TransLink considering becoming a real estate developer for new revenue

Jun 7 2020, 4:30 am

For decades in Metro Vancouver, private real estate developers have benefited from the significant uplift in land value as a result of new public transit infrastructure, particularly new SkyTrain extensions, and the associated rezoning allowing for new, higher-density development.

TransLink is now looking into capturing some of this value for reinvestment to help fund new infrastructure, repay existing debt for past infrastructure investments, and fund operating costs of public transit operations, as well as increase the regional supply in transit-oriented affordable rental housing. All of this will ultimately help reduce the number of trips made by private vehicle.

“TransLink funds its share of the capital and operating cost of the regional transit system using a variety of revenue sources, including transit fares, property tax, fuel tax, parking tax, and the new regional transportation development cost charge (DCC) that came into effect in January 2020,” reads a newly released study by Coriolis Consulting, commissioned by TransLink.

“The region needs more investment in transit infrastructure, requiring additional funding. TransLink is interested in exploring new sources of revenue that will be sustainable in the long run and that have the potential to advance regional policies.”

TransLink

TransLink fiscal forecast. (TransLink)

The study examines a number of mechanisms the public transit authority could take to increase land value capture. The findings will be used by TransLink staff and both municipal and regional governments to draft potential new ancillary revenue sources:

Buying and selling land for development opportunities

To a relatively limited extent, TransLink already practices land disposition and acquisition as a revenue-generating tool, by marketing its properties that become unnecessary for its operations and acquiring land for new SkyTrain extensions.

Some examples of this practice include the public transit authority’s 2016 sale of its old Oakridge Transit Centre bus depot, which was replaced by Vancouver Transit Centre next to the Arthur Laing Bridge. This deal to a developer for a significant mixed-use development provided TransLink with $440 million.

TransLink also disposed of its surplus land at SkyTrain’s King Edward Station, including the land adjacent to the station and air rights over the station entrance building. Cambie Star, an eight-storey residential and retail building, was completed at this property in 2017.

King Edward Station Cambie Star

King Edward Station with its new bike parkade and the Cambie Star building. (Jeremy Segal / W.T. Leung Architects)

However, the study states the public transit authority can become “more creative and aggressive,” such as marketing portions of its properties that are not entirely needed or air rights above transportation facilities that will remain.

TransLink could also acquire additional properties when buying land for new infrastructure projects, especially when there are opportunities for a land assembly that will result in strong development opportunities after the SkyTrain project is complete.

“Because TransLink is engaged in long-term planning for new transit investment, it is in an excellent position to acquire good quality development properties well in advance of new transit construction,” reads the report.

“TransLink can take advantage of general increases in market value, the new value created by transit investment, and new value that is associated with increased density.”

Fletchers Fabricare 2096 West Broadway Vancouver

Fletchers Fabricare at 2096 West Broadway, Vancouver. (Google Maps)

Along the Broadway Corridor, the public transit authority has made a number of high-profile acquisitions relating to future transit infrastructure and development opportunities.

It acquired Fletchers Fabricare — the southeast corner of the intersection of Arbutus Street and West Broadway, directly across from the future Arbutus Station subway entrance at the northeast corner — for $17.1 million.

At Commercial-Broadway Station, it purchased The Hub — the brick retail buildings on the north side of the station that are occupied by businesses such as Shoppers Drug Mart, A&W, Blenz Coffee, Megabite Pizza, and Booster Juice. This $36-million acquisition will potentially allow for a future third pedestrian overpass over East Broadway reaching an additional Expo Line outbound platform, plus revenue-generating retail and office redevelopment opportunities.

2460 Commercial Drive Vancouver

The Hub retail buildings at 2460 Commercial Drive, right next to SkyTrain’s Commercial-Broadway Station. (Google Maps Streetview)

TransLink’s developer arm

As a real estate developer, if TransLink were to directly participate in development projects, it would not only generate a new source of revenue but enable the public transit authority to gain the tool of the “most direct possible means to shape development and integrate land use and transportation.”

The public transit authority would profit from being involved in financing, building, and selling market-oriented developments, instead of merely selling or leasing property. This could be accomplished alone or in partnership with other developers.

Such developments do not necessarily have to be condominiums, but they could be retail, office, and market rental housing at transit-oriented locations to provide the public transit authority with a portfolio of long-term, revenue-generating property.

The study also suggested considering the idea of adding an affordable housing developer mandate to TransLink, with the public transit authority offering some of its development parcels to non-profit developers or the public sector for new affordable rental housing.

The regional district has indicated it supports the study’s recommendation that TransLink examine an increased role in supporting transit-oriented affordable housing. There are tradeoffs, of course, as the study notes it would reduce the available revenue from such properties that can be funnelled back into TransLink’s primary mandate of public transit.

City of Lougheed Burnaby

Artistic rendering of the City of Lougheed’s transit plaza area, next to Lougheed Town Centre Station. (Shape Properties)

If TransLink were to set a target goal of making $25 million annually from spearheading development projects, it would have to be involved in over one million sq. ft. of new development each year — equivalent to approximately 800 residential units and several large office buildings.

This could be accomplished by combining land acquisition and disposition with direct participation in development. Municipal governments and the private development community have expressed their support for both of these mechanisms.

Hong Kong’s MTR transit system is renowned for its ability to use land value capture as a significant ancillary revenue source and ridership driver.

In 2019, the MTR recorded HK$54.5 billion (CAD$9.5 billion) in revenue, with HK$5.1 billion (CAD$884 million) coming from its property rental and management businesses, including high-density residential and office clusters, and dozens of major shopping malls around its stations.

Community amenity contributions

The study determined municipal governments are strongly opposed to TransLink tapping into or enacting new community amenity contributions (CACs) requirements on developers of transit-oriented developments.

Municipal governments, especially the City of Vancouver, are increasingly reliant on developer-funded CACs and density bonusing to finance their new public parks, libraries, childcare facilities, transportation improvements, and affordable housing.

“Any [CACs and density bonusing] revenue received by TransLink could otherwise have gone to local government. For this reason, local governments may not agree that revenue sharing is in their interests,” reads the report.

“If TransLink involvement is perceived as making the system more complicated or time-consuming, it will be resisted by the development industry. If TransLink involvement significantly increases total expectations for CACs, then it could reduce the incentives for land owners and developers to be involved in the rezoning process, leading to reduced pace of development and rising house prices.”

1465-1489 West Broadway Vancouver South Granville Station

Artistic rendering of Broadway Subway’s South Granville Station integrated into the retail and office development of 1465-1489 West Broadway, Vancouver. (Musson Cattell Mackey Partnership / PCI Developments)

Beginning in January 2020, TransLink saw additional revenue from its new development cost charge (DCC) on all types of new construction in the region. Based on the floor area size of a development project, the public transit authority’s DCC on residential, commercial, and industrial projects is forecast to raise an average of approximately $29 million annually from 2020 to 2027.

Benefiting area tax and property transfer tax

A benefiting area tax is an added property tax that could be applied to areas where new SkyTrain stations are built, as well as frequent transit development areas and corridors.

In 2018, the total property tax revenue, based on the 7% rate, collected by TransLink was approximately $373 million, accounting for about 20% of the public transit authority’s total revenues.

Currently, properties within a 400-metre radius of an existing SkyTrain station (Expo, Millennium, and Canada lines) have a combined total assessment value of about $167.5 billion — equivalent to 13% of the entire region’s assessment base. A 2.2% benefiting area tax applied on the properties within these areas, for example, would theoretically generate $167.5 million in new annual revenue, including $78.6 million from residential properties, $79.4 million from businesses, and $9.5 million from other classifications.

If TransLink were to use a blanket property tax approach to increase revenues, its regional property taxes would have to increase to 14% from the current 7%.

Over much of the past decade, a form of benefiting area tax was practiced by the City of Richmond for the new residential developments built around the site of SkyTrain’s future Capstan Station. The municipality reached an agreement with TransLink in 2012 to build the additional Canada Line station — located roughly mid-way between Bridgeport and Aberdeen stations — by collecting a development levy from each new condominium unit built in the area.

Nearly the entire construction budget for Capstan Station is funded by the city’s ability to raise $31.5 million from area-specific private sector development. Construction is anticipated to begin later this year for a completion and opening in the middle of 2022.

concord gardens picasso

Artistic rendering of Concord Gardens’ Picasso and a conceptual depiction of the future Capstan Way Station. (GBL Architects / Concord Pacific)

As for a share of the property transfer tax, this would entirely depend on negotiations with the provincial government, which collects this revenue directly for its own budget. To raise $25 million annually, TransLink would need a 1.7% share of property transfer tax revenues generated within Metro Vancouver, but this would be affected by the fluctuating volumes in real estate activity and property values.

While there is broad municipal government and stakeholder support for the property transfer tax mechanism, the support from municipalities for the benefiting area tax is mixed.