TransLink to launch new for-profit real estate development arm

Jun 23 2022, 4:52 pm

In a bid to diversify its revenues following the earlier collapse of transportation demand-driven sources from fares and fuel tax, TransLink has begun the formal process of establishing its for-profit real estate development arm.

TransLink announced today it intends to build residential, commercial, or mixed-use developments near its public transit infrastructure through partnerships with the public and private sectors. This will also align with the provincial and municipal goals of increasing housing supply and creating more transit-oriented communities.

Of course, private developers across Metro Vancouver have long benefited from escalating real estate values and demand, especially near major transit investments such as SkyTrain.

For the public transit authority, the new ancillary revenues from capturing the land lift value and market value of real estate development would be directed towards funding the region’s public transit services, including operations, maintenance, and expansion and improvement plans.

“While we continue to bring riders back to the system after a very difficult two years, this initiative is a creative way to generate funding for essential Metro Vancouver transit services,” said TransLink CEO Kevin Quinn in a statement.

“We will still need to identify more long-term funding solutions, but this program will improve people’s access to transit, create more transit-oriented communities and generate new long-term revenue to help us improve and expand our system.”

Any potential development project that involves TransLink would be accompanied by a comprehensive analysis, including factors such as improving public transit access, building long-term public transit ridership, and supporting the Regional Growth Strategy.

The process to create the new real estate development arm is underway with the support of the Mayors’ Council and TransLink’s board of directors. More information will be made available at a later date. A timeline for the launch of the new division has not been publicly established.

Today’s announcement on the provincial government’s decision in April 2022 to enact legislation to allow BC Transportation Financing Authority (BCTFA) to acquire land next to public transit hubs — SkyTrain stations and bus exchanges — to build more housing and community benefits. BCTFA is currently only permitted to make land acquisitions for the purpose of supporting the needs of building transportation infrastructure projects.

translink real estate development developer construction crane

Construction next to a transit hub. (TransLink)

gilmore place towers

Artistic rendering of Gilmore Place integrated with SkyTrain Gilmore Station. (Onni Group)

TransLink has been considering the idea of creating its own real estate development arm for years, well before the pandemic. In 2020, it released the findings of a commissioned study that found if it were to set a target goal of generating $25 million annually from its real estate development arm, it would have to be involved in over one million sq ft of new development each year — equivalent to about 800 residential units and several large office buildings.

While transit ridership fare-driven revenues are currently recovering towards pre-pandemic levels, TransLink expects it will see a permanent, sustained downward trend in its fuel tax revenues, given the provincial and federal government’s aggressive measures to transition to 100% battery-electric car sales by 2035. This is in addition to the impact of the greatly improved fuel economy of newer car models.

TransLink has noted its new development arm will apply the “best practices” from other public transit authorities around the world with successful real estate development arms, specifically citing London, Paris, and Hong Kong as examples to follow.

Hong Kong’s MTR rail transit system is perhaps best 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.

According to McKinsey & Company, in addition to ongoing real estate revenue, the MTR also makes money from property value increases in the areas where it buildings new subway lines, a business model called “Rail plus Property” (R+P).

The Hong Kong government provides MTR with development rights at the stations or depots. In addition to building a new subway, the MTR partners with private developers to build properties, with the selection of a developer made through a bidding process. MTR then receives a share of the profits that developers make from these properties, which could be a percentage of total development profits, a fixed lump sum, or a portion of commercial properties included in the project.

The MTR’s real estate profits are directed back into maintaining, operating, and building its world-class subway system.

“By capturing part of the value of the land and property around railway lines, MTR generates funds for new projects as well as for operations and maintenance. That is why it does not need government subsidies or loans,” states the consulting firm.

“Revenues from R+P developments above stations along MTR’s Tseung Kwan O line, for example, financed the extension of that line to serve a new town, which has since grown to a population of 380,000.”

As of 2016, through the R+P, the MTR has 140 million sq ft of floor area above half of its railway stations. At the time, new projects being planned or developers totalled another 38 million sq ft. A sizeable portion of MTR’s investment properties portfolio of three million sq ft came from the sharing of assets.

“The financial advantages of the R+P model have been proved over time. Instead of having to pay construction costs or take on the risks of building a world-class railway, the government collects proceeds from the land premium and profits from its roughly 76 percent stake in the company,” states the consulting firm.

“This model has become more than a source of railway financing; it is a critical part of Hong Kong’s urban-development approach. Planners and government agencies seek to make every new railway line or extension into a corridor where well-planned, high-quality communities can flourish.”

In essence, to date, the equivalent transit-oriented developments — retail and amenities in the bottom, and offices and/or housing above — around the SkyTrain stations of Metro Vancouver have largely been driven by private developers, but TransLink is now aiming to claim a piece of the pie of revenues, while also creating new potential development opportunities that may not be available or considered by private developers on their own.

Over the past year, TransLink and its advertising service partners have installed more digital signage on the SkyTrain network as part of a renewed strategy to increase the public transit authority’s ancillary revenues through advertising.

marine gateway 2 pci developments 8530 cambie street

Artistic rendering of Marine Gateway 2 at 8530 Cambie Street, Vancouver. (Perkins&Will/PCI Developments)

1477 west broadway vancouver south granville station tower pci developments

Artistic rendering of the tower concept above SkyTrain’s future South Granville Station at 1477 West Broadway, Vancouver. (Musson Cattell Mackey Partnership/PCI Developments)

Kenneth ChanKenneth Chan

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