: the benchmark for value creation and value capture in transportation projects

Source: MTRC Content

1 Value Creation and Transit Oriented Development

2 Value Capture: the Hong Kong Example

3 Can the Hong Kong Example be applied in Bogotá?

Value Creation and Transit Oriented Development

Property Development above and around Kowloon Station What does Value Creation mean?

Design Diversity Density Cityscape Added Value

Value Creation means to create value in five dimensions: through quality TOD design, land use diversity, high urban density at the TOD core, by creating a diverse cityscape and by creating added land and property value as a funding source. Integration of value creation with TOD

Hong Kong proves that the integration of value creation with TOD (well designed, Podium Garden following the 3-D-Principle) boosts both, the property value increments and the MRT patronage at the same time. 5/F (Park-and-ride Facilities and Residential Integration creates a win-win-situation Parking)

4/F (Residential Parking)

3/F (Platforms of Airport Express and Line, Shopping Mall)

3-D-Principle 2/F (Platforms of Airport PTI Express and Tung Chung Line, Shopping Mall) Station Facilities 1/F (Station Concourse, Shopping Mall Shopping Mall and PTI) Residential Facilities Recreational Facilities G/F (Loading/Unloading, Shopping Mall, PTI and Parking) Tsing Yi Station (250,000 m2 residential, 46,000 m2 mall) Graded densities bring about value increments and TOD

Beneficiaries: 1. Citizens: healthier, less polluted city, less uniform cityscape 2. Passengers: perfect access to areas of high land use density 3. Non-MRT: less congested city. 4. MRT system: good patronage and additional funding source 5. Private sector: participation in returns from value increments 6. City: faster MRT implementation. Only government owns the right to boost the potential for value increments through FAR adjustment

• Land and property values increase if the accessibility of a plot is improved. But the larger part of the value increments stems from FAR increase. FAR increase, in turn, demands good accessibility by MRT. • Highest site-FAR in Hong Kong is 10 (residential land use). It is reserved for MRT station areas. • Connectivity: Provision of safe and convenient access (grade separated from road level for safety reasons, covered to protect against weather impacts). • Increase of the station catchment area by feeder services. New towers around Asok Station, Bangkok (2000 – 2010) Value Capture: the Hong Kong Example

Property Development above and around Kowloon Station Hong Kong captures the value which is jointly created by a coalition of Government, Metro Operator and Private Sector

Political commitment Supportive legal framework Strong institution Indispensable for creating the legal Adequate definition of railway Mass Transit Railway Corporation framework, for creating a strong land: land needed for the railway (MTRC) was established from the institution which steers the infrastructure (tracks, stations, beginning as a company which process, for kick-off funding, for depot), systems (workshops), integrates railway operation and gathering community support, and operation, and funding (station property development under for law enforcement. development area). one umbrella.

Kick-off funding Private sector participation Community support MTRC funding was two-fold: Hong Transparent rules for profit The legal framework protects Kong Government furnished MTRC sharing (end-profit and in-kind residents who have to leave with land development grants profit) between MTRC and the resumed land, provides for social (initial “land bank”) and provided private sector (developers) which housing in case of need, and an interest-free loan to start. contribute significant investment. prevents gentrification. Organisational model

The integration of the entire value creation process from micro-zoning land use planning to transit planning to the TOD outline design and the construction supervision in one strong institutional entity is essential. In Hong Kong, this is MTRC.

Plan. Dep. Developer A

Transp. Dep. MTRC

Land Dep. Developer B

Env. Prot. Railway Developer C Dep. Policy Bureaus Policy

Urban Stations Developer D Renew. Auth. etc.

Government  Master Planning for the TOD development site  Obtaining Approval in the Statutory Planning Process  Continuous Design Refinement with Developers Hong Kong MTR Corporation (MTRC) - milestones

HongThe MTR Kong Corporation MTR history(MTRC) develops (milestones) railways and property (R+P) in tandem. In property development, MTRC is restricted by law to plots above and around MRT stations (value creation area).

Kowloon Station project MTRC becomes First overseas operation starts corporation (Melbourne) Opening of first line Stock registration

1973 1978 1983 1988 1993 1998 2003 2008 2013 MTRC established Hong Kong Station Transferred under private Merger with KCR project starts law First R+P project LOHAS park project First project development starts in China (Shenzhen L4)

The success formula of MTRC is “R+P+TOD”. Adding TOD to R+P boosts land value increments and creates added ridership Land bank and land development grants

The Hong A metro line consists of the railway land (for tracks, depot, stations), the Kong infrastructure (tunnels, viaducts, workshops, etc.), the rolling stock, and Principle the station areas as defined by the land bank

1 Hong Kong Government furnished MTRC with land development grants (the so-called initial “land bank”) for 50 years leaseholds (extendable by 50 years). As land is state-owned in Hong Kong, leasehold is the only form of land tenure.

2 All land which MTRC wants to use – from the initial land bank as well as from later additions to this bank - has to be bought by MTRC. MTRC has to pay the market price without railway; the price is assessed by an Independent Cost Consultant (ICC) and is to be confirmed by two independent auditors. The process excludes land speculation caused by infrastructure development plans.

3 The land bank includes undeveloped plots (e.g. reclaimed land at Kowloon Station) and plots where the leasehold is owned by third parties (e.g. Wong Chuk Hang of the South Island Line (East)). If the HK Kong Government allows the use of plots currently occupied, it accepts the obligation to resume the land to make it available for a metro project. Current land use right owners are compensated at market prices (see Point 2) Examples for MTRC-steared property developments under the “Rail + Property + TOD” Scheme

Station : Floor FAR Commercial Residential Others Other features Transit connectivity • size of area Space space space (1,000 m2) • Period Built (1,000 m2) (1,000 m2) (1,000 m2)

Hong Kong 416 7.3 254 none . Hotel and serviced Extensive public and Interchange with Island Station apartments: 99 open space Line and Tsuen Wan Line, • 5.7 ha . Retail: 60 bus and taxi stations, in- • 1990-2002 town airline check-in, free shuttle bus service to hotels, parking

Kowloon 1,096 8.1 232 608 . Hotel and serviced Kindergarten, cinema, Interchange with Island Station apartments: 167 podium gardens, Line and Tsuen Wan Line, • 13.5 . Retail: 83 restaurants, etc. bus and taxi stations, in- • 1998-2010 town airline check-in, free shuttle bus service to hotels, parking Tung Chung 1,031 4.8 15 936 . Hotel: 22 Kindergarten, gardens Tung Chung Line, bus and Station . Retail: 56 (ground level and taxi stations, parking • 21.7 podium), restaurants, • 1998-2011 etc. LOHAS Park About 4.6 little About 1,500 Hotel: tbd Kindergartens, schools, , bus • 34.8 1,600 Retail: 45 extensive landscaped and taxi stations, parking • 2002- gardens (2,000 m2 ongoing central park)

Hong Kong Station on Hong Kong Island

Value creation area

Four Seasons Hotel / serviced apartments

In-town check-in facilities IFC 2 Subway Station IFC Mall IFC 1 LOHAS Park (Life of Health and Sustanability)

LOHAS Park new town contains high- rise residential buildings for 60,000 people, office towers, retail space, a hotel, community facilities and podium gardens, and a railway station to connect the remote area to Hong Kong Island (at North Point Station). Hong Kong West Kowloon Terminus: the world’s biggest underground station and next TOD value creation area to come Typical implementation timeline for a Metro project in Hong Kong and interaction between MTRC and developers

Step Issue Yr1 Yr2 Yr3 Yr4 Yr5 Yr6 Yr7 Yr8 Yr9 Yr10 1 Project Inception 1 Selection Process: (FS, EIA, Financial Studies) 2 Project Definition 2 Preliminary Design, Approval of EIA) 3 Project Initiation 3 X: Auctioningsub-plots Gazettal Procedures, Detailed X Design, Tendering 4 Project Authorization 4

Land Resumption, Construction

5 Project Opening 5 MTRC: development of annual profit (past decade)

HKD BILLION

18

Railway subsidiaries outside of Hong 0.40 Kong 0.60 16 Property development 0.30 Property ownership, management and 0.00 0.02 4.9 3.2 14 other businesses Hong Kong railway operations and 0.03 4.0 related businesses 12 4.7 3.6 2.8 0.00 0.00 2.6 8.3 10 2.5 0.00 0.00 2.1 2.4 8 6.1 5.8

4.6 5.4 6 1.3 10.00 1.1 1.1 9.30 4 0.9 8.40 7.40 7.30 0.8 4.90 4.10 2 3.60 4.00 2.90

0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

MTRC market fundamentals (as of July 2014): total assets = 255 Bill. USD; market capitalisation: 22.5 Bill. USD; debts: 3.1 Bill. USD; EBITDA (fiscal year 2013) = 1.92 Bill. USD

http://www.bloomberg.com/quote/66:HK/chart The limits of Rail + Property + TOD

1 The MTRC land bank cannot be refilled endlessly. The number of plots suitable for value creation through R+P+TOD development is limited. However, MTRC is entitled to the exclusive property management of developments built within the value creation area (on top and around stations).

2 The reduction of property development profits is expected to be compensated by property management returns and profits. In order not to lose the property development know how, MTRC now starts to export R+P+TOD to overseas. Can the Hong Kong Example be applied in Bogotá? Prerequisite is network integration: MRT must provide good access to and from all major trip origins and destinations

Key figures:

• Metro: 67 km • Suburban: 115 km • LRT: 36 km

• Total: 218 km

• Stations: 152

• Excl.: tram, peak tram, feeder bus system

• Pass./day: 4.9 Million Relevance of technology

Besides FAR adjustment, network quality, and connectivity of station and TOD area, the impact of MRT on land value increments also depends on technology. The impacts increase if

• The system capacity is very large • The lifetime of the MRT system is longer than that of property developments • The MRT system is no visual obstacle to a liveable urban environment

Conclusion: rail systems promise much larger value increments than BRT Hong Kong and Bogotá: a comparison

Factor Hong Kong Bogotá

Population density (high) (Wessels, 25,268 20,773 Bocarejo, Pardo, 2012) Economic growth (robust)- GDP per 2,53% 3,91% capita 2005-2014 Change of household size 1-2 member +57% 1-2 member +17% 3+ member -25% 3+ member -7% (40 years evolution) (4-year evolution) HK government census EMP 2015

Legal framework for value creation *Benchmark Good but to be enhanced (betterment and capture (supportive) levy, property tax increments, urban operations) Institutional strength for value *Benchmark Strong institutions but without strong creation and capture links to value creation Private sector participation *Benchmark Sector aware of potential (and seen in TransMilenio terminals) Political commitment *Benchmark To be seen (time of change)

Kick-off funding *Benchmark - From central government (9,65 Bn COP for Metro Line 1) - From local government (remaining cost? Value creation?) Community support Usually high To be developed (in value creation) Conclusions for MRT in Bogotá

1 Fundamentals for the application of the Hong Kong example are good: • high population density, • strong economic growth, • demographic trends supporting property demand, • experience with value capture, • strong institutions in their respective fields. The opportunities are there and should not be lost.

2 However, no common mindset exists that value creation similar to the Hong Kong example is a useful tool for infrastructure funding. But it is needed to envision the establishment of an entity which: • integrates railway and property development in one business model and • streamlines the planning towards Transit Oriented Development: R+P+TOD.

3 The Hong Kong example can provide guidance for an applied solution in Bogotá, as also the Tokyo example can do. There are other examples which can provide guidance about how not to loose opportunities. Guidance is plenty but the focus should to create the common mindset. Thank You