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After delays, transit-oriented development starts to arrive

June 6, 2014  •  source

Maryland developers are once again digging into plans to build near rail stations, a sign that the appetite for development projects focused on transit may be coming back.

This week, developers will break ground on a new 700-car parking garage and commuter station in Savage, the first part of an 18.5-acre development anchored by a MARC rail station.

In March, the state court of appeals cleared the lawsuit blocking development of State Center near a Metro and light rail stop. Construction began in April on a new headquarters for the Department of Housing and Community Development near the New Carrollton Metro. And last fall, officials celebrated the completion of the first private buildings near the Owings Mills Metro.

At the Annapolis Junction Town Center in Savage, developers plan to build more than 400 homes, 100,000 square feet of office space, 17,500 square feet of retail, and a 152-room hotel by 2016. The new parking garage and station could be completed this fall.

"When the recession hit, let's face it, it hit real estate really hard, so coming online with additional retail and residential and office space just made no market sense," Maryland Transportation Secretary James T. Smith Jr. said.

"It's a very exciting time," he added. "The transit-oriented development market is definitely picking up."

Maryland has tried to encourage building around transit hubs for years, hoping to increase ridership on the public transit systems while reducing sprawl, traffic congestion, and pollution.

In the years before the recession, the state selected developers for a handful of projects near the stations. At the end of last year, there were 10 projects in various stages of development that involved Maryland Department of Transportation stations or property, and six associated with Washington Metropolitan Area Transit Authority, according to a report submitted to the state legislature in November.

In some cases, the prospect of development has been greeted with enthusiasm. About 10 proposals have been approved for a 430-acre sector anchored by the White Flint Metro station north of Bethesda, for example. But in the Baltimore region, with a weaker real estate market and less robust transit network, development has lagged.

"We have some great examples of [transit-oriented development]... but there's a lot more work to do," said Gerrit Knaap, a professor at the University of Maryland and director for the National Center for Smart Growth Research & Education. "There are really, really strong markets where you try to channel the market that's there, where in other places you need to create the market, and that's a really difficult challenge."

In Owings Mills, where the initial agreement for the 45-acre development was negotiated in 2000, the first private buildings did not open until last fall.

Howard Brown, chairman of David S. Brown Enterprises, which joined the project as master developer in 2002, said about 30 percent of the 232 apartments have been leased since they became available three months ago. On the retail side, two businesses have signed leases, and a handful more are in the works — representing about half the space, he said. There's now a weekly farmers' market, and Brown said he is getting ready to seek permits for a second phase, a 300-apartment high-rise.

"You have the foundation. The foundation is the subway and the parking structure and the library and the college," he said, adding that about 4,000 people use the Owings Mills Metro stop each day. "The secret here is just to keep building this and add more density... It will ultimately be a destination."

Those involved say the projects are starting to come together. In Laurel, where MDOT selected Patriot Realty to develop a 4.9-acre parcel near the MARC station in 2009, city officials said the company has reached an agreement for a parking garage, retail space, and apartments. Bethesda-based Patriot did not respond to requests for comment.

In Odenton, Anne Arundel County and MDOT have offered multiple extensions on a 2007 agreement with a development team led by Osprey Property Co. for roughly 25 acres. Annapolis-based Osprey did not respond to requests for comment, but the Anne Arundel Economic Development Corp. said discussions have picked up.

"Everybody had to kind of look at the deal all over again in relation to the recession and the housing market," said Peirce Macgill, an AAEDC business development associate.

Macgill said the fact that multiple parties — three developers and two government entities — were involved added complications.

"It's been a long time that the process has been going... but I would say in the last six, nine months we've picked up a lot of momentum," he said.

The $180 million Savage project, announced in 2006, remained stuck in a search for financing under Petrie Ross Ventures, the previous lead developer, which left the project last year and declined to comment for this article. Somerset Construction Co. came on as the lead developer last July, adding about 6 acres of private land to the overall footprint and reducing some density to make the economics work. (The state sold about 10 acres to Bethesda-based Somerset for $3.3 million.)

"It took a while to get a new team in place, but now we're really excited about the project. It fits squarely into our vision for Howard County to be more connected with the Baltimore metropolitan corridor from a transportation options point of view and also to support the growing Fort Meade," said Howard County Executive Ken Ulman.

The county is contributing a $17 million tax increment bond for the garage.

The Department of Housing and Community Development organized a work group to suggest how it should support smart growth projects. The group's 2013 report identified three major challenges to sustainable development: the greater political risks of a dense, infill development; a limited pool of interested developers because of the inability to provide investment returns within the three- to seven-year time frame demanded by many developers; and "negative perception and lack of expertise" as related to the projects.

As preferences shift to a more urban lifestyle, population returns to cities and rents in cities correspondingly increase, investors have become more interested in projects linked to transit networks.

"It's an evolving area," said John M. Prugh, CEO of Alex Brown Realty Inc., who participated in the work group. "But your expectation is stronger fundamentals... I think that's pretty proven."

That view is particularly common among long-term investors when looking at projects in cities with well-used transit systems, such as Washington, New York, San Francisco, and Boston.

"The long-term view is, in 20, 30 years, this transit line is going to be here, and in 20, 30 years everyone will still want that convenience... The perception is, it reduces your risk," said Ken Riggs, president of consulting firm Real Estate Research Corp.

In cities like Baltimore with less-developed transit options, he said, "You think about it, but you ask yourself 'Is it going to create value?' ... It may be other influences that trigger a greater demand."

Gov. Martin O'Malley has set a goal of doubling transit use by 2020, but overall transit ridership has increased by only about 14 percent since fiscal year 2006, according to the state. Some lines have grown — on the MARC Penn line, for instance, average weekday ridership jumped from 15,133 in 2003 to 24,350 in 2013. On others, use remains more limited. About 4,300 people rode the Camden line on a weekday in 2013, up from 3,900 in 2003.

The addition of weekend service on the Penn line was a step forward, but improved service and connections between different systems remain important, Ulman and others said.

"We should never forget we need the T to make [transit oriented development] work," said Brian O'Malley, CEO of the Central Maryland Transportation Alliance.

Neil Greenberg, Somerset's chief operating officer, said the company's "build and hold" model allows it to play a long game with the Savage project and others. He said he believes transit will become increasingly important to Maryland residents.

"Today [those who use public transit is] small, but the developer who doesn't consider public transportation for the future ... is being shortsighted," he said. "We think it will grow every year, so 10 years out it's huge."

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