How broadly applicable is the All Aboard Florida development strategy?

» Coupling real estate investment with the construction of new transit lines is the future, but the conditions need to be right.

Public development and ownership of the transportation system in the United States provided some broad, important social benefits that would not have been possible had our governments left it in the hands of the private sector. The downfall of the public transit and rail industries between the 1930s and 1970s throughout the country (itself partly a consequence of government investment in roads) was due to the fact that those services were no longer profitable. Government intervention through takeover of bankrupt lines kept those services operating and ensured the continuing existence of what is truly an essential public service in our major metropolitan areas.

Yet with the governments takeover of transit services, our regions lost a powerful skill that private transportation providers a century ago used well: Connecting new development with transit investments. The history of New York City’s Grand Central Terminal is often told, but it bears repeating. The New York Central Railroad, which built the terminal, decided to submerge the tracks under Park Avenue north of the terminal in order to create a massive new business district surrounding the station. That neighborhood remains the nation’s most important commercial center.

The railroad understood that the land it used to build its line was valuable, and that allowing new investments in the area near its station would produce a virtuous cycle that built ridership, which, in turn, increased the value of the surrounding land. It’s an understanding we must absorb if we are to ensure that our transit investments are most effective.

After decades of simply ignoring the land use-related effects of transit investments, over the past two decades local governments have made halting efforts to take advantage of this fact, encouraging transit-oriented development by private investors in areas near new stations through the sale or lease of land or the altering of land use regulations to better accommodate denser growth. The most dramatic version of this is the Hudson Yards program on Manhattan’s West Side, where millions of square feet of new office and residential buildings are under construction or planned. Parts of this land was sold to a private bidder by the Metropolitan Transportation Authority (MTA), which will run a new subway station on the 7 Line, and parts were rezoned to allow big buildings by the city.

Altogether, this represents an intentional effort by New York City to repeat the lessons of Grand Central Terminal by merging transportation investment with a real estate program. But, unlike previous private sector development programs, the MTA and city have not been directly involved in the surrounding projects themselves, relying instead on third-party developers to make the choices and, eventually, reap the rewards.

All Aboard Florida’s $1.5 billion investment in new intercity rail services between Miami and Orlando suggests that the private sector is, in part, picking up the slack by taking advantage of the same forces that the private sector used to build its rail lines a century ago. The rail line will run 235 miles from downtown Miami to Orlando airport in around three hours (compared to five hours on Amtrak today). All Aboard Florida is investing in massive new station complexes in Miami, Fort Lauderdale, and West Palm Beach. The Miami terminal, which will be located on company-owned land downtown, will include two million square feet of office or commercial space, and one million square feet of residential space, as shown below. The project is coming along more slowly than initially planned, but company officials insist they will not need government aid other than a large, low-interest loan from the federal government which it expects to pay back from ticket revenues.

Why has it taken so many decades for the private sector to get back into the development game? The growing demand by individuals to live in urban centers is attracting interest in monetizing the benefits of transit-oriented development, and that’s particularly true for large urban markets like Miami. All Aboard Florida will not need its real estate investments to subsidize its rail operations, which it expects to be operationally profitable, but those developments will certainly help justify the investment in the rail service. They’ll also build the rail line’s ridership, as they’ll create major destinations right at the stations.

Government transit agencies focus on the provision of good transit service, and if you ask management at most agencies, they’ll let you know that they need to focus on “what they’re good at,” i.e., running buses and trains. Yet that approach has repeatedly produced projects with mediocre ridership and little nearby development. Transit agencies are reliant on surrounding land uses to support their operations and whether or not they want to, they must make real estate development something they’re “good at.” It is in the public interest to make our transit system not only well-used, but also the foundation for a sound urban development strategy.

The idea of melding new transportation infrastructure with real estate investments does not have to be a strategy reserved to the private sector. For decades, Hong Kong has used its metro system (76% owned publicly) to invest in surrounding developments, which include properties as diverse as towers and shopping malls (this is known as the “rail plus property” model). Similarly, the Grand Paris Express program I profiled earlier this week will integrate its stations into large new developments directly planned by the government implementing agency (“Completed by private developers, the connected project takes into account the technical and functional prescriptions defined by” the agency, with a program “defined by municipal land use plans“). A special tax on property near stations on the line will help pay for the construction of the metro project.

Of course, the All Aboard Florida, Hong Kong metro, and Grand Paris Express projects are exceptional programs that cannot be repeated in most regions. All rely on strong local real estate markets where there is significant demand for major new development. All Aboard Florida takes advantage of that company’s prior ownership of the tracks used for the trains and of the land where its stations and surrounding real estate will be completed. Meanwhile, the transit investment programs in Hong Kong and Paris have been supported by major infusions of government grants that are not available in most American cities and by considerable political will to invest in the creation of denser, more transit-oriented regions.

Most U.S. regions are too sprawling, too auto-dominated, or too poor to expect this kind of transit-oriented development to occur simultaneously with new rail or bus links, particularly if that means that the transit agency has to take on some risk that a project will fail financially.

Nonetheless, major U.S. cities with significant demand for dense living and working environments like Boston, Chicago, Los Angeles, New York, Seattle, and Washington should evaluate their transit investment programs to ensure that they’re taking the greatest advantage of surrounding land to develop large real estate projects. These developments will not only increase system ridership but also bring decades of future revenue from office, residential, and retail rent, all of which can be used to improve transit system finances. Recent system expansions in Los Angeles, Seattle, and Washington — none of which have included major development projects on land owned by the transit agencies — suggest that there is significant work left to be done.

Images above: Proposed Miami station, from All Aboard Florida.