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4. OTHER CONTRACT-BASED VC TECHNIQUES

4.1 Joint Development Agreement

In its Guidance on Joint Development, the Federal Transit Administration (FTA) defines "joint development" as a public transportation project that integrally relates to, and often co-locates with, commercial, residential, mixed-use, or other non-transit development.²³ This section discusses Joint Development Agreement (JDA), a potentially powerful VC technique founded on a public-private partnership that can offer many direct benefits to the parties, while also enhancing the overall value of both transportation- and non-transportation-related developments.

4.1.1 JDA Overview

JDA is an agreement between the landowner and the developer for the construction of new projects. In a typical JDA, a landowner provides access to property and the developer undertakes the responsibility for the construction and operation of property improvements, including approvals, launching, and marketing the development project. In a JDA, the developer agrees to compensate the landowner; examples of which include a percentage of sales revenue or of the newly constructed project.

In this Primer, we use the term JDA only for non-private deals in which the public sector (usually a transit agency or local government) is a party to the agreement. JDA as used in this Primer applies when public agencies directly partake in the development projects alongside developers by committing public assets in one form or another. In addition to publicly owned land, "public assets" here can include development rights above, below, or adjacent to public ROWs (e.g., air rights above railroad tracks/stations or expressway turnpikes).²⁴

Public assets are generally committed to private development projects in exchange for various revenue sharing arrangements and other public benefits. As is the case for private JDA deals, the developer can earmark certain portions of the project to the local agency–either for the agency's own use of the built facility and/or for potential ground lease to a third party as a new revenue source for the agency–and sell off the remaining areas (with or without additional revenue sharing with the agency).

Depending on the local economic and political climate, however, local governments may choose to commit public assets primarily to trigger positive economic impetus for the local community through the development projects without any revenue sharing arrangements. Under this scenario, if the projects are successful, they would generate a significant increase in sales and property tax revenues for the local governments even without the revenue sharing.

In addition to merely committing development rights and other public assets, local agencies can get involved directly in the development activities themselves under JDA. This can occur when infrastructure is a critical component to the core development program (over and beyond the ancillary public improvements to support the development project).²⁵ A good example is the development of a new business headquarter complex where a new (unplanned) in-fill transit station near the complex is an essential element of the development program to enhance the employee commuting situation (see Sidebar 4.2 in the next section for specific case examples). In this case, the local agency may have a direct hand in in-fill station development.

Although the lines are often blurred, it is beneficial to distinguish JDA from DA. For a real estate development project, DA is primarily about ancillary public improvements needed for the project, including who pays for them. JDA is about the real estate development project itself and the public agency's involvement in the development itself. There is a natural nexus between JDA and DA in that JDA may contain key "DA-like" provisions to account for ancillary public improvements needed for the JDA project. When project economics are in the balance, in addition to revenue sharing arrangement, a JDA may also contain cost sharing arrangement for necessary ancillary public improvements. Especially when the project is critical for boosting the local economy, local agencies may choose to supplement developer exactions/contributions with additional funding that could be generated from other government-sponsored VC techniques, such as TIF and SAD.

It is important to note that funding sourced from a JDA revenue sharing arrangement, e.g., third-party ground lease revenues, could be considered as part of local governments' general fund which has flexibility to be used for general public benefit purposes. Developer exactions (and other VC-related revenues) secured through a DA, on the other hand, would be much more restricted and their uses would typically be confined to public improvements linked directly to the development project under consideration.

Finally, for transit-related JDAs specifically, as mentioned earlier, the FTA has developed Guidance on Joint Development that involves the coordinated development of public transportation facilities with non-transit development (see https://www.transit.dot.gov/sites/fta.dot.gov/files/2020-08/Joint-Development-Circular-C-7050-1B.pdf). According to FTA, when coordinated properly, joint development can enhance the value of both transit and non-transit (and both public and private) activities taking place on real property. As distinct from transit-oriented development (TOD),²⁶ joint development may include partnerships for public or private development associated with any mode of transit system that is being improved through new construction, renovation, or extension, including intermodal facilities, intercity bus and rail facilities, transit malls, or historic transportation facilities.

As is the case in general, one of the primary benefits of transit-related joint development is revenue generation, such as income derived from rental or lease payments, as well as private sector contributions to public infrastructure. According to the FTA Guidance, while revenue generation is critical, it is not the only motivation for the public agency to enter into a JDA. For transit-related JDA, other important goals include shared costs, efficient land use, reduced distance between transportation and other activities, economic development, increased transit ridership, and improved transit connectivity.

4.1.2 JDA Representative Case Examples

Globally, as a VC technique, there is a general consensus that JDA has been used most successfully by Hong Kong's Mass Transit Rail Corporation (MTRC) (see Sidebar 4.1). In the United States, the use of JDA has been much more limited in comparison. For example, LA Metro, one of the largest transit agencies in the United States, has been using the term "joint development" specifically to entail a real estate development program through which Metro collaborates with qualified developers to build transit-oriented developments on Metro-owned properties. The preferred VC mechanism used in Metro's JDAs is third-party ground leases supplemented with collaborative in-lieu contributions from other public agencies. For LA Metro, the valuable part of its joint development program as a case example is its streamlined implementation process, which is depicted in Figure 2.

The most common form of JDA in the United States is the commitment of publicly owned air rights in exchange for various revenue and/or cost sharing arrangements. The best-known large-scale example of this type is Hudson Yards developments in New York City (ongoing), where unused air rights above the Metropolitan Transportation Authority (MTA) West Side Yard
(a storage yard for Long Island railroad trains) was transferred to private developers for over
17 million sq. ft. of development on a 28-acre site.²⁷

For the Hudson Yards project, one of the key core program elements has been the extension of MTA's No. 7 Subway. This major infrastructure undertaking prompted the City to create the Hudson Yards Infrastructure Corporation (HYIC). HYIC is a non-profit entity focused on the infrastructure portion of the project with a larger goal of promoting the overall economic development on the west side of Midtown Manhattan. HYIC has deployed many different VC techniques, including developer exactions, TIF, SAD, TDRs, up zoning, and density bonuses to raise funding not only for the subway extension itself but also for other wider public benefit provisions, including affordable housing.

Table 4. LA Metro JDA Implementation Process

Stage	Initial Community Outreach	Developer Solicitation/Selection	Project Refinement, JDA Ground Lease Negotiations	Permitting and Construction
Actions	➡ Community meetings ➡ Creation of Development Guidelines	➡ Issue RFI, RFQ, and/or RFP ➡ Evaluate proposals ➡ Community update	➡ Developers progress architectural design ➡ Community outreach/input (several iterations) ➡ Entitlements and environmental clearance process ➡ Negotiation of financial terms	➡ City engineering ➡ Construction documents ➡ City building permits ➡ Seek concurrence from FTA (where there is Federal interest) ➡ City-related approvals ➡ On-site construction ➡ Occupancy
Result	Metro Board approves Development Guidelines	Metro Board authorizes Exclusive Negotiation Agreement (ENA) with recommended developer(s)	Metro Board approves JDA and Ground Lease Agreement	Completed project
Timeline	6-8 months	6-8 months	18-30 months	18-24 months

Additional JDA examples where transportation infrastructure (such as in-fill transit station) is part of core JDA program are provided in the following (Sidebar 4.2).²⁸

4.2 Other Public Asset and ROW Use Agreements²⁹

There are various use agreements for public assets, which can include assets themselves as well as development rights above, below, or adjacent to public ROWs.³⁰ These use agreements can be a subset of a larger JDA as mentioned above (most of which typically pertain to air rights) or they can represent separate stand-alone agreements. Stand-alone use agreements can take various forms and involve a wide variety of public assets. Notable among them are:

• Naming rights, advertising, and corporate sponsorships
• Third-party franchise agreements involving, for example, renewable energy generated on public real estate with various power purchase and/or revenue sharing arrangements

4.2.1 Naming Rights, Advertising, and Corporate Sponsorships

Naming rights, advertising, and corporate sponsorships are linked to various public spaces, including highways, rest areas, transit stations, major buildings (stadiums, arenas, etc.), and vehicle fleets.³¹,³² They generate new sources of funding other than more conventional taxes, fees, and developer exactions and their revenue potential can be significant.

For example, naming rights linked to major sports stadiums, landmark commercial buildings, and transit stations³³ sometimes fetch top dollars for local governments. As a point of reference, Table 4 lists the top 10 recent naming right case examples linked to sports stadiums and the order of magnitude revenues involved. For transit stations, among others, naming rights have been used by the Southeastern Pennsylvania Transportation Authority (SEPTA) for the Broad Street Line AT&T Station (formerly Pattison Station), by NY MTA for Atlantic Avenue-Barclays Center Station, and by Chicago Transit Authority (CTA) as a means to establish broad corporate partnerships.³⁴

Table 5. Top Naming Right Revenues Case Examples

Facility	Total Revenue	Time Period
MetLife Stadium, E. Rutherford NJ	$425M to $625M	2010 - 2036
Chase Center, San Francisco CA	$300M to $400M	2016 - 2040
Citi Field, Queens NY	$400M	2006 - 2028
Mercedes-Benz Stadium, Atlanta GA	$325M	2015 - 2043
NRG Stadium, Houston TX	$310M	2000 - 2032
Trust (SunTrust) Park, Atlanta GA	$250M	2014 - 2042
Hard Rock Stadium, Miami FL	$250M	2016 - 2034
Levi's Stadium, Santa Clara CA	$220M	2013 - 2033
US Bank Stadium, Minneapolis MN	$220M	2015 - 2041
American Airlines Center, Dallas TX	$195M	1999 - 2030

Source: FHWA (2019)

The use of these techniques is becoming more innovative and diverse. For advertising, for example, GPS-enabled advertising technology has been used recently on transit vehicles in Hillsborough, Florida (see Sidebar 4.3). For corporate sponsorship, projects have been as diverse as those related to enhanced landscaping, expanded maintenance, art and place making, and other aesthetic initiatives (e.g., for gateways and rural main streets).³⁵

4.2.2 Third-Party Franchise Agreements

Third-party franchise agreements are generally more complex. They are essentially a form of P3 concessions where the public sector commits public real estate to the private sector having the necessary operational expertise to capitalize in the operational efficiency as well as revenue-generating opportunities. Most common third-party agreements involve renewable energy generated on public real estate (e.g., solar panels on top of maintenance facilities, public buildings, and/or parking lot canopies; wind turbines at rest areas).

State Departments of Transportation (SDOTs) are increasingly exploring the use of highway right-of-way (ROW) to accommodate renewable energy technologies as having potential to:³⁶

• Add value to ROW assets and create a revenue source for SDOTs to offset energy demand and operating costs
• Reduce greenhouse gas (GHG) and other pollutant emissions
• Promote energy security by diversifying energy generation and delivery methods
• Foster the creation of a local green job market that enhances the viability of the Nation's renewable energy industry

Some local governments share these same broad economic and sustainability goals. For renewable energy, the primary goal is often about energy cost savings, which in itself can be quite moderate but achieved without any upfront capital expenditure on the part of local governments. For example, Alameda-Contra Costa Transit District (AC Transit) in California recently partnered with SunPower Access to install solar panels in two of its locations in Oakland and Hayward. For AC Transit, the project provided energy savings of $5 million over 25 years and, for SunPower, 100 percent of the energy they needed to run their hydrogen fuel facility. AC Transit incurred no upfront capital costs because the project was completely funded by SunPower.³⁷

From a VC standpoint, these agreements can provide additional revenue sharing arrangements beyond just energy cost savings. Depending on the business model used, they can variously involve installation, operational, and/or ownership rights residing either on the private or public sector with or without
pre-established power purchase agreements (PPA).³⁸ Whether for renewable energy or other relevant local applications (e.g., waste-to-energy conversion, fiber-to-the-home (FTTH) broadband network, streetlight modernization), Table 5 provides alternative third-party franchise models that could be utilized by local governments.³⁹

Table 6. Alternative Third-Party Franchise Models

Model	Basic Features
Build-Operate-Transfer (BOT)	Private sector builds the underlying asset on public ROW with no cost to the public sponsor Private sector owns the asset, earns revenues by operating it, and transfers its ownership at the end of franchise term Can include a revenue sharing arrangement For energy asset, may or may not include PPA
Build-Transfer-Operate (BTO)	Private sector builds the underlying asset on public ROW with no cost to the public sponsor Private sector transfers the asset ownership to the public sponsor after construction is complete (i.e., turnkey-based) and obtains operating right from the sponsor to earn revenues during the franchise term Can include a revenue sharing arrangement For energy asset, may or may not include PPA
Build-Lease-Operate (BLO)	Private sector builds the underlying asset on public ROW, sells the asset to the public sponsor, and leases it back to operate it until the end of the lease Can include a revenue sharing arrangement For energy asset, may or may not include PPA
Buy-Build-Operate (BBO) or Build-Own-Operate (BOO)	Private sector buys existing public asset (where private ownership is allowed), provides major improvements (rehabilitation, modernization, etc.), and operates it Public sector gets sales proceeds and/or revenue sharing arrangement For energy asset, may or may not include PPA

Source: Kim and Bennon (2017)

Footnotes

²³ FTA, Guidance on Joint Development, FTA Circular 7050.1B, rev. 2, August 14, 2020, https://www.transit.dot.gov/sites/fta.dot.gov/files/2020-08/Joint-Development-Circular-C-7050-1B.pdf.

²⁴ Where Federal funding is involved, the use of ROWs require Federal approval. For example, the use of air rights on facilities constructed or improved with federal-aid highway funding must obtain a ROW use agreement approved by FHWA (see 23 CFR 710.405).

²⁵ To minimize confusion, the term "infrastructure" is used in this discussion to mean a core component of the development project program and the term "public improvements" is used to mean ancillary infrastructure to support the real estate component of the development program.

²⁶ Although related in purpose (i.e., creating vibrant, compact, mixed-use, economically successful communities near public transportation) joint development and transit-oriented development (TOD) differ in several respects. In joint development, a local agency is an active partner contributing either property or funds for use in the joint development project. Joint development is much smaller in scope and uses project property owned by the agency. TOD, on the other hand, has a much broader scope that can range from several parcels of property to as much as an entire community. In TOD, the local agency is a stakeholder but may not always be a partner. Both joint development and TOD projects encourage private investment near public transportation and help grow local economies.

²⁷ Considered one of the most expensive real estate projects in U.S. history (estimated at $25 billion), the core program includes commercial mixed use, subway extension, new open space network, and convention center corridor. The development is based in complex multi-layered JDA arrangements between a private developer consortium, City of New York, MTA, and other private/public entities.

²⁸ For additional JDA examples involving transportation infrastructure, see http://www.fhwa.dot.gov/real_estate/right-of-way/corridor_management/innovative_uses.ctm.

²⁹ For this section, refer to the significant VC resources already available at https://www.fhwa.dot.gov/ipd/value_capture/value_capture_a_to_z/ for additional details on specific techniques and case examples.

³⁰ As mentioned, for non-highway uses of highway ROW, FHWA regulations (23 CFR 710 Subpart D) apply if there has been federal-aid highway funding in the facility.

³¹ See https://www.fhwa.dot.gov/ipd/pdfs/value_capture/capacity_building_webinars/webinar_112119.pdf for a more detailed and comprehensive overview of these techniques (FHWA 2019).

³² It should be noted that there are some restrictions in using these techniques related to highways. Advertising, for example, is not permitted on traffic control devices, nor within Interstate Highway System rights-of-way, including in rest areas.

³³ For both existing facilities and new developments. For new developments, naming rights can be part of a DA or JDA.

³⁴ For more detailed information on these examples, see https://www.fhwa.dot.gov/ipd/value_capture/defined/naming_rights.aspx.

³⁵ For additional details, see https://www.fhwa.dot.gov/ipd/pdfs/value_capture/capacity_building_webinars/webinar_112119.pdf (FHWA 2019).

³⁶ For additional details, see http://www.fhwa.dot.gov/real_estate/publications/row/ (FHWA 2016). It should be noted that if a renewable project is contemplated, the FHWA Division office must be consulted for relevant restrictions and approval requirements.

³⁷ See https://www.fhwa.dot.gov/ipd/value_capture/defined/solar_energy_use.aspx for additional details and case examples related to solar energy use agreements.

³⁸ In the case of solar energy, for example, PPA here represents the public sponsor purchasing the newly generated solar energy from the private concessionaire for its own use often at a discounted rate.

³⁹ See Kim and Bennon (2017) for more detailed discussions and case examples on how local governments can structure P3 concessions and other third-party franchise agreements based on the characteristics of the underlying assets.

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