# Presentation: 390317

## Joint Development

*Paula L. Schwach, Regional Counsel*

## Objectives

- Explain joint development
- List examples of joint development
- Determine best practices for issues in joint development

## Historical Context

- Authorize grants to finance cost for the acquisition of land and the preparation of such land for urban redevelopment
- Involve the coordinated planning and development of transportation facilities and the adjacent land to maximize the economic and social return to the public investment
- Excludes the design and construction of non-transportation facilities

**Notes:**
Legislative history:  the Report of the Committee on Banking, Housing and Urban Affairs, United States Senate (Calendar No. 788, Report No. 95-857) which accompanied the passage of the Federal Public Transportation Act of 1978, and describing what was then Section 3(A)(1)(D) now known as the joint development provision.

## Exercise:  What is Joint Development?

- You represent the transit agency which has received an earmark for joint development in connection with a BRT project.
- How can you help the developer of this housing project?

**Notes:**
Handout state housing finance agency moderate-income housing project loan application.
Break audience into two or more groups (about 5 or 6 to a group) and use as a pre-test to generate discussion.
Focus discussion on what is a legitimate land acquisition cost, what is a site preparation cost.  What is not an allowable cost:  the housing itself.

## Joint Development

- Construction project undertaken jointly by an FTA grantee with another party besides FTA
- Uses real estate in which FTA has or will acquire an interest
- Land acquisition is subject to the Uniform Act
- Meets definition at 49 USC 5302(a)(1)(G)
- Income retained by grantee  for transit use

**Notes:**
49 USC 5302(a)(1)(G) is part of the definition of a capital project.  Recall that the definition applies to all Sections of Federal Transit Law, so any FTA funding source that can be used for a capital project can be used for JD.  The regulation sets up a four-part test, best explained when we get to the JD checklist.

## Examples of Joint Development  

- Community Service Facility (Daycare or Health Care Center)
- Stations and Terminals for Intercity Bus and Intercity Rail
- Acquisition and Site Prep Costs for Residential and Commercial Facilities
- Renovation of Historic Transportation Facilities

**Notes:**
These are spelled out in the statute itself. By definition all of these uses are public transportation uses.   Regional Counsel have seen the first of these stretched by TO’s that didn’t understand this rule.  With the publication of the new guidance, this problem should be lessened.

## Site Acquisition;
Demolition;
Site preparation;
Building foundations;
Utilities;
Walkways;
Open space;
Safety & security equipment & facilities;
Facilities that incorporate community services;

- Demolition;
- Site preparation;
- Building foundations;
- Utilities;
- Walkways;
- Open space;
- Safety & security equipment & facilities;
- Facilities that incorporate community services;

- Intermodal transfer facility;
- Construction, renovation, and improvement of intercity bus and rail stations/ terminals;
- Transportation-related furniture, fixtures & equipment;
- Transit parking;
- Project development activities;
- Professional services

- Eligible JD Activities

**Notes:**
These are all listed in the statue itself.  

## What is EXCLUDED from JD:

- 49 USC 5302(a)(1)(G)(ii):  “construction of a commercial revenue-producing facility (other than an intercity bus station or terminal) OR
- a part of a public facility not related to public transportation.”

**Notes:**
This means that:  outside of site costs which are specifically identified in the statute and the previous list,  FTA funds may not be used to build the actual improvements on the ground like housing (other than housing of last resort under the Uniform Act) and commercial development.  And, FTA funds cannot be used to house for example other governmental facilities.  (Provide example of an improper share use facility.)

## Use of Joint Development Proceeds

- Must be used for transit capital or operating expenses
- Must be identifiable in the event of an FMO review
- If there aren’t proceeds, why should the Transit Authority do the deal?

**Notes:**
We had previously said “must be used for a transit purpose”, i.e., capital, operating or planning.  I note that the common grant rule at 49 CFR 18.25(g)(5) specifically limits the use of program income to capital and operating expenses. 

The February 2007 Guidance indicates that FTA will generally defer to the decisions of the project sponsor, negotiating and contracting at arm’s length with third parties to use federal transit funds for joint development purposes.  However, an arm’s length process is designed to maximize transit’s return consistent with the concept of redevelopment of primarily urbanized areas.  I would posit that if there aren’t proceeds flowing to transit, there needs to be closer scrutiny of the deal including looking at residual value and who captures the same,and  what benefits do in fact flow to transit.

## Benefits of Joint Development(Cost- & Revenue-sharing)

**Cost-sharing**
- Benefits developer by transit authority assuming some site costs entirely (in exchange for developer's assumption of other costs and “reasonable share of costs”
- May involve acquisition of real estate w/new grant funds

**Revenue-sharing**
- Benefits the transit agency by securing a stream of revenue:  “fair share of revenue”
- May involve a transfer of real estate by JD sale or lease

**Notes:**
The Benefits of Transit Joint Development
Joint Development is often classified into two groups: (i)  Revenue-sharing; and (ii) Cost-sharing.
Revenue-sharing benefits the transit agency by securing a stream of revenue.  Examples include the income stream generated for the transit authority from land leases, air rights development, station interface or connection-fee programs, concession leases, and benefit assessment districts.
Cost-sharing relieves transit authorities of some of the cost burden of constructing, maintaining, or rehabilitating transit facilities.  Examples include the transit authority paying for certain site costs in exchange for the construction of a transit station a part of a commercial or residential development, incentive-based programs that provide benefits (e.g., density bonuses) in return for the developer bearing facility construction costs.  The definition of a capital project also requires that any occupants pay a reasonable share of the costs of the facility through rental payments and other means.  So all common area maintenance costs must be borne pro rata by the occupants, in addition to rents.  If the rents are not FMRents, the joint development proposal should explain the arms-length negotiations that occurred.

## Benefits of Joint Development(“Win-Win”)

**Private**
- Accessibility/proximity advantages of being near a transit station = higher rents or greater occupancy
- Also benefits through sharing facilities constructed w/FTA funds

**Public**
- Potential to attract new riders from new development, new revenue stream from JD, and often developer’s assumption of maintenance responsibilities of the transit facility

**Notes:**
A central element of Joint Development is the idea of a quid pro quo.  
On the private side, the developer benefits because the accessibility advantages of being near a transit station are capitalized into higher rents or greater occupancy.  
On the public-sector side, the transit agency may benefit from the developer assuming facility construction costs, from cash payments as ground leases or jd transfer proceeds, and  gains in ridership either because of new service or travel time savings from better connections to existing service.

## JD Project Proposal Process

- Grantee submits application to Regional Office:  (a) new FTA money = grant application;
-    (b) no new money = approval of real estate encumbrance.
- Joint Development Checklist
- Certificate of Compliance (or Alternative Certification if land to be encumbered)

**Notes:**
For FTA purposes, there are essentially two-types of joint development projects: those that do involve new grant funds and those that do not.  
Those that don’t involve new funds usually involve use of FTA-funded property for a private purpose.
Before becoming agreeing to a property transfer for a joint development purpose or before seeking grant funds for a new joint development project, the proposed joint development activity must be approved by the appropriate FTA Regional Administrator.  

Only FTA grantees may submit a joint development proposal.  If new funding, the proposal is attached to the grant application and one cannot be approved without the other.  If No new money is involved, the Regional Administrator is approving the real estate encumbrance or the real estate transfer.  Note this is not a disposition because:  joint development is a transit purpose and there must still be continuing control of the real estate even if title passes to another party.  Absent continuing control, the transfer is a disposition and not joint development.  (Discuss the Euclid Flower shop deal and covenants running with the land and the right of reversion.)

## The Joint Development Checklist

**Notes:**
Eligibility Criteria (Outlined on Checklist)
Economic Link
Enhances economic development, or
Incorporates private investment
Public Transportation Benefit
Enhances the effectiveness of a public transportation project and 
Relates physically or functionally; or
Establishes new or enhanced coordination between public transportation and other transportation
Revenue for Public Transportation
Provides a fair share of revenue for Public Transportation that will be used for Public Transportation
Reasonable Share of Costs
		Occupants to pay a reasonable share of the costs of the 	facility through rental payments and other means 

## JD and NEPA Compliance

- Grant w/ JD --apply NEPA.
- Grant w/ unknown JD—test is reasonable foresee ability.
- Grant w/ transit element later amended to include JD—expect additional NEPA analysis to be required.

**Notes:**
Note, one of only two joint development cases is the Seacaucus New Jersey Case in which the FTA project was built with oversized building foundations in order to allow subsequent development of the air rights above the transit facility.  Court allowed this and rejected the plaintiff’s claim that the subsequent development should have been included in the NEPA analysis and document because their was no developer selected or likely to be selected in the foreseeable future.  

Standard application of NEPA will take into account both the cuumulative impacts of the JD and the potential for secondary development.  FTA is always looking at reasonable alternatives to address a given purpose and need statement.  
Reasonable foreseeability is the Secaucus, New Jersey case again.  FTA will apply a but-for test:  would the development occur but for the FTA $? Safest approach is to apply NEPA using the highest density possible uses given the zoning.

## Joint Development Double Takes

- JD transfers v Property Disposition
- JD v TOD
- JD v. PPP
- JD v. Incidental Use
- JD v Shared Use Facilities

**Notes:**
This is the statutory language of Section 5334(h)(4)
The net income from asset sales, uses, or leases (including lease renewals) must be used to reduce the gross project cost of other FTA-funded capital projects
This authority is in addition to and consistent with other relevant applicable authorities.
When real property, equipment, or supplies acquired with FTA assistance are no longer needed for public transportation purposes, Federal Transit Administration may authorize the sale, transfer, or lease of the assets

## JD v. Property Disposition

**Joint Development**
- Proceeds can be used for Capital and Operating Costs
- Proceeds don’t have to be used on another FTA-assisted project, just on transit capital or operating.

**Section 5334(h)(4)**
- Proceeds can be used only for Capital Costs
- Proceeds must be used on another FTA-assisted grant project.  Total Capital Costs of the project are reduced by the proceeds, and then the federal/local share ratio is applied to determine the new federal grant amount.

**Notes:**
There are multiple types of property disposition instructions that FTA can give when a grantee is not going to maintain satisfactory continuing control of piece of real estate that it acquired using FTA funds, the one that is most frequently confused with a joint development transfer is Section 5334(h)(4) (pre SAFETEA-LU this was Sec. 5334(g)(4).  

## JD v. Property Disposition (con’t)

**Joint Development**
- Policy may be applied even to assets currently in transit use
- Principles of the JD policy can be applied even if a project is not technically a JD project
- TOD’s

**Section 5334(h)(4)**
- Section may only be applied if property is no longer needed for any transit purpose

## JD v. Property Disposition (con’t)

**Joint Development**
- True JD projects must meet technical req’ments in 2/7/07 Fed.Reg.Notice
- Written proposal to Regional Office
- Demonstration that criteria have been met
- Grantee must establish SCC
- Some Federal cross-cutting requirements apply (fact specific)

**Section 5334(h)(4)**
- Section has few technical requirements
- Written request to Regional Office outlining proposed disposition and how funds will be reused
- Section is in addition to those outlined in the Common Grant Rule and 49 USC 5334(h)(1-3).

**Notes:**
SCC = satisfactory continuing control.  Some ways to maintain satisfactory continuing control:  covenant running with the land which is placed in the deed, a right of reversion place in the deed or lease, or better still, both covenants and rights of reversion.  For example:  
“The following terms are intended by the parties hereto as a covenant running with the land:  The (developer’s name) shall maintain a transit facility of the same utility as contained in the Development Agreement until such time as the (transit authority) shall release it from this obligation, if ever.  Developer shall maintain the transit facility at its own costs and according to standards and hours identified in the Development Agreement.  In the event of breach of these covenants, transit authority shall have the right to re-enter said land and the transit facilities (or could go further and say all facilities) thereon, and the above described land and facilities shall thereupon revert to and vest in and become the absolute property of the transit authority and its successor or assigns.”

## Transit Oriented Development v. Joint Development

**Notes:**
Where the two ven diagrams overlap is joint development:  the convergence of a transit proiect with a private development on, over, or abutting a transit project or having a strong functional connection to a transit project.  In contrast, TODs can occur anywhere in proximity to a transit facility.  TODs do not involve a piece of real estate that has been or will be acquired with FTA funds.  They occur because the benefit of the public investment in transit is externalized instead of internalized.  (Anthony Downs concept compared to Japanese concept of acquiring everything within a certain distance of the transit ROW.) 

## Joint Development v. Incidental Use

- Subject to the following considerations:
-  Property Acquired for Transportation Purpose
-  Actively Used for Transportation Purpose
-  Grantee Controls—not even a JD transfer
- Additional Use Does Not Interfere with Transit Use

**Notes:**
Example = St. Louis park-n-ride in first ring suburb of city; MetroLink uses from 5:00 AM to 9:00 PM for bus patrons.  Licenses lot to adjacent night club owner for use as parking from 9:00 PM to 3 AM.  Transit patrons can still use also just far less need and system doesn’t run between hours of 2 AM and 4:30 AM anyway.

## JD v. PPP or P3

- JD
- Actual development on, over or adjacent to a transit project or strong functional relationship to such a project.

- Public-Private Partnerships Pilot Program
- Innovative procurement methodology

**Notes:**
 Joint Development
Transit Joint development (“Joint Development”) is a form of TOD that is often project specific, taking place on, above, or adjacent to transit-agency property that was purchased with Federal funds. 
Public-Private Partnership—Federal Register Notice of the Pilot Program date January 19, 2007.  Basically anything other than design-bid-build.  This is a demonstration program and if the agency is not currently involved in the demo, it won’t be so you don’t have to be concerned about PPPs.

## Joint Development v. Shared Use 

- A particular kind of capital project
- Another user is benefiting from transit expenditures and all use is a transportation use by definition
- Uses are integrated physically or functionally

- Any capital project
- Another user is paying for the portion of the facility that is non-transit
- Uses are separate
- Uses, method of cost allocation approved at the time of grant making

**Notes:**
Example of a shared use facility:  County receives funding from HHS, from HUD and from FTA.  It wishes to house all programs in one central location.  It allocates space in a facility based on square footage of use; common walls separate the uses, and it allocates operating costs based on square footage of the building or hours of operation and square footage.  FTA can pay for the portion of the space that is to be used for the demand response transit service and for the prorata share of the operating costs that represent the transit usage.  Because of the public ownership of the facility, FTA has fewer concerns about the multiple usage of the facility:  disposition of governmental facilities is less common than disposition by non-profit subgrantees.  The utility of shared use facilities is most common in rural areas because of the small scale of operations.