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Jul. 27, 2012

Cities Sign on for Light Rail

By Keat Foong, Executive Editor

No doubt, developers have an interest in locating their projects near transit stops. In this day and age, there is a sea change in where the apartment target market wants to live—in urban, walkable, mixed-use, high-density neighborhoods that are convenient to entertainment and work—and transit very much figures into this equation. The good news for developers is that secondary and tertiary cities have watched the success of old gateway cities such as New York, Boston, Washington, D.C. and San Francisco that contain mass transit systems, and they want to create similar conditions on their own turf. So these smaller cities are looking to build new—or add to their existing—transit systems, such as light rail and trolleys, subways, commuter trains or even ferries and water taxis.

“It is clear that most U.S. major metro areas recognize transit as a key part of their metro futures,” agrees Rachel MacCleery, vice president at the Urban Land Institute (ULI). “Most are investing in transit and recognizing that investment as a key component of being a metropolitan area that can attract the kinds of people that expect transit.”

Transit systems provide convenience to users, and not surprisingly, they have been very popular with constituents. According to ULI, between 2008 to 2011, “ballots that allocated funds to transit capital or operations had a 73 percent success rate.” In particular, light rail, which has its origins in the old streetcar systems and may operate on the roads alongside car traffic or have their own separate rights of way, seem to be particularly popular with municipalities.

The number of light rail systems built seems to have increased each decade between the 1980s and 2000s. There are currently some 20 light rail systems operating in the U.S., in cities including San Diego, Dallas, Denver, Portland, Ore., Phoenix, Jersey City, N.J. and Baltimore. Additionally, at least 13 metro areas are currently building light rails, and many more are being planned, according to an NPR report by JJ Sutherland, which says that it is difficult to find a city in U.S. that is not planning or building a light rail system.

From multifamily developers’ point of view, light rail systems are an amenity to the extent they increase access to the site and mobility of the region, or attract workers or residents, says ULI’s MacCleery. For fixed rail, the development scale is at the level of the station. For transit-oriented development to work, the system needs to be well planned to begin with, says MacCleery, and the zoning and regulatory environment has to be conducive to development. To be successful, the light rail should be able to take people where they want to go and be convenient, safe and affordable to use, she notes. And of course, the rapid transit should be in the right location with respect to real estate markets. “Transit does not make a bad location good. It makes a good location better,” quotes Todd Noell, president of Noell Consulting Group.

Banking hub Charlotte’s award-winning Lynx Rapid Transit Services system, which opened in November 2007, provides an example of a successful light rail line. Serviced by CATS, the electric-powered light-rail transit currently consists of one line— the Blue Line—and is part of a greater transit network that includes buses, commuter rail, and possibly in the future, streetcars. The 9.6-mile, 15-station, Blue Line begins at the 7th Street station in Center City in downtown, travels south through Uptown and South End and ends at Pineville, N.C.—a suburban town in the southern end of Mecklenburg County. Charlotte’s 2030 Transit Corridor System Plan calls for additional rapid transit developments in five corridors.

Noell Consulting Group was hired to advise CATS regarding the real estate development potential along the Blue Line. The firm found that the greatest propensity for development around the stations lay in the historic South End neighborhoods—especially around the first number of stations coming out of downtown, says Noell. The reason the Blue Line around these stops would be successful, says Noell, is that the historic South End is situated conveniently close to downtown, is adjacent to an affluent neighborhood, still contains a good stock of turn-of-the century warehouses (which seem to be the trendiest real estate nowadays among the younger, “creative” set) and has a “sense of place” with some degree of walkability, architectural interest, parks and greenbelt.

After Scaleybark, the ninth stop on the Blue Line, the locations become more challenging in terms of real estate development potential because they consist of aging commercial strips originating in the 1960s to 1980s that do not have “a sense of place,” suggests Noell. Developers would have to develop inward-looking isolated islands in those areas, “something they are not going to build,” he notes.

The Charlotte city council adopted transit-oriented development zoning for areas around the Blue Line to allow for more dense and intense development, such as more units and fewer parking spaces. Bus routes were adjusted to bring riders to the stations, and parking lots were built on some stops to accommodate commuters driving to the stations, says CATS’ Votaw. The planners also looked at roadways adjacent to the to the stations and made adjustments to allow for sidewalks.

How would we know if the Lynx Blue Line has been a success? Two measures CATS considers are the level of ridership and the amount of new real estate development, says Votaw. Ridership, for one, exceeded expectations. By the end of the first quarter of 2008, weekday ridership had increased to 18,600, which was double CATS’ projection of 9,100 in average weekday ridership for the first year, and even ahead of the original forecast of 18,100 riders by 2025.

In terms of real estate construction, the city of Charlotte projects new development to total $1.5 billion between 2005—when the Blue Line commenced construction—and 2013. According to Charlotte Center City Partners, at last count there was a 58 percent increase in housing units and a 49 percent growth in dining and entertainment retail since 2007. Most of the new development has been concentrated in the South End and consists of multifamily residential, says Votaw. There are about 1,500 multifamily units that have been built, another four under construction containing a similar total number of units and a few additional projects about to be announced.

The planning and building of the light rail system reflects public officials’ “willingness to think about the very long-term prospects for the city,” comments developer Monte Ritchey, president of Conformity Corp., who commended the city for its courage to take on the transportation project.

Conformity Corp., which focuses on developing urban infills exclusively, is the developer of Southborough—an 11-acre, $28 million mixed-use project located in the Lynx Blue Line transit corridor. The property is situated about half a mile, or about 10 minutes’ walk, from the New Bern Station stop. The site was assembled by the home improvement retail outlet Lowe’s in the early- to mid-2000s, Ritchey explains. Lowe’s, which owns the land, selected Conformity Corp. as a strategic partner to develop the residential and mixed-use components of Southborough and win entitlements. Conformity Corp. was chosen from among about a dozen bidders, recounts Ritchey.

Completed in 2009, Southborough consists of a 140,000-square-foot Lowe’s big box store with rooftop parking, a 16,000-square-foot rooftop garden, a 30,000-square-foot garden center, and a 4,200-square-foot outdoor living center; 69 condominium units; and a 28,000-square-foot, four-story, commercial building with retail space on the ground floor and office space on the upper  floors. The condominiums consist of 33 flats with one-car
garages and 36 townhomes in three different flavors of architecture: modern, traditional and flats. “The architecture does its best to respond to the context across the street at any point,” says Ritchey. Conformity Corp. was responsible for delivering
all the real estate with the exception of the Lowe’s store.
Southborough was designed by BB+M Architecture with land planning by LandDesign.

Riding in a vehicle on the street fronted by the traditional townhomes, one would never guess that there was a Lowe’s big box store situated on the site behind the townhomes. One of the distinct features of the Southborough site plan is that the housing is wrapped around Lowe’s-–without having a view onto the store. Understandably, members of the historic Dilworth neighborhood had been particularly concerned about the presence of a big box store. The eventual solution that was found: the traditional townhomes sit on the streets facing the historic neighborhoods, while behind them, forming another housing layer, the flats wrap around the store and face out towards the townhomes. Driveways leading into interior courtyards, fountains, or green spaces lend a sense of human “discovery” and site “porousness.”

Southborough’s location in the transit corridor meant that Conformity Corp. had to comply with density requirements and architectural guidelines that applied within a half mile ring of the transit stop, says Ritchey. “Those were the two big tests [of the transit station location]: density and architectural guidelines,” says Ritchey. The TOD overlay district zoning required, for example, urban setbacks and fewer parking spaces. In addition, conditional rezoning provided further zoning refinements that were specific to the project.

What CATS did well, says Ritchey, was “its decision to integrate the planning mentality with the transit mentality in as complete a manner as possible” with respect to the layout of the transit, as well as to think through the bus routes, and reroute or add additional routes to integrate buses with the light rail station.

Noell Consulting Group has found that rents of apartment properties located in the South End along the Blue Line transit corridor carry a 12 to 13 percent premium over rents of comparable apartments located around downtown Charlotte that are not close to transit, says Noell. Noell says that anecdotally, apartment managers in the transit corridor report about 30 to 40 percent of prospects cite the transit location as a key factor in their decision to rent. In the case of Southborough, the condo prices ultimately ranged from about $180,000 to $370,000, says Ritchey. The development’s location half a mile from the station may have lessened its premium somewhat, Ritchey acknowledges. So, for the forsale multifamily homes, the transit stop location acted more as a “differentiator” for the property rather than a premium.

All the same, Ritchey says the creation of the Blue Line reflects the city of Charlotte’s “meaningful commitment to densification and resistance to sprawl that has put so much demands on its budget and the sustainability of the city.”

“Residents today desire a mix of housing amenities,” including access to mass transit, adds MacCleery. “They will choose the place and look for the place to live based on whether it has those amenities. That is more and more the case, especially with Gen Y.” And it so happens that audience, which demands transit in an urban location, is also precisely the audience that multifamily housing–at least at the highest end–is increasingly targeting.

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