Money in the Air: State selling rights to build above train stations could spur major developments

Scott Goldstein - NJBIZ - 11/27/2006

STATEHOUSE - Train stations throughout the state could sprout office towers and other big construction projects under plans for selling off state assets now being considered by the Corzine Administration. While talk of privatizing the New Jersey Turnpike and the Garden State Parkway has received the bulk of public attention, the sale of development rights at train stations could prove more far-reaching.

The idea is exciting to big developers, many of which are already working on multi-use developments around train stations. The sale of development rights would include the air rights above stations where builders could put up everything from parking garages to office and condominium towers.

The state has a lot of [land] assets in and around train stations, says Anthony Marchetta, vice president of LCOR, a Berwyn, Pa.-based developer that is producing the master plan for redeveloping the historic Hoboken Terminal. We believe train-oriented development is a very solid planning principle because it relies on mass transit and is less reliant on the automobile.

Property at train stations is among the state-owned assets that have been designated extremely viable for lease or sale, according to a report released this month by the New Jersey treasurers office.

Other assets in this category include the states toll roads, the lottery system and waterways and ports, according to the study prepared by UBS Financial. Property considered moderately viable for sale or lease includes the Atlantic City Airport, the PNC Bank Arts Center and some hospitals.

Besides proposing the sale of assets, the report suggests adding tolls to some free highways and selling property along highways for commercial developments such as gas stations.

The revenue raised by the state could be used to pay for future capital projects, including roadwork and school construction, or used to reduce the state debt, says state Treasurer Bradley Abelow. State debt rose 16 percent to a record of almost $30 billion in the fiscal year that ended in June.

The exercise we are engaged in is extraordinarily complex, says Abelow, who is to submit a detailed report on privatizing assets in May. Examining any one of these assets is complicated in and of itself. We're trying to group these assets to see what's feasible, get some assessment of their value and see where they rate.

During a meeting with Statehouse reporters earlier this month, Abelow and state Department of Transportation (DOT) Commissioner Kris Kolluri said selling development rights at train stations faces fewer obstacles than other privatization schemes and could begin as soon as next May. Asked for an example of a train station project, Kolluri replied, "A parking structure you could put condos on top of."

Michael McGuinness, executive director of the New Jersey chapter of the National Association of Industrial and Office Properties, agrees that it makes "good planning sense to take advantage of these mass transit facilities."

But the idea isn't problem-free. "Towns may or may not want to have skyscrapers or towers over those train stations," says McGuinness. It's really going to take some selling. In an area like New Brunswick, Hoboken and Trenton, it makes perfect sense. There might be some other stations in suburban areas where it doesn't make as much sense.

Jeff Tittel, director of the Sierra Club-New Jersey Chapter, notes that "there have always been proposals in Trenton to put platforms across train lines and put offices on top and it has never happened. As long as we have cheap land that is available [elsewhere], why do it? It will only work where land is not available and expensive, like Hoboken and maybe a Jersey City."

James Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University in New Brunswick, sees value in the development of train stations. "If the state sticks to a smart-growth policy of restricting development in rural areas and preserving farms and open spaces, it will direct market forces back to existing centers and those train stations will become even greater assets with greater values," Hughes says. "At some point, as congestion increases, the logic of offices and workplaces at the train station makes a lot of sense."

But Hughes worries about the prospect of selling one or more of the state's three toll roads: The New Jersey Turnpike, The Garden State Parkway and the Atlantic City Expressway. "Selling air rights is one thing, because the state retains control of the train station," he says. "By selling an asset like a highway, you lose it forever."

Some legislators say the state could fetch anywhere from $10 billion to $30 billion for the combined sale of the New Jersey Turnpike and the Garden State Parkway. Sen. Raymond Lesniak (D-Union) says purchasers could generate revenue by developing retail and hotel projects around the highways. Under plans being discussed, private owners would also pocket the tolls.

Some other governments have begun privatizing toll roads, including the city of Chicago, which agreed to a 99-year lease for its eight-mile Skyway that brought the city $1.8 billion last year.

James Dunn, a Rutgers-Camden political scientist, says the best use of proceeds from the sale of assets would be to pay down state debt. This could help reduce property taxes, he says, "assuming you don't run the debt back up."