A Reflection on Transit Oriented Development through a Market

PerspectiveAssoc ProfFrançoisViruly

Transit Oriented Development…• Increased pressure on

Local Governments to address environmental, social, and transport issues.

• TOD is not just about Transit but about development

Are we asking too much of TOD?...

SuccessfulTOD Social

Political

Economic

Environ-mental

- LessCongestion- BetterAirQuality- DecreasedAutomobileUse

andGHGEmissions- DecreasedEnergy

Consumption- GreenerCities

- ImprovedQualityofLife- BetterAccessto

employmentandservices

- Improvedpublicspaces- Inclusive,Safeand

Liveable Communities- ReducedLivingCosts

- EconomicGrowth- LinkEmployment

Centres- IncreasedEconomic

Infrastructure- DiverseMixof

commercialdevelopments

- AddressSpatialInequality- AddressAccessInequality- RestructureInefficientCities- PromoteCompactDevelopment- PromoteDevelopmentinPoor

Communities

Understanding Property Markets…

Endogenous and Exogenous Factors…

Understanding Property Markets…

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GDFI- RESIDENTIAL&NONRESIDENTIALSECTORS

Res

Non- Res

Understanding Property Markets…

Understanding Property Markets…It’saboutEducation,Leisure,HousingratherthanRetail,OfficeandIndustrialSpace

Source:ULI

Understanding Property Markets…HowtoParticipate:RealEstateInvestmentscanbemadefromaWideRangeofStartingPoints

Public Private

Equity

Debt

PublicEquity

PrivateEquity

PublicDebt

PrivateDebt

Understanding Property Markets…ChangingModelsofDevelopment

Complexity of the Market

DEVManagement

VALUE

SUPPLY USERMARKET

RENTALS

FINANCIALMARKETS

INSTITUTIONS

INSTITUTIONS

• Demographics• Transport• GDP

• Interest• Investor

Confidence• BankingSector

• DevConfidence

• DevCosts• Typesof

developers

Complexity of the MarketUnderstandthePlayers:WhoseObjectivesareDifferentandManyMore…

•Shorttermreturns•Risk/return•The‘notionaldeveloper

•Longtermreturns•Risk/return•Liquidity•Propertytypes

•Socio-economicobjectives•Landuse•OptimiseExternalities

•Optimizelocation•Reducecosts•Optimisetransportcosts User Local

Government

PrivateDeveloperInvestor

- UserComplexities- DeveloperComplexities- InvestorComplexities.- PublicSectorComplexities

Key Obstacles to TOD from a Market Perspective• Available Data and Information

• Available Skills and Expertise(Both Public and Private Sector)

• Lack of Early-Stage Partnerships with Investors or Economic View

• No Recognition of Market Trends(Housing, Employment, Urban Land Economics, and Real-Estate Trends)

• Land Assembly(Making sure there is enough land for developers to make a profit)

Why the Markets Haven’t Responded…

DevelopmentRisks…

TypeofProject

InvestorRisks

InvestorRisk

TypeofProject(MixofUses)

TheSizeoftheProject

PublicParticipation

LocationalRisks

FundingRisks

UserRisks

Planningand

Infrastruct-ural Ricks

TechnicalSiteassemblage

Responsiveness determined by IRR

IRR+

IRR-

TARGETIRRAB

StrongMarketWeakMarket

Key Determinants for Success of TOD

• Extent of Transit Investment/Number of Stations

• Travel Behaviour & Direction of Flows

• Transport Node Housing and Employment Density

• Transport Node Commercial Mix

• Housing Type Preference• Regional Market Structure &

Consumer Behaviour• Street Pattern

Key Determinants of Urban Development in Cape Town

• Economic Factors

• Existing Spatial Configuration

• Availability of Affordable Land

• Existing Transport Networks

• User demands:(Level of activity, user needs, affordability, availability)

Shortcomings of TOD Implementation• Responding to Urban Issues rather

than Understanding the Forces that Cause Them

• Conceptualised and Implemented before Feasibility Analysis Takes Place

• Are Not in Touch with Development Drivers and Forces

• Dislocated from Market Forces and Urban Land Economics

• Land Restructuring Does Not Support Investment

“HistoricallyprivatesectorleddevelopmenthavelargelyignoredtheCity’sproposedspatialrestructuringplanningpolicydirectives.Thisisdue,largely,toalackofunderstandingofthemarketandparticularlythemotivesthatdriveprivatesectorleddevelopment”Source:CoCTTODStrategicFramework

FeasibilityFINANCIAL FEASIBILITY

COST-BENEFIT ANALYSIS

SOCIO-ECONOMIC FEASIBILITY

Whatneedstobedonetomakethiswork?

IstheprojectProfitable?

Doestheprojectcreatethedesiredemployment?

Optimising TOD Externalities and Realizing the Benefits

OPTIMISINGTOD

EXTERNALITIES

Focusonthecorrectlevelof

scale

UnderstandthePlayersInfluence

Feasibilities

AvoidDistortingthe

Market

UnderstandMarkets:- Segments-StructureofMarkets-Costs

Future Considerations for TOD in Cape Town

• DEMAND SIDE INTERVENTIONS

§ Promote Economic Growth

§ Employment Creation

§ Reducing Location Costs

§ Improve Liveability

§ Incorporate Market Trends (housing, employment, urban land economics, real-estate)

SUPPLY SIDE INTERVENTIONS

§ Facilitate Markets

§ Reduce Red Tape§ Promote Different Types of

Developments§ Market Driven Rezoning§ Land Assembly

(is there enough land for developers to make a profit?)

Workwithwhatexists…

Future Considerations for TOD in Cape Town•Under the user, financial and development markets

•What are the signals that TODs provide and how are they interpreted?

•TODs are NOT the Answer to Poorly Performing Markets

• Develop a Clear Strategy Grounded in Social and Economic Imperatives Rather than Responding to Urban Issues through Transit

• Integrating Planning and Conceptualisationwith other Key Stakeholders(e.g. Financiers of projects)

Commercialisation of the Project

VALU

E

RISK

Land saleConceptualplan

Infrastructureprovision

PropertyDevelopment

IsPubicSectorMakingitEasierforDevelopersorComplicatingMatters?

Integrated Development Plan ProcessREVIEW

VISION

PLAN

DELIVER

MarketingandCommercialization

SiteConditions LegalConditions MarketHighestFundingOptions

BestUseStudy (PPP,Debt)

ConceptualDevelopment Cost FeasibilityStudyFramework Framework estimates EconomicFinancialManagement&PublicPrivateObjectives

Investment&Phasing& InfrastructureFinancialPlan Deliveryplan planning

BuildingDesign Contractors Infrastructuremobilisation

Marketing Sales Property&(AssetManagement) Urban

Management

Source– URERU- UCT&Acuity

Concluding Comments• The Market is the Starting Point, not

the End Point• TOD Strategies deployed without

enough evidence that investment will produce public and private benefits

• There is no such thing as a “silver TOD bullet”

• Conceptualised on intended outcome rather than addressing urban dynamics

• Too Localised & Don’t look at broader metropolitan and market considerations

Thank you!UrbanRealEstateResearchUnit:(T):0216504703/2476(W):www.ureru.uct.ac.za(E):info@ureru.org

What ‘S Next in the Short Run..

6

9 3

12

BOOM MARKET

Saturated Market

Increasing Construction

Funding Available

Increasing Rents

Stabilizing Rents

Increasing AbsorptionMinimal Construction

OverbuildingRent Concession

Excess Funding

Tightened Funding

Less Construction

Reduced Funding

RECESSION

RECOVERY

Viruly

TotalIPDReturnsversusGDPGrowth

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Capital Income GDP InterestSource:IPDreport 2015.