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October 6, 2003

Metro rides into real estate development

Nancy Sarnoff
Houston Business Journal

In a new initiative intended to spur economic development along the light rail line, the Metropolitan Transit Authority has been quietly acquiring tracts of real estate along the future transit corridor.

In the next 60 to 90 days, Metro will issue a request for proposals to developers interested in partnering with the transit agency on the redevelopment of a site near the Midtown passenger rail station at Main Street and Wheeler.

What sort of equity position Metro will take in the potential real estate development is still unclear.

Steve Bonczek, who was hired by Metro last year to promote transit-oriented development, says the purpose of the new initiative is to generate additional funds for Metro and increase ridership.

"Part of our focus and mission is to stimulate economic development," Bonczek says. "Metro will share in some of the net proceeds."

But Metro's foray into speculative real estate investment is being questioned in some real estate quarters, and catching flak from at least one public official.

Houston City Councilman and former mayoral candidate Michael Berry says Metro's main priority should be moving people and relieving congestion, not participating in economic development.

"They would rather do development deals and build a rail line regardless of how many people ride it and how much it costs," Berry says. "With their pot of money, they're supposed to be moving people. These are transportation dollars, pure and simple."

Bonczek responds by pointing out that Federal Transit Administration guidelines encourage joint development projects, and that these types of public/private partnerships are common in other cities around the country.

The Wheeler Station is a key transit stop for Metro.

In addition to occupying the center position on the 7.5-mile line now under construction, the site will also serve as a transitional hub for buses as well as rail.

Bonczek says that none of the land was acquired by condemnation. It was all purchased in voluntary transactions.

He says Metro paid between $20 and $30 per square foot for the dirt -- or an average of $7.3 million for the entire 6.7 acres acquired.

Thinking inside the tank
Metro is getting some assistance from the Houston chapter of the Urban Land Institute, a Washington, D.C.-based real estate think tank.

This week, Metro and the ULI hosted a one-day program that focused on the Wheeler station land as a site for a mixed-use, transit-oriented development.

The "Technical Assistance Program" gave a panel of ULI members the opportunity to offer recommendations in the areas of design, development and community redevelopment.

Participants included Kevin Batchelor of The Hanover Co., Neil Tofsky of Senterra Real Estate Group and Irving Phillips, a prominent Houston architect.

Bonczek says the panel's recommendations will help guide Metro in formulating the request for proposals for development of the site.

The ULI panel was led by Zane Segal, the group's vice chair for advisory services.

Segal says the Wheeler station is being studied because it has less surrounding development compared to many of the other rail stops.

One of the biggest challenges for urban developers, Segal says, is amassing enough land for construction of a mixed-use real estate project.

"The act of blocking up developable land is the one thing private developers can't do," Segal says. "It's one of the most important jobs of governmental entities."

Plus, much of the land Metro acquired was necessary for development of the Wheeler transit station as a transition hub.

"A lot of the land they bought, they had to buy," says Segal. "The question is: What do they do with it, and do they buy more land for the development of a successful mixed-use project?"

While some critics argue that Metro should focus solely on transit issues, advocates of the new initiative say assisting in economic development along rail lines plays an important role in improving mobility.

Says Segal: "The effect of a transit-oriented development is that it increases transit ridership, which reduces congestion, improves air quality and overall quality of life."

nsarnoff@bizjournals.com • 713-960-5931

© 2003 American City Business Journals Inc.