The April study looked at areas along high capacity trucking highways in Will County, Illinois, centered upon a development of an inland port or Intermodal Logistics Center (ILC) in Elwood, IL, a town south of Joliet.*

The report, “Intermodal Logistics Centers and Their Impact on Transportation Corridor Industrial Property Value,” was completed by researchers at the Urban Transportation Center (UTC) at the University of Illinois at Chicago.

Researchers used tax assessment, truck volume and U.S. census data from 2002 to 2007 to analyze patterns and property value changes of industrial property along trucking and waterway corridors close to CenterPoint, a master-planned inland port located on 6,500 acres 40 miles southwest of Chicago. Located in Elwood, CenterPoint was built between 2000 and 2002 with tax increment financing from the Village.

Those roadways studied as part of a treatment group showed an increase in equalized assessed value (EAV) per square foot by $0.25 over properties studied in a control group. The treatment group, located on the west side of Will County, was comprised of properties on or near Interstate 55, Interstate 80, State Route 53, and a waterway — the Des Plaines River/Chicago Sanitary Ship Canal. Properties studied in the control group, located on the eastern side of the county, were on or near Interstate 57, State Route 50 and U.S. Route 45.

Caveats

The study, while finding a correlation between the construction of the ILC and the nearby bump in property values may not have uncovered a cause — the researchers note that it’s possible that speculation in industrial property in the time leading up to the ILC’s construction might be responsible.  Additionally, in Illinois, studies of assessments means studying a number called EAV, or equalized assessed value, a multiplier that fluctuates values in an attempt to more tightly bind market value to tax levy calculation.

Capturing Value

Also mentioned in the full study’s (available here) summary: the economic benefit of techniques of value capture – where special taxes or predetermined grants from developers are used to fund developments that are shown to produce economic benefit.

“In accordance with these findings, planners should consider value capture tools along trucking corridors,” the report stated. “Increases in industrial property value [should be] considered with projects that [involve intermodal logistics centers].”

* Fans of the 1980 film The Blues Brothers will no doubt recognize these town names as those of Joliet Jake and Elwood Blues.