The economic case for TOD is huge, and rapidly becoming well established.
In his opening presentation at the DC TOD & Urban Real Estate Conference this past October, keynote speaker Chris Leinberger of LOCUS outlined the case for TOD, and remarked that one of the reasons the U.S. still hasn’t fully recovered from the last recession is because we don’t know how to build TOD and other Walkable Urban Places. As Leinberger says, transportation drives development – and it always has – because, "the transportation system that we build dictates the form of the built environment." Thus, if we build only freeways, we will get only drivable sub-urban development. But with a mix of transportation modes, particularly rail transit, we will get walkable urban development.
The distinction between types of development is critically important, because, as Leinberger points out, 35% of U.S. assets are comprised of the built environment. Fortunately, the trend towards building transit-oriented development is increasing at an unprecedented rate. So what’s driving this trend towards walkable urban development that is well connected by transit? The image below outlines the key factors driving the demand for walkable urbanism.
Source: Chris Leinberger
However, as was discussed during October’s TOD Conference, it has been difficult for developers to get funding for these types of projects, primarily due to the long-term timeline for value creation and returns on investment.
Kurt Roeloffs, of Protean Company, offered great insight into the investment world, indicating that this trend is also shifting in favor of TOD. He says, "there is an emerging class of types of investors, ultra high net worth family legacy offices, single offices, and multi offices, sovereign wealth funds, insurance companies who have a long dated liability structure, pension funds, and not-for profit 501(c) endowments, all who think in terms of 20- 50- 100- years." These investment sources, which Leinberger refers to as "patient equity," are now starting to invest heavily in transit-oriented real estate.
Source: Chris Leinberger
Roeloffs mentions that pension funds will buy from the developer in the short term, because they are one of the few capital sources interested in the long-term return on investment of TOD-type development. In reference to the graph above, he says the long-term players that think beyond the 7-year rate of return no longer prefer the "red line," they prefer the "blue line."
Other sources of capital include Foundations, which often have a mission to address social equity and environmental issues in their own communities, or the communities they invest in. This is known as "impact investing" or "mission-based investing", and it is an increasingly popular source of capital for transit-oriented development.
To learn more about the economic case for TOD, and where investment trends are headed, watch our Conference Videos below:
Attend our upcoming Transit Oriented Development and Urban Real Estate Conference in Los Angeles!
The Transit Oriented Development Institute is a project of the US High Speed Rail Association. For more information, interviews, or consultation, contact us by phone (202) 248-5001 or email: email (@) tod.org Mailing Address: Transit Oriented Development Institute US High Speed Rail Association
