Why You Should Invest in Light Rail Properties Now

Mass transit in the US has been around since 1870. New York and a handful of other cities like Chicago and Philadelphia led the pack for about a century until the 1970s, when Washington D.C., San Francisco, and Atlanta followed suit.

Those are heavy rail systems — the train is driven by an engine. Light rail, where the train is driven by an exterior power source, is something newer in the U.S. Twenty-nine cities have light rail. The busiest lines are in Boston, Houston, and Buffalo.


GONZO GAS PRICES FUEL BY LINE VALUES
Tenants love renting within walking distance of light rail. Light rail demonstrably raises property values. Transit-oriented development, where people live, work, and shop within a short distance of light rail, is the latest vogue in the real estate marketplace.

In the past five months, spiraling gas prices have put more focus on the cost of getting from home to life and back again.

Two more light rail systems — Austin, Texas, in the fall and Phoenix, Arizona, in December — will open by the end of the year. Investing in light rail-adjacent properties seems like common sense, but is there more to the story?


NO, NOT REALLY
The bottom line — and that’s why we’re all here — is that there’s big profit in light rail properties.

Dallas Area Rapid Transit Light Rail Train opened its first two lines in 1996. Administration ordered several studies of the system’s effect on nearby residential, commercial, and retail properties. A 2005 study found that between 1997 and 2001, median values of residential properties increased 32.1 percent near the LRT stations compared to 19.5 percent in control group areas. The increase was good for office buildings, too: 24.7 percent for properties close to lines versus 11.5 percent for properties farther away.

The same study also found more than $3.3 billion of new investment completed, underway, or planned which had been publicly announced.

A Denver, Colorado, public-private development corporation official told the Wall Street Journal that land values around light rail lines are up as much as 30 percent. Denver has 119 miles of light and commuter rail lines in the pipeline

Portland, Oregon’s first light rail line opened in 1996. Metropolitan Area Express was an instant hit, according to Carla Muss-Jacobs, a buyer’s agent in Portland. Part of the system’s instant success was Portland’s green culture, but convenience and a way to avoid downtown Portland’s expensive and sparse parking also played parts. Portland is a great crystal ball for light rail property investing because it’s fairly new and reflective of other recent systems.
“Portland is a little bit different; we’re a little bit greener,” Muss-Jacobs said. “Since light rail came in, people have wanted it. They really are looking for properties accessible to light rail.”

In April, she sold a house close to light rail for about $215,000. A similar house without the location would have sold for $10,000 to $15,000 less. “I’m willing to go on the record saying that,” she said.

She’s also an investor who owns property close to a light rail line. “It’s why my tenants stay, and I can charge top dollar on rent, and I do,” she said. “For the value they’re getting, having that light rail within a mile, you can’t find anything.”

Are light rail properties a good investment? “I think so,” Muss-Jacobs said. “I think it’s wonderful.”


MAKING A DIFFERENT FORTUNE FROM OIL
The obvious factor is the cost of fuel.

“It’s awesome for our business,” said Bryan Watkins, co-owner of LightRailConnect.com, a commercial and residential company exclusively focused on a corridor one mile from the tracks of Phoenix’s upcoming light rail line. In addition to real estate, the Web site also features rentals and employment within the corridor.

A study released last year by the Center for Housing Policy found that for every dollar saved on housing in a less expensive suburban location, households have had to
spend an additional 77 cents on transportation to get them there, according to a Bay Area non-profit which advocates transit-oriented development.

“Rising housing and transportation costs are straining household budgets across the country,” Reconnecting America CEO Shelley Poticha said in a statement released on their Web site.

“The significant savings that can result from living near stations and using public transit regularly can be critical for low-income households that need to make every dollar count.”
In the statement, Poticha said that families have traditionally been able to find lower cost housing in suburban neighborhoods but recent increases in the cost of transportation have nearly wiped out that savings. The whopper from the same group is that the number of households located near transit stations will more than double by 2030, to 16 million from six million.

Properties don’t necessarily even have to be right on the line itself. If a home has easy access to a park-and-ride lot or a bus line, it’s in demand in Portland, according to Muss-Jacobs.

“They’re happy if they can get a place (at a distance) because they can hop on the MAX,” she said. “Lower end homes have gained considerable value and are being looked at very seriously because they’re close to the MAX. I would say it’s a great selling point for a lister, even for the lower-end homes farther out.”


ANTICIPATION IN AUSTIN
“We cannot wait,” said Jay Carter of Austin. “We’re excited about it.”
The Capital MetroRail is slated to open in the fall. Buyers and investors aren’t swarming the market for light rail properties, said Carter, an agent who blogs about Austin’s coming light rail advantages and sells along the line’s routes. It’s not that they’re not interested; they’re just oblivious.

“The areas near the light rail stops aren’t something we’re as much doing business in as much as we’re pushing,” he said. “This could be a quite lucrative investment. There is a vast swath of people who don’t see what’s coming.”

He expects more of a stampede, or at least a brisk trot, in sales once people start seeing the cars trundle through Austin. “It’s not taking a lot of convincing,”

“We’re seeing a lot of activity, but it’s not something that’s in the collective public consciousness yet.”

Areas around the lines going into central and east Austin are seeing the most — a “flurry,” Carter described it — activity by investors, builders, and even a few homebuyers, although he tempered even that.

“We can estimate what we think (light rail property prices are) going to be, but central and east Austin have already been growing in popularity because they’re central and easy to drive,” he said.

At the far end of the line, he is not seeing the increases enjoyed by property owners at the end of Portland’s lines. “I’m not seeing a huge impact on prices at the far end of the line in Leander,” Carter said.


PHOENIX GIVES LIGHT RAIL THE BIRD
Unlike Austin, Phoenicians are hard-pressed for enthusiasm about light rail. It’s been viewed as a three-year construction hassle creating a traffic nightmare in a place where the car is king as it is in Los Angeles. No one really cares what will happen once it’s finished. They just want it out of their hair, or at least out of their neighborhoods. “No More Light Rail Construction” could be as big a marketing point as “Light Rail Walkability.”

Walkability is a huge issue in Phoenix. For five months of the year temperatures are at or well over 100 degrees every single day. A three-minute walk that’s pleasant in April can be hell in July. The Apaches didn’t even go out on a July afternoon. Forget a mile walk to a light rail station; it just won’t work, especially if you need to dress for work.
That said, Don Mortensen and Bryan Watkins are all smiles about light rail. The LightRailConnect.com wiz’s know what they’re talking about. “We have done a lot of research nationally,” said Mortensen. The square mileage along Phoenix’s lines are almost the size of the city of San Francisco, he said. There are more than 100 apartment complexes of 100 or more units along the route, Mortensen said. That’s a lot of real estate.

It’s not appreciating, however. Will prices double after the lines being to run in December? “We can’t say that,” Watkins said.

Mortensen created the concept for his business while in the Arizona State University Master’s in Real Estate Development graduate program, winning the faculty’s Energy & Entrepreneur of the Year award in 2008. What’s stalling light rail investment in Phoenix is seller greed, he said. “There’s a gap between the value sellers place on their property and what buyers are willing to pay,” Mortensen said.

The highs for commercial are $33 per square foot along Apache Boulevard in Tempe (a formerly scuzzy hooker and package store strip, but a three-minute ride to the university campus). The lows are $24 along Washington in Phoenix, a hard-core industrial area — train tracks, planes overhead, metal shops, and homeless. An owner charging only $9 less per square foot in an unimproved area farther from downtown or Tempe needs to reassess their pricing, the partners suggested.

For investors interested in buying now, Watkins recommended prudence, not passion. “Get in at the right price, not at any price,” he said.


RESOURCES
Carla Muss-Jacobs
EBA Portland
www.EBAPortland.com
503-810-7192

Jay Carter
www.LivingInAustin.com
www.livinginaustin.com/austin-light-rail.asp
512-997-7653

LightRailConnect.com
www.phoenixlightrailrealestate.com
www.LightRailConnect.com
Don Mortensen
602-451-36584
Bryan Watkins
602-734-7878