New Opportunities for Transit-Oriented Development

The $1.2 trillion Infrastructure Investment and Jobs Act offers opportunity for existing communities and new apartment development near mass transit.

By: Bendix Anderson

The $1.2 trillion Infrastructure Investment and Jobs Act offers opportunity for existing communities and new apartment development near mass transit.

Workers swarm over a construction site in Harrison, N.J., about a block away from a refurbished light rail station. They started construction in November 2021 on “Block D,” a new, five-story building that will eventually hold 399 luxury apartments.

The developer, Bedminster, N.J.-based Advance Realty Investors, clearly still believes in the value of building apartments near mass transit, even after two years of a pandemic that lessened – maybe permanently – the number of people who ride mass transit every day.

“I will never bet against the rail,” says Peter J. Cocoziello Jr., Principal and Managing Director for Advance Realty.

Soon, developers like Advance Realty may find new opportunities to build more apartment communities next to new and improved mass transit lines. In November 2021, President Biden signed a $1.2 trillion infrastructure bill, with funding to expand and improve transit systems across the country.

Developers large and small are watching the train stations in their markets, looking for places where faster train service could raise the rents at existing apartments and make new development more attractive — and even bring new shops and restaurants to growing neighborhoods around transit stops.

 “We still care very much about transit-oriented development,” says Karen Hollinger, Senior Vice President of Corporate Initiatives for AvalonBay Communities. “We are still looking for geographies that provide the opportunity to live, work and play. We are still looking for large, mixed-use sites.”

Congress passes $1.2 trillion for infrastructure

Last fall, Congress and President Biden passed the bipartisan, $1.2 trillion Infrastructure Investment and Jobs Act. At the time, many apartment advocates believed it was just the beginning. Legislators were busy writing a second, multi-trillion-dollar “Build Back Better” proposal focused on “soft” infrastructure with hundreds of billions of dollars for housing development and redevelopment, from energy retrofits, redevelopment in blighted neighborhoods and public housing redevelopment to more federal low-income housing tax credits and potential mixed-income redevelopment. Negotiations over “Build Back Better” eventually ground to a halt in late 2021 and early 2022.

The bill that became law, the Infrastructure Investment and Jobs Act, also known as the “Roads and Bridges Bill,” barely mentions “housing” or “apartments,” according to industry advocates. But it’s full of programs that create opportunities for development – especially transit-oriented development (TOD). Existing apartments will also benefit if they are near transit lines with improved service.

“Infrastructure projects… there are a ton that are going to eventually impact the apartment business,” says Hollinger.

Harrison’s Riverbend neighborhood shows the power of transit

Advance Realty’s new building in Harrison is just the latest of several developments in Harrison’s growing Riverbend neighborhood. Advance Realty opened its Steel Works apartment property in the summer of 2017. Cobalt Lofts, the sister building to Steel Works opened soon after.

Apartment developers and town officials in Harrison have been talking about redevelopment for nearly two decades. Back then, downtown Harrison was largely a cluster of crumbling, brick industrial buildings across the Passiac River from downtown Newark and an aging, neglected stop on the PATH train network, a commuter rail system run by the Port Authority of New York and New Jersey that provides 20-minute train service between Harrison and downtown Manhattan.

“These initiatives start at the community level— Harrison took a huge initiative,” says Cocoziello. The Riverbend District now includes a newly renovated PATH station and a half-dozen new, luxury apartment buildings. “The Port Authority is not going to spend hundreds of millions on a new train station if nothing is happening.”

The $1.2 trillion “Roads and Bridges” bill may present similar opportunities—both for older existing apartment buildings and new apartment development near neglected transit stops.

For just one example, the bill sets aside $8 billion to dig a new train tunnel under the Hudson River between the employment centers of New York City and suburban towns in New Jersey. That single, long-awaited project — known over the years as the ARC Tunnel and the Gateway Tunnel — could allow many, many more trains to run, including new, fast express service.

“What I look for – out here we call it the ‘one-seat ride,’” says Cocoziello, explaining the term to mean commuter train service to an employment hub that takes less than an hour without forcing commuters to switch trains.

Renters still want apartments near mass transit

Even though millions of renters still work from home, many are still interested in renting a place to live where they will have multiple choices to get around – including mass transit.

“Our recent transit-oriented development projects have performed well,” says William Colgan, Partner at CHA Partners, based in Bloomfield, N.J.

In November 2020, Six Points at Bloomfield Station started leasing its 176 studio, one-bedroom and two-bedroom apartments. The luxury building is right next door to the Bloomfield train station – but it opened just in time for the first COVID winter, and before the vaccination campaign against the coronavirus had made much progress. By June 2021, the property was already 80% leased. That works out to a respectable average of 17.6 apartments leased a month.

“The facility leased up quicker than originally expected” says Colgan. “New construction projects in convenient locations remain highly sought after.”

Before the pandemic, renters consistently paid more to live near mass transit stops. In San Francisco, renters were willing to pay 15% more to live within a five-minute walk to a mass transit stop, according to “On the Road Again: How Advances in Transportation Are Shaping the Future of Real Estate,” a 2018 report by MetLife Investment Management. A stack of similar studies showed premiums as high as 20%.

The pandemic presents a wrinkle

Starting in March 2020, being close to mass transit became much less useful for many renters as nonessential workplaces closed to slow the spread of the coronavirus.

“Transit-oriented development has less value in the pandemic,” says Elie Rieder, Founder and CEO of Castle Lanterra Properties, based in Suffern, N.Y.

Almost two years after the start of the pandemic, many office workers are still working from home. Just one-third of the usual, pre-pandemic number of workers showed up to office buildings in the seven days ending Feb. 7, 2022, in 10 top metro areas where building security is handled by Kastle, a security firm headquartered in Falls
Church, Va.

Apartment developers and economists now predict that even after the coronavirus pandemic is finally over, many workers will only travel into the office a few days out of the workweek, and some will continue to work from home all the time.

Renters working from home in September 2021 largely expect to keep working from home at least part of the time over the next year, according to the latest 2022 Renter Preferences Survey Report from the National Multifamily Housing Council (NMHC) and Grace Hill. Specifically, more than half (56%) expected to keep working from home the same amount as they were when they answered the survey in fall 2021, and 10% expected to work from home even more.

On the other hand, many employers still plan to eventually ask their workers to return at least a few days a week.

“CHA believes the ‘new norm’ will be a more flexible work schedule – with the ability to work from home some days – but not shift to 100 percent remote,” says Colgan. “People still crave interpersonal interactions with their colleagues. Video calls, while better than traditional phone calls, are not a full replacement.”

Renters already include that expectation in their decisions on where to live. “Getting into the office needs to be done with a certain amount of ease,” says Stephen Santola, Executive Vice President and General Counsel for Woodmont Properties, based in Fairfield, N.J.

The “new normal” of working in a downtown office building just a few days a week might even make some transit-oriented development even more valuable than they were before the pandemic.

“You will see a tremendous increase in the willingness to live farther out,” says Cocoziello. “If I only have to go into New York twice a week, and the train ride is an hour and a half, I can easily say: ‘So what, I’m only doing it twice a week.’”

Other renters took advantage of the work-from-home era to move from expensive cities where their employers may be headquartered to more affordable cities in places like the Southeastern U.S. Developers have followed these transplants and are also building transit-oriented developments in these growing cities.

“In Charlotte and Nashville and Austin and Atlanta you are seeing all of the urban-rim suburbs flourish with this kind of transit-oriented development,” says Santola.

Workspaces are important

In the meantime, as renters continue to work from home, they are looking for good places to get that work done.

Inside their apartments, they need spaces that can plausibly serve as an office. “A place for a desk, with good light and place for a Zoom call… As a potential resident, those things are on their checklist now,” says Brad Korman, Co-CEO of Korman Communities, parent company of the AVE residential brand, based in Plymouth Meeting, Penn. “It’s as important as the kitchen, the bathroom and
the closet.”

Developers are also building more workspaces in the common areas. “We are seeing an extremely high demand for co-working spaces within buildings,” says Cocoziello. “We are creating a lot more spaces for people to function.”

Renters are asking developers to build a little work-life balance into their apartment communities with generous outdoor spaces. Transit-oriented developments are often built on infill sites – mid-rise buildings often come right up to the sidewalk – but developers can still make room to bring outdoor spaces into these developments.

“Everything has a rooftop deck now and you can amenitize that with barbecue grills and café lights and seating areas and firepits,” says Santola. He uses outdoor firepits and heat lamps to help keep outdoor areas usable for more of the year. “We can get people outside not just April through October but early March through Thanksgiving.”

Many apartment properties located near transit also have other amenities nearby, like the shops and restaurants of a small, suburban downtown.

“Our residents love to come home and be in a walkable and vibrant downtown where everything is there for them,” says Santola. “It is not just the train station that is the draw. We get that walkable feel in towns that have sprung up around train stations. That is as much of the draw as the train.”

TOD properties need more staff since the pandemic

Most apartment properties need more staff to run them now, compared to what they needed before the pandemic – simply because more people have been working from home. The change has been even more stark for apartments near transit. Their residents tend to have a somewhat urban mindset— often less likely to use their cars for errands and more likely to order deliveries. Staffing needs are becoming even more intense as coronavirus restrictions ease.

“Now we are in the ‘work-from-home-three-days’ mentality; the amount of people utilizing the space inside these buildings has increased tremendously. It’s great —you have an ability to program and do more things,” says Cocoziello. “But from a management standpoint, there are a lot more things to stay on top of.”

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