The Metro Premium

How much is a location near a Metro station worth? In a fall 2013 study examining the economic impact of the Silver line on Tysons, researchers Cushman & Wakefield took a look at rents paid for commercial real estate and multifamily residences in Arlington County’s Rosslyn-Ballston corridor. The answer: Office tenants pay as much as a 30% premium for Metro access, while renters pay as much as 23% more.

Credit: Cushman & Wakefield

Commercial rents per square foot. Graphic credit: Cushman & Wakefield

Of the 101 office properties along the corridor, rents were highest for buildings located within one-twentieth of a mile from a Metro station. The price per square foot declined slightly for offices at a greater distance to one-fifth of a mile, then dropped sharply for offices at greater distances. The findings dramatically confirmed the old planning rule of thumb that people are willing to walk a quarter mile to avail themselves of mass transit but not much more.

Multifamily rents. Graphic credit: Cushman & Wakefield.

Multifamily rents. Graphic credit: Cushman & Wakefield.

A similar pattern prevailed for multifamily apartments, although the preferences aren’t quite as stark. States the report: “Properties within 0.05 miles of a Metro stop were able to command up to a 23% premium over average effective rents.”

Fairfax County is adopting a similar strategy to Arlington County for redeveloping property along its new, Silver Line metro stations: planning for walkable, mixed-use development and encouraging residents and workers to walk, not drive, to the Metro. Fairfax hopes to reap comparable gains as employers and renters pay a premium to enjoy the Metro access. Tysons enjoys a big advantage over Rosslyn-Ballston in re-development, states Cushman & Wakefield: While Rosslyn-Ballston commenced its great experiment as a dreary and declining retail strip, Tysons starts out as home to the largest concentration of office space in Northern Virginia.

On the other hand, the price differential for Metro versus non-Metro space in Arlington comes after 40 years of painstaking attention to creating walkable urban spaces. When it comes to creating a walkable urban grid, Fairfax planners expect Tysons to take decades to get to where Arlington is today. Until the urban fabric of Tysons resembles that of Arlington, proximity to the Metro is not likely to command the same price premium.

The good news here is that new Metro lines can create an extraordinary amount of economic value. The study provides concrete evidence that, if the surrounding land uses and the quality of urban design meet Arlington standards, heavy rail can bolster the tax base. The bad news is that commercial property owners appear to reaping the windfall gains, not the taxpayer chumps who pay for the rail line.

A digression into a Bacon obsession:┬áHere at the Bacon’s Rebellion command bunker in lovely western Henrico County, we’re always asking how growth can pay its own way. I’m a big believer in “value capture” as a tool to finance construction of projects like Rail-to-Dulles, as an alternative to pillaging unrelated parties like Dulles Toll Road commuters and Virginia taxpayers.

While I love free markets and making profits, I have a huge problem with crony capitalism and rent seeking. And I have a sneaking suspicion that the big property owners in Tysons, though they are paying a sliver of the cost of building the Silver Line through a special tax assessment, are making out like bandits.

Tysons property owners get a double windfall from the Silver Line: (1) the rent premium from access to the Metro, and (2) permission to build at higher densities. The Silver Line will cost $5 billion to $7 billion to build (depending on what you include in the project cost). Fares paid by riders will not cover one dime of that amount. Could more of that value have been extracted from property owners?

Commercial properties make up about 83% of the Tysons district’s almost $11.5 billion in total assessed value, according to this county document. For purposes of argument, let’s say one-third of that commercial assessed value is located within a quarter-mile radius of one of the four Metro stops. That would represent about $3.2 billion worth of property.

A 30% increase in rents due to Metro access would increase property values by about $1 billion, to a total of $4.2 billion. Now, let’s say the Fairfax board allowed property owners to double density. That would add another $4.2 billion in value for a total net value creation for property owners of $5.2 billion. In January, the Fairfax County Board of Supervisors set up a Tysons service district to pay for $3.1 billion for a new street grid, sidewalks and bike paths, expanded transit, and improved roads. Two funds are expected to collect a total of $557 million over the next 40 years (over and above what property owners will pay through normal property taxes) — or about 18% of the cost of the improvements.

By my rough calculations Tysons property owners will contribute only one ninth or tenth of their windfall gains in property value toward the public improvements that make those gains possible. (And I’m not even including the cost of building the Metro itself!) Now, I’m the first to admit that my numbers are the roughest of rough estimates, and all figures and assumptions need to be validated. But this is the kind of exercise, using validated numbers, that we need to engage in.

If it turns out that property owners are reaping billion-dollar windfalls while taxpayers get stuck with most of the bill, well, I have a problem with that. And so, I surmise, would a lot of taxpayers.

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10 responses to “The Metro Premium

  1. At the end of the day, it will be said that the Silver Line was built on the backs of working stiffs caught in monster traffic while trying to earn a living for their families. And that the rich landowners and contractors with their gross overruns and time delays got even richer off monies squeezed out of those working Virginians that their leaders entrapped for money.

    This is a public crime on monstrous proportions. It has to be stopped.

    Otherwise the thieves will continue to use the same policies that turn Virginians into cash cows caught in endless traffic, if only because those polices that fail everyone else will continue to enrich the policy makers, and those who feed off the ill got public money those failed policies generate.

  2. of course one could also ask why would one move so far from their job that they would be vulnerable to intolerable congestion or intolerable tolls?

    people do make choices.

    Last I heard, people were still moving to Loudoun even after realizing the toll situation…

  3. yup, it’s exactly what they do …. but stick around and you’ll find out that some believe that the reason people drive til they qualify is that the government has restrictive zoning policies that prevents more housing from being built so people don’t have to drive to qualify….

    the jobs are in the urban areas – cheap(er) housing is in the exurban areas…

    but somehow… it’s government’s fault in the urban area for not providing affordable subdivisions for those who want them so they have to ‘drive til they qualify”.

  4. Higher land values + higher density = more local tax dollars.

    Why is this fact never taken into account?

  5. Oil from Alaska results in low taxes for residents and an annual rebate. Back before 1970 or so, iron ore and taconite mining in the Minnesota iron range meant low real estate taxes and superb schools in places like Hibbing and Virginia. Gambling in Nevada keeps other taxes low or non-existent. What is shale oil producing for North Dakota?

    Tysons will produce what? How much additional real estate revenue will Tysons produce beyond today’s value plus the added share of infrastructure being paid by Fairfax County taxpayers? How much will real estate taxes go down, at least in real terms, with Tysons revenue from say 2020, 2025 & 2030? No one has volunteered any figures; lots of words, but no numbers.

    Tysons will be successful in the long term. It’s successful today and should be successful tomorrow. The Silver Line and other non-SOV transportation modes will cause there to be less traffic congestion than would occur if the same level of development were to occur without the Silver Line, et al. Tysons and the rest of the Dulles Corridor will produce incremental tax revenues, and hopefully good jobs and economic growth. But the private benefit will most likely always exceed any public benefit. The Silver Line and massive redevelopment in Tysons is about transferring great wealth to selected landowners (those located with 1/4 mile of the four rail stations) while putting a huge amount of costs for the infrastructure necessary to permit the higher density and wealth on the backs of ordinary people. It also was largely responsible for Gerry Connolly being elected to Congress.

    What is most amazing is: how few people understand the great transfer of wealth from ordinary people to a few landowners. It’s the kind of things the Robber Barons would love, but because the scheme involves transit, density, smart growth, bike paths, sidewalks and more taxes and fees, the progressives love it.

  6. TMT –

    I have had opportunity to review Cushman and Wakefield study. I put little value in it. The study tries to compare an apple to an orange. Projections based on such odd comparisons arn’t worth the paper they are written on.

    The Ballston Rosslyn Corridor bears little resemblance to Tyson’s Corner. This holds true with or without Tyson’s new Silver Line. The B/R corridor is a highly integrated and functional urban downtown. It has been for some time, and will continue to be so. Its underground subway, its harmonious balance of uses, and its transport options, are several of its numerous key integrators that assures this functionality that the Corridor enjoys.

    In stark contrast, Tyson’s Corner always has been a dysfunctional and poorly integrated suburban office park. The above ground Silver Line will work to institutionalize this dysfunction of Tyson’s corner into the future. It enables Tyson’s gross imbalance of uses and very poor arrangement of those uses (each to the others), and it assures limited transport options.

    Thus the R/B corridor is not a meaningful guide to Tyson’s Corner’s future with Silver Line. Tyson’s effort to claim kinship with the Corridor is bogus.

    Thus for example Tyson’s future of a 4 to 1 imbalance between residential and office uses will continue. This alone will spawn ever growing harms and pathologies throughout the region, jamming up roads near and far while it also sucks energy and vitality out of neighboring communities in a host of ways. Chief among them will be Tyson’s use of the Silver Line to suck office workers into its offices while draining them away from where those workers live and would otherwise work. And Tyson’s has planned it that way. Its refusal to provide local parking for Silver Line users will force Fairfax workers out onto the highways creating ever more traffic for others while at the same time it takes away the use of the Silver Line from those very auto commuters who’s tolls built the Silver Line. This intentional and selfish distortion of the benefits of the Silver Line adds insult to injury.

    As you mentioned above, the sole beneficiaries of this forced diversion of public monies into the Silver Line will be a shockingly few number of land owners and developers very close by the Silver Line stops. And it appears planned the way. For example, lack of adequate local parking for Fairfax residents who otherwise might use the Silver line to work elsewhere.

    The Silver Line as configured west of Tyson’s is equally flawed, but in many additional ways. Some were alluded to earlier by Tyson’s Engineer.

    • Reed’s criticisms sound pretty serious from afar and I’m still not sure I understand them completely enough…. but the lack of parking at Metro caught my eye.

      Is that a feature of the B/R corridor?

      It’s hard to sort this out.

      Is parking at METRO to serve those that do not live near METRO – considered a “good” thing or a “bad” thing?

      I’ve certainly driven to Springfield to park at METRO and take it into DC…

      at rush hour on METRO… is some significant percentage of riders… people that drove from remote locations to METRO stations?

      I always assumed that most of METRO riders were people who lived and worked near METRO.. not people using cars as part of the trip.

      so what’s the story? 1. do a lot of people do this and 2. – do the smart growth folks and TOD people think this is a good thing or a bad thing?

      thanks!

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