Last week, Metrolinx announced a new plan to cooperate with private developers to help finance construction of new transit infrastructure with profits from adjacent commercial and residential development. It calls it a new “Market Driven Strategy,” likely as a nod to the new provincial government. The first announced project is for a reconstruction of Mimico GO station, and Metrolinx CEO Phil Verster says the agency has been "inundated" with other proposals from developers for various sites around the GTA. The new Public-Private approach has considerable potential, but it also has significant risks.

The most obvious locations for the new approach are the many GO rail stations that are currently surrounded with acres of surface parking lots. As GO modernizes from its current parking shuttle model to a genuine transit system that is useful for all trips, there will be increasing demand for homes and commercial space around its stations. Those acres of underused, Metrolinx-owned land could be worth a fortune to the agency. Transit-oriented development is also a great way to reduce car use in the GTA. Many cities have aggressive policies to ensure that employment is accessible by transit. For example, Copenhagen requires all major office buildings to be located around rail stations. Once GO rail frequency is improved to the point that it is useful for people who don’t work near Union Station, such a policy could become viable in Greater Toronto. 

Metrolinx is hoping to use the revenue from local development to help pay for transit infrastructure expansion. For example, the proposed Mimico project will involve a private developer paying for the cost of a new station and other improvements to meet accessibility standards in exchange for the right to build a mixed-use development above the station. Older subway stations in Toronto were an international model for transit-oriented air-rights development, with the station entrances often being located in the base of residential and commercial buildings. More recently, however, transit agencies have instead built large, single-floor entrance pavilions that consume large amounts of valuable land right above a subway station.

Mimico Station Plans (Source: Metrolinx)

Another potential site for the new strategy is a new Woodbine station at Highway 27 on GO’s Kitchener Line. Metrolinx is proposing to close the Etobicoke North station, which will need to be relocated to make way for upcoming construction. While its immediate surroundings (Woodbine Racetrack’s stables and an asphalt plant) aren’t obviously propitious for a new station, its connections would make it useful. In particular, it could accommodate transfers to the TTC’s Highway 27 Express bus, which would put it only minutes away from the Humber College and University of Guelph-Humber campus, a major regional destination. Woodbine Racetrack is also planning a major redevelopment, albeit on the other side of the property from the station.

The ideal for such a strategy would to successfully emulate the model of Asian cities like Hong Kong and Tokyo, where transit companies’ profits from real estate developments around stations are a major part of the funding for their rail operations. If Metrolinx can retain ownership of the land underlying a development, for example, it could secure a steady stream of lease payments that could supplement its budget. Toronto’s hot property market seems ideal for such an approach.

The problem is that the risks of the real estate industry are famously high: some of the most sophisticated organizations in the world have lost fortunes on real estate. Developers are certainly going to try to extract as favourable deal as possible for themselves, and Metrolinx is not a sophisticated and experienced real estate operator that will have an easy time holding its own. There is also a tough balance between community and transit benefits, and real estate profitability. Metrolinx’s focus needs to be on attracting people to transit and making sure that stations are as accessible as possible. That is not going to be the private developers’ main goal. Once the land is in private developers' hands, it would be very difficult to get it back if it's needed for transit purposes. The process of adjudicating which partner will gain the rights to develop a station is potentially rife with opportunities for scandal, so a transparent process will be needed. Verster said that private companies will not decide the timing and location of transit infrastructure improvement—that will be left in the hands of the provincial government—but there’s no question that a large influx of private money will shape decisions to some extent.

Commercial and residential space is a far better use for land around rail stations than surface parking lots. Development is also a potentially valuable way to help pay for the cost of improving transit infrastructure. Real estate development, however, comes with substantial risks that must be addressed.