Trader Trains

7/23/2019 Trader Trains

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Trader Trains

A Transit-Oriented, Transit-Owned Development for Davis Square, Massachusetts

Submitted to:

Peg Barringer (UEP 271, Urban and Environmental Policy and Planning, Tufts University)

Submitted by:

Rayn Riel

Nathaniel Mayo

Gary Hoffman

Zhamilya Tobabekova

December 14, 2015



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Table of Contents

I. Executive Summary 4

II. Description of Proposed Program or Project 6

III. Community and Project Concept and Background Issues 14

IV. Ownership Roles and Roles of Other Parties 16

V. Economic Development Connection and Benefits 20

VI. Market Analysis 21

VII. Marketing Plan 25

VIII. Staffing and Management Requirements 26

IX. Operations Analysis 27

X. Budget and Financial Analysis 27

XI. Conclusion and Assessment of Critical Risks and Opportunities 32

Appendix A: Case Studies 34

Appendix B: Davis Square Survey 44

Appendix C: Supermarket Access and Saturation 46

Appendix D: Trader Joe’s Corporate Office Interview 48

Appendix E: Davis Square Commercial Lease Survey 48

Appendix F: MBTA Funding and Siting Process 49

Appendix G: NAICS Profile of Trader Joe's on Memorial Drive 51

Works Cited 52



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Figures

Figure 1: Logic Model 5

Figure 2: Massachusetts Turnpike Air Rights 6

Figure 3: Davis Square Eastern MBTA Red Line Entrance 6

Figure 4: City of Somerville Zoning Process and Map 8

Figure 5: Site Dimensions 10

Figures 6.1-6.9: SketchUp of Proposed Development 10

Figure 7: MBTA Real Estate Stakeholders 26

Tables

Table 1: Central Business District Zoning Requirements 9

Table 2: Trader Joe’s Somerville Market Demographics 23

Table 3: Development Budget 28

Table 4: Funding Sources 29

Table 5: Pro Forma at $21 per SF 30






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I. Executive Summary

Davis Square is the central commercial hub of the City of Somerville,

Massachusetts, and hosts one of the busiest subway stations in the Massachusetts

Bay Transportation Authority (MBTA) network: Davis Square, on the Red Line.

However, Davis Square Station is underdeveloped, with the eastern entranceconsisting solely of a small, single-story building.

Despite a wide range of shopping and recreational options, Davis Square has no

true commercial anchor business. Additionally, there is no full-service supermarket

within a half-mile, forcing residents out of the neighborhood (often via automobiles,

contributing to congestion and pollution) to do much of their food shopping.

Our project investigates the feasibility of building a second story of 10,000 square

feet atop MBTA property and integrating it within the station, to be leased to Trader

Joe's, which will operate a small-format supermarket. We propose that the MBTA

use its debt authority and institutional resources to finance and manage the

project, with permitting assistance from the City of Somerville and MassDOT. This

project will develop some of the city's most appealing and underutilized commercial

space. It will also provide competitively priced, full-service grocery options within

walking and biking distance for its residents, provide a better transit experience and

transit-owned, transit-oriented development, and bring a long term source of lease

revenue to the MBTA, while creating 30-50 above market jobs with benefits to the

neighborhood. Finally, Trader Joe's will act as an anchor business, bringing MBTA

customers into Davis Square, and making the area a more appealing and dynamic

destination for residents in and beyond Somerville to live, work, and play.



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Figure 1: Logic Model



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II. Description of Proposed Project

Why are the two MBTA Red Line station entrances at Davis Square in Somerville,

Massachusetts each only one-story tall, when surrounding buildings are at least a

few stories tall, with ground-floor retail, and office space on the upper floors?

Couldn’t the MBTA use the (relatively marginal) extra real estate revenue, andwouldn’t it also enliven the area further, allowing for more places to live, work, and

play? It is in this context that our community economic development team proposes

the joint development of the eastern Red Line entrance at Davis Square, while also

tackling food insecurity in the neighborhood. Similar to the supermarket built atop

the Massachusetts Turnpike upon approach to Boston, our program will bring a

supermarket – much needed in the area – atop a transportation asset.

Figure 2: Massachusetts Turnpike Air Rights

Figure 3: Davis Square Eastern MBTA Red Line Entrance

According to the City of Somerville, the Davis Square commercial district, located in

Ward 6, is less than a mile away from Tufts University, and strategically served not

only by the Red Line, but five MBTA bus lines (the 88, 89, 90, 94, and 96).

Moreover, Cambridge is only a few minutes away on the T, while Boston is a mere

15 minute commute. Meanwhile, at the intersection of Holland Street, Dover Street,



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Day Street, Elm Street, Highland Avenue, and College Avenue, as well as the

Somerville Community Path, Davis Square provides pedestrian and bicycle access

to the Minuteman Commuter Bicycle Path and is one of Somerville’s most vibrant

economic and cultural engines. Indeed, it is “home to many cafes, restaurants,

theaters, clothing and sundry shops, as well as office space and a range of

affordable to high end housing”, and “the Square hosts several arts-related festivalseach year, including Art Beat, Honk! and Open Studios” 1. Today, Davis Square is

known as a model of vibrant mixed-use and transit-oriented development, and the

City of Somerville has noted that future development will mostly be “strategic infill

or rehabilitation projects that will enhance an already vibrant community” 2. Clearly,

the City of Somerville prioritizes infill, and working with the T could provide

opportunity for growth. But, they would need a champion, such as an anchor

tenant, in order to get started. They would need a supermarket.

According to the City of Somerville, which has zoned Davis Square as a Central

Business District (CBD), a CBD must be preserved for “retail, business services,housing, and office uses”, while promoting a “strong pedestrian character and

scale” in order to provide “environments that are safe for and conducive to a high

volume of pedestrian traffic, with a strong connection to retail and pedestrian

accessible street level uses”. Moreover, buildings should complete the street wall,

providing continuous storefronts which “shall house either retail occupancies, or

service occupancies” 3. Furthermore, Davis Square already has municipal parking,

and due to its urban character, our site will not be adding additional parking

spaces. Instead, we will be adding additional bike racks in the rear. We will seek a

variance if the City ordains vehicular parking.

1 Curtatone, Joseph. "Squares and Neighborhoods - Davis Square." City of Somerville. Web.2 Dec. 2015.2 Ibid.3 Ibid.



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Figure 4: City of Somerville Zoning Process and Map



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Minimum lot area/dwelling unit for 1-9

units (s.f.)

875

Minimum lot area/dwelling unit for 10

or more units (s.f.)

1000

Maximum ground coverage (%) 80

Landscaped area, minimum percent of

lot

10

Floor area ratio (F.A.R.) 2.0

Maximum stories 4

Maximum feet 50

Minimum rear yards (ft) 10 feet, plus 2 feet for each story

above the ground floor

Table 1: Central Business District Zoning Requirements (MuniCode.com)

Currently, the eastern entrance to the Davis Square Station is a one-story

structure, with bus connections, secure bike storage, and a small bodega, Au Petit

Pain. A second-story, decked over the bus station, would be a perfect square at

10,000 square feet. Massachusetts Realty, the MBTA’s designated real estate

consultants, would manage the supermarket tenant, Trader Joe’s, and assist with

the renovation and construction plan. The MBTA would work with Trader Joe’s to

begin a thorough inspection of the site to determine load capacity, ground

specifications, existing access to services (electricity, water, gas, telephone), site

drainage, capacity to support proposed development, and necessary costs involvedwith preparing site for development. Specialized green contractors would be

consulted for various aspects of green design, such as energy efficient lighting,

appliances, and water use, as well as the use of recycled materials in construction.

The maximization of Leadership in Energy & Environmental Design (LEED) criteria

will be emphasized and a green roof will be built atop the structure.

According to Francis DeCoste, Chief Operating Officer of Transit Realty Advisors

(TRA), a transit-oriented development (TOD) consulting firm, a good range for

retail construction is $250 to $300 PSF. In addition, we would need to add a

premium for the escalator and elevator, and the MBTA may also require fire

suppression and ventilation for the buses that idle at that spot4. Since our building

is 10,000 SF, and two stories, our building costs are approximately $6,000,000.

4 DeCoste, Francis. Personal interview. November 2015.



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Figure 5: Site Dimensions (100 feet x 100 feet)

Figure 6.1: SketchUp of Proposed Development



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III. Community and Project Concept Background Issues

America’s public transportation agencies cannot be profitable in the 21st century

due to a political economy that isolates these agencies from municipal zoning and

land use policies, and from forming value capture mechanisms – from tax

increment financing to joint development and the transfer of development rights.This siloization of zoning, land use, taxation, and transportation operations is

largely due to American fears of density alongside protections of private property,

but it limits the potential for transit-oriented and transit-owned joint development,

and it hinders the formation of public-private partnerships (P3s). Local, state, and

federal structural reforms are necessary in order to streamline value capture

processes, such as up-zoning transportation assets and relaxing land use

requirements, in order to facilitate TOD. While value capture will provide marginal

financial benefits due to the limited assets that U.S. agencies possess, it literally

stands on its own merits as a vehicle through which the urban fabric can be

renewed and enhanced. Transportation agencies cannot be profitable, but they canbe organized more efficiently, if given the resources to practice value capture.

The Massachusetts Bay Transportation Authority (MBTA) is the second largest

landowner in the entire Commonwealth, yet the vast majority of its assets are non-

performing.5 A public-private partnership (P3) was necessary in order to manage

the authority’s real estate assets, as the internal department had to maintain the

tenant ledger, collect rents, negotiate lease agreements, sell surplus properties,

and respond to requests from developers6. The T did not have the necessary

resources, expertise, or profit motive in order to conduct these processes, so it

contracted Transit Realty Associates (TRA), a consortium of firms, in order tooutsource the T’s real estate division in 1996. Firms included: AW Perry,

specializing in ownership, management and permitting; K.C. Donnelley and

Company, specializing in brokerage; The Development Group, specializing in public

property development and financing; and, Antrum Management, an engineering

firm specializing in parking garages7. According to Buzz Constable, a principal at

TRA, the TRA had to organize hundreds of lease agreements, many of which dated

back to the early 1900s, and were not cataloged at all.8 80 percent of the T’s leased

assets were non-performing; indeed, the T did not even have the time to collect

rent or update property agreements, one of which dated to 1910.9 The TRA

instituted market procedures and marketed properties for new lease opportunities,

5 Monty, Joseph. “Value Capture Transit-Oriented Development: The MBTA Story.” Thesis.

Tufts U, 2014. Print.6 Flier, Richard A., Clare C. Conley, and Lisa A. McCallum. Outsourcing of Real EstateManagement and Development in the Public Sector. Boston: Transit Realty Associates, 19977 Ibid.8 Ibid.9 Ibid.



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allowing for the MBTA to receive, from $3.5M per year in 1996, to $14M per year in

2014.10 While this is a marginal impact and the T is still deeply indebted11, the TRA

was nevertheless relatively successful. And, according to Joseph Monty, a Tufts

University alumni who wrote his thesis on the MBTA’s joint development practices,

the potential for value capture to significantly offset operating and/or capital deficits

of transit systems is not lost on most transit agencies:

A U.S. Government Accountability Office (GAO) report found that 32 of 55

transit agencies surveyed had used some form of joint development as a

source of funding and the bulk of these developments were concentrated on

mature systems which operate heavy rail transit such as the Los Angeles

Metro, Washington Metro, and Metropolitan Atlanta Rapid Transit.12

Furthermore, the GAO (2011) characterized agencies likely to utilize value

capture as those which have formal joint development policies, real estate

expertise, and developable land holdings.13

Yet even if U.S. systems cannot be profitable in our political economy, TOD

(literally) stands on its own merits, as it creates more dynamic places for people to

live, work, and play, and supports sustainable livelihoods by reducing emissions.

Still, often, accessibility to transportation improves the value of real estate, and

agencies themselves do not capture this value. When an agency develops its

property in coordination with a private developer to build and own or lease

shopping centers, offices, and apartments, it is termed joint development, a form of

value capture, which is, itself, a form of transportation finance.

To begin, there are various tools and techniques that can be used in order to

implement value capture.14 Special assessment districts levy an additional tax on

land parcels that receive a direct benefit from transit. Transportation utility fees are

fees assessed on beneficiaries of transit infrastructure based upon how likely these

beneficiaries will be using transit, thereby, for instance, reflecting the building’s

density or parking capacity. Tax increment financing is a tax policy that captures

the incremental difference in tax revenue after construction of transit facilities, in

order to pay for the financing costs. Development impact fees are one-time fees

10 Ibid.11 Kane, Brian. "Born Broke: How the MBTA Found Itself With Too Much Debt, the CorrosiveEffects of This Debt, and a Comparison of the T’s Deficit to Its Peers." MBTA Advisory Board.

Massachusetts Bay Transportation Authority, Apr. 2009. Web. 9 Dec. 2012.12 Government Accountability Office. Public Transportation: Federal Role in Value Capture

Strategies for Transit is Limited, but Additional Guidance Could Help Clarify Policies.

Washington, D.C.: United States Government Accountability Office. 2010.13 Ibid.14 Levinson, D., Z. Zhao, and M. Iacono. 2009. Value Capture for Transportation Finance:Technical Research Report. University of Minnesota: Minneapolis Center for TransportationStudies.



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assessed to developments, and are determined formally through policy. Negotiated

extractions also are one-time fees assessed to developments, but they are

negotiated on a case-by-case basis. Joint development is a public-private

partnership between a developer and a public agency. And, last but not least, air

rights are the sale or lease of air rights above a transit facility. Often, these tools

and techniques are used together in order to complete a project; for instance, adeveloper may be using tax increment financing in order to practice joint

development, while using air rights in order to increase density bonuses.

Unfortunately, transit agencies have little ability to partake in TOD because they do

not control zoning and land use, and because they are controlled by onerous

financial regulations. Public transportation accessibility can dramatically improve

the value of land, which rarely benefits these transportation operators directly.

Perhaps the increased property taxes will be siphoned back to the transportation

agency, but more often than not, developers benefit the most, and municipalities

divert the increased property tax revenue from the agency that made it all possible.Indeed, landowners and developers may even be charged impact fees and taxes by

the municipality for future development; however, according to the U.S.

Government Accountability Office (GAO), since most transit agencies do not have

taxing authorities, it is usually difficult for the agency to capture the value imparted

on surrounding properties by their facility.15

This is not a sustainable practice, because most of our public transportation

agencies are deeply indebted and cannot build, enhance, and expand. Yet TOD can

increase agency revenue, increase its ridership, and improve its assets. It can

improve air quality, decrease traffic congestion, increase the supply of housing,create jobs, and increase tax revenue. Still, while state agencies do not need to

follow municipal regulations, public agencies nevertheless do not have a profit

motive and they are controlled by transportation boards, with members appointed

by politicians who are swayed by NIMBYists. Ideally, municipalities should provide

(joint) developers with generous floor-area-ratio (FAR) bonuses if the developers

renovate the station platforms below their buildings, and integrate them.

IV. Ownership and Roles for Other Parties

The MBTA will continue to own the property as a transit-oriented, transit-owned

development. The MBTA’s Office of Real Estate and AssetDevelopment Department, whose mission is to provide for the efficient

management of the MBTA’s real estate assets and the production of non-fare

revenues to support the MBTA’s operations, will work with Massachusetts Realty, a

real estate consulting firm contracted to the MBTA, in order to develop and lease

15 Ibid.



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the site to Trader Joe’s. Upon approval from the MBTA Board and the Federal

Transit Administration (FTA), the project will commence, and the Davis Action

Group (DAG), an advocacy organization, will be involved in the process as it is

formed of neighbors, business owners, and visitors who are interested in the long-

term vitality of Davis Square.

This project will be a quintessential public-private partnership (P3), which requires

immense resources, which are difficult to synergize.16 It is important to recognize

that often, the public sector does not know how to regulate the private partner, and

the private partner cannot think in political terms.17 Once public agencies took over

the private and formerly profitable railroad assets, it became difficult to coalesce

opportunities; numerous regulations made it mutually disadvantageous to form

public-private partnerships.18 According to the Wall Street Journal:

For decades, city and county transit agencies have leased out kiosks or small

storefronts in their rail stations to businesses such as newspaper stands andcoffee shops. Now, agencies are far more ambitious, developing large-scale,

rent-producing developments, including hotels, apartment buildings and

shopping malls, around their rail hubs. Transit officials expect real estate to

become an increasingly important revenue source, amid stagnant federal

funding and rising costs of upkeep for aging systems.19

When the development process involves a public agency, with limited expertise and

resources, and with transportation as a core business, P3s clearly become

paramount. They allow for the expertise and efficiencies of the private sector to be

juxtaposed with the public sector. A small public transportation agency, forinstance, may contract out its operations to a private operator, theoretically

because the private sector brings skills that the public agency cannot provide at

similar costs. The agency would regulate the private operator, making sure in its

contract that it does not cut service to cut costs. According to Perry Davis, author of

Public-Private Partnerships: Improving Urban Life , language is extremely important

in order to craft an effective PPP, which are not a new phenomenon. In fact, “one

hundred and fifty years ago Alexis de Tocqueville cited extra-governmental

associations as America’s legacy to democracy”.20 These partnerships can be

16 Enoch, Marcus. "Recouping Public Transport Costs from Gains in Land Values." TrafficEngineering and Control 43.9 (2002): 336-40. Scopus. Web.17 Davis, Perry. Public-Private Partnerships: Improving Urban Life . Vol. 36, No. 2. New York:Academy of Political Science, in conjunction with the New York City Partnership, 1986. Print.18 Keefer, L. E. “Joint Development at Transit Stations in the United States.” Transportation 12.4 (1985): 334. Print.19 Dulaney, Chelsey. "Transit Agencies Fast-Track Rail-Hub Properties." Wall Street Journal,17 Oct. 2014. Web.20 Davis, 1



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implemented for public transportation’s sake because “a crumbling social

infrastructure – just like a deteriorating physical infrastructure – makes a poor

environment in which businesses and business markets can thrive”.21 Yet “as

partnerships require novel business approaches to civic needs, so does government

require a fresh view of its role”.22 Arthur Nelson’s Foundations of Real Estate

Development Financing: A Guide to Public-Private Partnerships further elucidatesthe challenges of P3s.

Even though redevelopment generates higher rates of investment return to

investors, numerous obstacles have to be overcome. Some of these involve

changing planning and development codes to be more responsive to

redevelopment opportunities. Others are expensive in the near term because

infrastructure has to be upgraded - though it would probably have to be

upgraded eventually anyway. Many involve land assembly brownfield

remediation. Still others are related to the complexity of modern real estate

financing, especially when it involves multiple land uses23.

Public-private partnership models should be being implemented throughout the

U.S., but people continue to fear density and displacement, and zoning and land

use policies have become 20th century artifacts. Cities need to streamline joint

development procedures, allowing for developers to build if they contribute funds

towards renewing, enhancing, and expanding the systems that benefit their bottom

lines. If affordable housing requirements and parking requirements make decking

unfeasible, they should be exempt from these rules. But these changes require

tackling NIMBYists so that transportation agencies can take on risk without being

booed away from development. According to Arthur Nelson, a P3 for jointdevelopment would involve each party contributing what it does best, such as:

For the public sector, this can include planning and zoning activities that can

recast the overall development vision of the area, upgrading infrastructure,

expanding mobility options through sidewalks, bikeways, road improvements,

and transit, as well as acquiring property and preparing it for redevelopment

and assisting with financing. For the private sector, it can include market

analysis, construction financing, construction management, procurement of

long-term financing, and project leasing, as well as property management.24

21 Davis, 222 Ibid.23 Nelson, Arthur C. Foundations of Real Estate Development Financing: A Guide to Public-Private Partnerships. Washington, DC: Island Press, 2014. 4.24 Nelson, Arthur C. Foundations of Real Estate Development Financing: A Guide to Public-Private Partnerships. Washington, DC: Island Press, 2014. 5.



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Moreover, according to Vukan Vuchic, UPS Foundation Professor of Transportation

Engineering and Professor of City and Regional Planning at the University of

Pennsylvania, “the main goal of the public agency should be providing services the

city and its residents need, rather than focusing only on optimal financial results” .25

There are ample risks and ample rewards in a P3. For the public sector, perceivedor real conflicts of interest, alongside a fear of the misuse of funds and resources,

are compounded by land use conflicts (such as dislocation, relocation, or fair

market value disagreements), public opposition, and worries that the private

partner may fail.26 Meanwhile, the private sector is often concerned about excessive

costs, time-consuming regulations, and accusations from the public; moreover,

concerns that changes in key public or political leadership will derail partnerships

are often concerns, alongside fears of market failures.27 Yet there are also plenty of

rewards. For the public sector, of course, a P3 can provide for economic

development, increased tax revenue, and improved public infrastructure and quality

of life, whilst creating jobs and advancing the city’s image; perhaps, politicianswould also be reelected.28 For the private sector, a P3 allows for resources to

sustain their organization, and hopefully, the P3 is profitable, creating value, whilst

enhancing their reputation and building their niche.29

The public sector can alleviate most of its concerns by following five rules: first,

establishing a jurisdictional constitution; second, separating the analysis,

evaluation, administration, and oversight agencies; third, ensuring that the bidding

process is competitive; fourth, maintain caution, especially for projects with long

life cycles, due to contract renegotiation concerns; and fifth, avoid stand-alone

private sector shells with limited equity.

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All of these rules are essentially abouteffective communication and trust, which can be aided by transparency. This

commits partners to the project terms, be it private partners that would otherwise

seek to limit their responsibilities, or public partners that would otherwise waver

under political pressure.31

25 Vuchic, Vukan R Urban Transit: Operations, Planning and Economics . Hoboken, N.J: J.Wiley & Sons, 2005. Print. 433.26 Monty.27 Ibid.28 Ibid.29 Monty.30 Siemiatycki, Matti. Implications of Private-Public Partnerships on the Development of

Urban Public Transit Infrastructure: The Case of Vancouver, Canada . Journal of PlanningEducation and Research. 2006.31 Ibid.



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V. Economic Development Connection & Estimation of Economic

Development Benefits

Revenue for MBTA

In recent years, the MBTA has struggled financially32. This transit-oriented, transit-

owned development would provide much needed (albeit marginal) revenue to the

MBTA in a time when it is undergoing significant financial troubles and the Green

Line Extension is being threatened. Indeed, the Davis Square rental market is very

strong and comparable commercial rental space is going for $50-65 per SF33. With

a 10,000 square foot development, that could mean as much as $500,000-650,000

per year in rental revenue a year for the MBTA. Seeing as the MBTA is the lifeline

for many of the region’s low-income residents, many of whom do not own vehicles,

additional revenue for public transit is a significant gain for various sustainable

community economic development initiatives – from job accessibility to reducing

emissions and improving public health. Our site may be in Somerville, but the

revenue provided by Trader Joe’s will serve the T throughout the commuter region.

Livable Wage Jobs

Bringing Trader Joe’s into to Somerville will bring 30-50 livable-wage jobs34. In fact,

Trader Joe's is known for offering above-market wages and benefits.35 According to

MIT’s Living Wage Calculator, an adult in Middlesex County needs to earn at least

$13.43 an hour to meet their monthly expenses36. Moreover, according to

Glassdoor.com, the average pay of a Trader Joe’s crew member is $13.86 an hour;

while a manager on average earns $23.6037. By bringing Trader Joe’s into Davis

Square, more people with have access to livable wage jobs in this community.

Trader Joe's also offers a range of benefits, including healthcare, retirement

benefits, paid vacation, employee discounts and management training.38 The

company thus has a reputation for employee satisfaction, and experiences lower

turnover than its competitors.39

32 Jack Lepiarz, M. E. (2015, February 10). Understanding the MBTA's Financial Problems.WBUR. Retrieved from http://radioboston.wbur.org/2015/02/10/transit-woes33 See Appendix E34 See Appendix G35 Hendricks, David "Employee Benefit Boosts Help Companies, too" San Antonio ExpressNews . November 24, 201536 MIT Living Wage Calculator for Middlesex County.http://livingwage.mit.edu/counties/2501737 “Trader Joe’s”. Glassdoor.com. https://www.glassdoor.com/Hourly-Pay/Trader-Joe-s-Hourly-Pay-E5631.htm38 "Careers at Trader Joe's: http://www.traderjoes.com/careers39 Hendricks



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Increasing Access to High-Quality Goods

Trader Joe’s is known for providing high-quality goods at an affordable price.40 The

closest grocery store to Davis Square, Star Market, is providing groceries at a

higher than average cost; and is, in fact, the most expensive grocery store ineastern Massachusetts according to an August 8th, 2014 study41. Trader Joe’s, by

comparison, offers low-cost, high quality goods42. Therefore, Trader Joe’s would fill

a need for this community that is currently not being met.

Induced and Indirect Job Creation

In addition to the direct jobs created by bringing Trader Joe's to Davis Square,

there will also be induced and indirect jobs created by this development. According

to a 2014 study done by King Institute for Regional Economic Studies, 26.4 indirect

and induced jobs were created for every 100 direct jobs created in the Retail Trade

sector and Food Services and Drinking Places sector43. The study only focused on

the effect on employment of bringing retail jobs in Virginia rather than

Massachusetts, but this evidence from Virginia suggests that more jobs will be

created by this development than just the forty direct positions.

VI. Market Analysis

Davis Square lacks a major grocery store despite the fact that it is densely

populated and nearly one quarter of the households in Somerville lack an

automobile. Also, this location would be very attractive to Trader Joe’s since thedemographics of Davis Square match well with Trader Joe’s typical customers.

Proposed Tenant Customer: Trader Joe’s

Amongst all of the regional supermarket chains, Trader Joe’s is clearly the best

tenant candidate for this project. The proposed grocery store is going to be no more

than 10,000 square feet, which would put it into the “small grocery store” category.

While most grocery store chains do not specialize in operating locations of this size,

40 Olster, S. (2010, August 23). Inside the Secret World of Trader Joe's. Fortune Magazine.Retrieved from http://fortune.com/2010/08/23/inside-the-secret-world-of-trader-joes/41 WCVB News. "Who's the cheapest?" August 8, 2014. Web.http://www.wcvb.com/news/whos-the-cheapest-comparing-boston-area-supermarket-prices/2738294442 Olster43 King Institute For Regional Economic Studies. (2014, April). Evaluating the Job Creationof Large Scale Retail Development in the Tri-Cities.



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Trader Joe’s typically operates stores of between 8000-12000 square feet.44 This

development would be within their average range. On the other hand, the other

local grocery chains in this area do not specialize as small supermarkets and would

likely not be interested opening a store in this location; for example, the regionally

popular discount grocery store, Demoulas Market Basket, has an average store size

of 80,000 square feet45, while Shaw’s, the chain which operates the store closest toDavis Square, typically operates stores in the range of 20,000-70,000 square feet.46

In terms of space requirements, Trader Joe’s makes complete sense.

Potential Target Customers for Trader Joe’s

On top of the space requirements, there are other reasons why a Trader Joe’s

might be interested in this location. Davis Square is a densely populated urban area

complete with enough residents to support a small supermarket. The City of

Somerville has an estimated population of 78,80447 as of 2013. Additionally, some

Cambridge and Medford residents will likely be customers. In addition to that

market, according to an MBTA survey done in 2008-2009, 2,281 passengers arrived

at the Davis Square MBTA station every day, along with an additional 6,348

passengers who departed from the station. As the tenth busiest station on the

MBTA, this location gets a lot of foot traffic, providing enough customers to support

the proposed supermarket. Additionally, areas to the northeast of Davis Square

have the lowest supermarket access in Somerville, and for many residents this

would be the closest supermarket. (See appendix C)

44 Olster, Scott. (2010, August 23). Inside the Secret World of Trader Joe's. FortuneMagazine. Retrieved from http://fortune.com/2010/08/23/inside-the-secret-world-of-traderjoes/45 Zeynep Ton, T. A. (2015, March 23). We Are Market Basket. MIT Sloan School ofManagement. Retrieved fromhttps://mitsloan.mit.edu/LearningEdge/CaseDocs/14.160.Market%20Basket.Ton.Kochan.FINAL.pdf46 JDA. (n.d.). Shaw's Supermarkets: Stay on Top with JDA Portfolio Space ManagementSolutions. JDA.com. Retrieved fromhttp://www.jda.com/FILE_BIN/CASESTUDIES/SHAWS.PDF47 U.S. Census Bureau: State and County QuickFacts. Data derived from PopulationEstimates, American Community Survey, Census of Population and Housing, CountyBusiness Patterns, Economic Census, Survey of Business Owners, Building Permits, Censusof Governments



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Demand Analysis

According to the Bureau of Labor Statistics (BLS), the total demand in Somerville

for “food–at-home” is $128,933,160. Moreover, according to the investment firm

JLL, the average Trader Joe’s generates $1,734 per square foot48. With a 10,000

square foot store, this Trader Joe’s could expect to generate nearly $14 million

dollars in total sales annually, or 10.7% of the total “food-at-home”.

Also, the residents of Davis Square match up well with the typical Trader Joe’s

consumer. A comprehensive 2004 study of Trader Joe’s business model

summarized the typical Trader Joe’s customer as being “over-educated and

underpaid”. Below is a table of a typical Trader Joe’s shopper profile created from

data collected from a 2004 survey of its shoppers, along with a second table

outlining the most recent demographics of the City of Somerville from the US

Census:

Shopper Profilefor Trader Joe’s49

Demographics of Somerville50

Median Age 44 31.4

Median Household Income $64,000 $67,000

Married 54% 34.1%

White 83% 73.9%

Female 55% 50.9%

Attended College 83% 67.7%

White Collar 54% 55.1%No Kids At Home 66% 80.9%

Table 2: Trader Joe’s Somerville Market Demographics

48 Lutz, A. (2014, October 7). How Trader Joe's Sells Twice As Much As Whole Foods.Business Insider. Retrieved from http://www.businessinsider.com/trader-joes-sales-strategy-2014-1049 Coriolis Research Ltd. (2006, May). Understanding Trader Joe's. Retrieved fromhttp://www.coriolisresearch.com/pdfs/coriolis_understanding_trader_joes_final.pdf50 U.S. Census Bureau. Retrieved fromhttp://quickfacts.census.gov/qfd/states/25/2562535lk.html



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The shopper profile listed above clearly matches with the demographics of

Somerville. In general, Somerville has a high percentage of educated, white-collar

households without children, which matches up Trader Joe’s target market. If one

adjusts for inflation, the median household income of Somerville is below that of

the typical Trader Joe’s customer, but this is still far above the national median

household income of $51,939; and, nearly half of its 31,000 households (14,235 asof 2013) have median incomes in excess of $75,000, so there should be plenty of

urbanites with enough disposable income to support the grocery store.

Customers

Moreover, as stated earlier, there is ample reason to believe that the residents of

Davis Square would patronize a Trader Joe’s at the Davis Square train station.

Besides the fact that the residents of Somerville match well with the typical

consumer of Trader Joe’s, there are other reasons why having a supermarket in this

location would benefit the residents of this location.

The first is the sheer number of residents who lack automobiles in Davis Square.

According to information from the US Census, 7710 households51, nearly one

quarter of all Somerville residents, do not have an automobile. Certainly it would be

an added convenience to these residents to have a supermarket in that location.

Somerville is one of the most bicycle-intensive cities in the US, among the top 5

cities in terms of bicycling commuters.52

Another is the fact that Davis Square residents want a supermarket. On November

15th, 2015, we conducted a survey of 50 Davis Square residents, of whom, 96%stated that they would shop at a Trader Joe’s located in Davis Square. Many of the

people with whom we spoke said that they have been waiting for a grocery for quite

some time and were happy to hear that Trader Joe’s was the store that was being

considered for the project.53 Additionally, several of the respondents we spoke to

cited traffic as a major inconvenience to getting to the two other closest grocery

stores that offered similar products as our proposed supermarkets: The Whole

Foods at 200 Alewife Brook Parkway and Trader Joe’s at 219 Alewife Brook Parkway

in Cambridge. This survey data provides further evidence that Somerville would be

an excellent location for this transit-oriented development, both for the residents of

Somerville and Trader Joe’s. (See Appendix B)

51 U.S. Census Bureau, 2009-2013 5-Year American Community Survey.http://factfinder.census.gov/faces/tableservices/jsf/pages/productview.xhtml?src=CF52 City of Somerville: "Somerville #1 in New England, #5 in the Nation for Bike Commuting"Press release, November 4, 2014 http://www.somervillema.gov/news/somerville-1-ne-5-nation-bike-commuting53 See Appendix B



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Competition

There are no supermarkets in Davis Square, with the closest supermarket

approximately 0.9 miles away by vehicle in Porter Square (0.6 miles walking). This

is not considered a walkable distance from Davis Square. Moreover, one of the

complaints about the Porter Square Star Market is that their prices are too high andthey lack fresh foods54. The products at Trader Joe's, on the other hand, are

typically less expensive than their competitors and they specialize in offering high

quality foods55. Therefore, this grocery store will bring high-quality products at an

affordable price, to an area that could certainly use them.

Residents to the North and East of Davis Square have some of the worst

supermarket access in Somerville56. This area has some of the lowest supermarket

density in the Boston/Cambridge/Brookline/Somerville area. Additionally, we

believe that the proximity to other stores is acceptable for Trader Joe's' siting, since

the Davis Square location would be a similar geographical and transit distance fromthe nearest existing Trader Joe’s (1.2 mi) at Coolidge Corner, Brookline.

VII. Marketing Plan

Our marketing plan is two-fold, consisting of an analysis of Trader Joes' potential

market, and our ability to attract the company to move into our location. On the

customer side, the demographics and location are appealing, and our market

research and first-hand survey indicate a high degree of interest in a Trader Joe's

located in Davis Square. Our analysis of Trader Joes' siting criteria also fits well

with our proposed property. However, Trader Joe's is a privately-held company, andits internal operations, including its rubric for expanding to new locations, are

closely guarded. Management at Trader Joe's has been called "obsessively

secretive", offering no information about its internal business operations.57 Thus,

attempts to get information from the company produced limited results; however,

we were able to get first-hand knowledge that Trader Joe's has an aggressive store

expansion model, and uses population density, area income, neighborhood growth,

customer feedback, and area store performance to analyze whether to expand to a

new location (See Appendix D). Thus, a remaining challenge to our project is

figuring out the strategy to approach Trader Joe's. A version of this report, along

with our survey data, would serve to provide Trader Joe's with preliminaryinformation about the market, the neighborhood, and the location.

54 Review by Sarah M. on Yelp. http://www.yelp.com/biz/star-market-cambridge-355 Kelsey Kennick "15 Fun Facts About Trader Joe's" Popsugar. July 17th, 2015.http://www.popsugar.com/smart-living/Trader-Joe-Facts-36086654#photo-3608667556 See Appendix C57 Kowitt 2010



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Moreover, during the renovation and redevelopment of the eastern entrance to the

T station, banners and advertisements for Trader Joe’s will be liberally placed along

construction scaffolding. Trader Joe’s will also place advertisements in the station,

working with Massachusetts Realty in order to develop an ad campaign.

VIII. Staffing and Management Requirements

The MBTA has already contracted Massachusetts Realty, a real estate consultant

firm to the MBTA’s Office of Real Estate and Asset Development Department. Our

project will involve these state stakeholders, Somerville Office of Strategic Planning

and Community Development, the City of Somerville’s duly constituted

redevelopment authority.

Figure 7: MBTA Real Estate Stakeholders

IX. Operations Analysis

Our site will require the approval of the City of Somerville and the MassDOT Board,

comprised of 11 members appointed by the Governor, which oversees MassDOT

operations including the Massachusetts Bay Transportation Authority (MBTA),

Highway Division, Mass Transit, Aeronautics, the Registry of Motor Vehicles (RMV),

Office of Planning and Programming and the Office of Performance Management

and Innovation. Our site will also need to be ADA compliant, with adequate

ventilation for the bus and loading depots.



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Loading

Trader Joe's will need a convenient location to unload shipments, of which, two

typically come in in the early (pre-commute) hours and one in the mid-evening.58

The MBTA property already has ample excess space within its dedicated bus

roadway (See SketchUp Images). Trader Joe's uses multiple trucks per store, sothe shipping logistics regarding their evening shipping time will be subject to the

company’s internal management decisions.

Parking

While the new construction has a technical requirement to provide parking spaces,

the development will be eligible to request a variance on the grounds that it is a

transit-oriented development (TOD). Expanding multi-modal access has been

extoled as a priority for both the City of Somerville, and the MBTA, and placing a

supermarket atop an MBTA station in a dense urban area, with substantial bike and

pedestrian access, fits in the model for Somerville's development under the city'scomprehensive plan, SomerVision, released in 2012.59

X. Budget and Financial Analysis

Building costs are approximately $6,000,000, and this figure was developed in

consultation with Transit Realty Advisors (TRA), a firm that assisted the MBTA with

real estate development from 1996 to 2014, bringing in $14M per year in 2014 for

the T, from $3.5M in 1996, prior to the commencement of their contract.

Francis DeCoste, Chief Operating Officer of Transit Realty Advisors, noted that a

good range for retail construction is $250 to $300 PSF. In addition, we would needto add a premium for the escalator and elevator, and the MBTA may also require

fire suppression and ventilation for the buses that idle at that spot. Since our

building is a square at 100 SF x 100 SF, totaling 10,000 SF and two stories (20,000

SF), our building costs are approximately $6,000,000. This is based upon the upper

range for retail construction ($300 PSF), due to escalator, elevator, and ventilation

costs. At 20,000 SF, this is approximately $6,000,000. Additionally, for insurance,

the MBTA will use Railroad Protective Liability (RRP) insurance, which, according to

Travelers, is required of contractors performing work nearby railroad-owned

property.

58 Hank's Truck Forum. "Who Hauls Trader Joe's?" October 26-27, 2011. Web.http://hankstruckforum.com/htforum/index.php?topic=56758.059 City of Somerville. "Somervision 2030." April 19, 2012. Web.http://www.somervillema.gov/sites/default/files/SomerVisionComprehensivePlanAdoptedApril-19-2012.pdf



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Revenue

An analysis of commercial rental space in the Davis Square area has indicated that

a conservative estimate for the lease rate for a large property in the neighborhood

is $35-50 per square foot (See Appendix E). This figure may be skewed, however,

since the vast majority of properties examined were not newly constructed, andsome were located a substantial distance from Davis Square (See Appendix E).

Since the Trader Joe's space will be in a uniquely attractive business location,

attached to the eastern Davis Square station entrance, this lease estimate appears

to be a conservative one.

Trader Joe's prefers to lease rather than purchase its properties. The company is an

attractive tenant because it requires very limited, if any property management

responsibilities.60 Furthermore, the company typically pays lease rent with a

capitalization rate of 5.5-7%,61 and since their typical arrangement involves a

triple-net-lease, and the property in question, due to being owned by the MBTA, will

likely be exempt from property tax62, this project will be a more financially

attractive arrangement than a typical Trader Joe's lease agreement.

Development Budget

Hard Costs

Building Costs $6,000,000

Contingency (10%) $600,000

Total Hard Costs $6,600,000

Soft Costs (Construction)

Soft Costs 30% of Hard Costs $1,800,000

Soft Cost Contingency (10%) $180,000

Total Soft Costs $1,980,000

Total Development Cost $8,580,000

Table 3: Development Budget

60 Net Lease Advisor. "Aldi Net Lease Advisor Overview".Web.http://www.netleaseadvisor.com/tenant.php?t=4461 Ibid.62 Boston Redevelopment Authority. "Tax Exempt Properties in Boston." Web.http://www.bostonredevelopmentauthority.org/getattachment/f0ce585f-6943-4cfe-9ac0-20126ad5f14c



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Funding Sources

Construction of the project will need to be approved by the Massachusetts Board of

Directors for the Department of Transportation funded entirely through the MBTA

Capital Improvement Plan (CIP). The CIP receives a substantial amount of its

capital funding through federal formula grants and other appropriations. The MBTAalso receives roughly 1/3 of its funding from the annual state budget. Since the

funding mechanisms for this project are non-traditional, calculating MBTA liabilities

and drawing up a balance-sheet for the project is different than for a typical

community development project. However, if we assume an "effective" debt rate,

by overlaying the funding profile of the MBTA with our project costs, we can arrive

at a reasonable amount of debt service to compare to our lease revenue.

FUNDING SOURCE 8,580,000 % 0f total

Federal Sources 3,929,640 45.8%

Annual Apportionment $2,162,160 25.2%Carryover $712,140 8.3%

Earmarks and Small Parts $51,480 0.6%

New Starts $823,680 9.6%

ARRA $145,860 1.7%

Department of Homeland

Security

$34,320 0.4%

MBTA Sources 1,853,280 21.6%

Revenue Bonds for Fed

Match

$1,012,440 11.8%

Non-Fed Revenue Bonds $840,840 9.8%

State Sources 2,797,080 32.6%

State Funding $2,797,080 32.6%

Total

8,580,000 100%

Table 4: Funding Sources

Operating Budget Pro Forma

The tables below are various income and expense pro formas based on four

separate rent projection. Thus, the project's break-even point is in year ten at a

rent of 21 per square foot. It is very likely that this project's rental lease will be

far higher than that based on the area's current rental market.

The increases in our expenses for "General Merchandise" and "Infrastructure

Merchandise" were indexed to the projected percentage increase in the consumer



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price index from the IMF63. The 5% increase in years five and ten for the MBTA

Property Contractor were the suggested increase contractor fees from the ALDI’s

profile from Net Lease Advisor, an online directory of information for those

interested in the net lease market64. ALDI’s is the parent company of Trader Joe’s.

The project begins to reap substantial earnings for the MBTA from rental feesstarting at $40 per square, which is at the lower end of the Davis Square

commercial retail market. At $60 per square foot, a number that is on the upper

end of the Davis Square retail market, the project is projected to generate over

$400,000 in added revenue by the tenth year.

Table 5: Pro Forma at $21 per SF


63 “IMF World Economic Outlook: CPI Projections 2015-2020”

http://knoema.com/IMFWEO2015Oct/imf-world-economic-outlook-weo-october-201564 “Net Lease Advisor: ALDI” http://www.netleaseadvisor.com/tenant.php?t=44



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XI. Conclusions and Assessment

This proposal establishes a significant potential for expanding the retail space at

Davis Square Station and housing a Trader Joe's supermarket. Our financial

analysis suggests that the project is financially feasible under various rates of rental

revenue, with a break-even point at half of our expected revenues. In fact, at theupper end of the Davis Square rental market at $60 per square foot, this project is

projected to generate in excess of $400,000 a year in revenue for the MBTA. Even

at $40, which is at the lower end of the market, this development should generate

at least $200,000 in revenue by the tenth year.

Our market analysis suggests that the customer base is viable and that the leasing

rate would be competitive for the neighborhood, while bringing significant

community benefit in the form of multi-modal grocery access with lower automobile

dependence and an improved transit experience, an increased customer base for

other Davis Square businesses, and stable added employment.

Moreover, ideally, this structure should be more than one additional story, complete

with even more retail or offices, making it even more feasible. However, for the

purpose of this project, the Trader Trains development team has focused on one

change for Davis Square.

Even with this one change, given strong community support, as illustrated by our

survey, by conversations with the Davis Action Group, and by the City of

Somerville's infill plans for Davis Square, our team is confident that the strengths

far outweigh the weaknesses of our project. The MBTA would receive ample

revenue, with reasonable rent for a break-even point, and, most importantly, themarket exists for a supermarket.

Of course, the complicated nature of our site, including aspects related to P3

redevelopment procedures, adds an element of complexity. The MBTA's willingness

to renovate their property, alongside the City's willingness to negotiate parking and

permitting laws, as well as the opaqueness of Trader Joe's practices, could impede

necessary communication efforts for the public-private partnerships. But the site

would be improved, commanding high rents, and providing the MBTA with

additional revenue. Given that the Green Line Extension is facing budgetary

concerns, any additional revenue definitely counts.

Nevertheless, it is important to recognize threats towards the project, such as

competing supermarkets, such as Roche Brothers, and the concerns of small

retailors, as well as valid worries that outsiders would be hired. Trader Joe's will

need to work with the community to hire locally.



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The project team's recommended next steps include hiring a contractor to organize

inventory items that would need to be replaced over the next five-ten years, using

this information for a capital reserve account. The team also suggests hiring the

Bureau of Economic Analysis (BEA) to use their RIMS II tool to find the direct-effect

employment multipliers, and setting up a meeting with the Davis Action Group to

discuss community needs and desires for this project. Our developer will also needto recycle materials and hire green contractors in order to maximize LEED criteria.

Moreover, the group advocates that the MBTA include the Davis Square project in

an application to the FTA for the next round of federal Transit-Oriented

Development Planning grants. The program expended $20M of projects in the

previous fiscal year, mainly for urban transit systems across the country to develop

plans to increase commercial development geared towards multi-modal transit.65

Politically, the stars may be aligning for these transit-oriented, transit-owned

projects. In addition to our primary arguments for the need for the development,

the larger political landscape may provide an opening for the project to move

forward. Somerville has put forth a comprehensive plan to expand transit-oriented

development, create a more "walkable city," expand bicycle infrastructure, redesign

its major commercial centers, and reduce auto dependence. The Green Line

extension into Somerville has in recent weeks become jeopardized, potentially

freeing up millions in infrastructure commitments to the City of Somerville and the

region. Additionally, as the US continues its commitments to reduce greenhouse

gas emissions, there may be a renewed commitment to green infrastructure

projects like Trader Trains. And Governor Baker has sought ways for creative

approaches to transportation finance, such as value capture and joint development.

Yet it will be important to remember that this is not a transportation finance project

as much as it is a community economic development initiative. After all, America’s

public transportation agencies cannot be profitable. There are not enough riders to

offset the high costs of maintenance and operation, and furthermore, America’s

political economy limits the real estate potential of these agencies, which,

nevertheless, have limited assets. The country’s formerly private, profitable

passenger railways had to compete with vehicular transportation and airlines, and

they could no longer stay afloat. Public transportation agencies today lack the real

estate expertise and the incentives to develop. Zoning and land use restrictions also

inhibit public-private development. Our project seeks to bridge the gap and involve

transportation agencies in community economic development initiatives once again.

65 US Federal Transit Administration. "Recipients for Pilot Program for Transit-OrientedDevelopment (TOD) Planning Awards." Web.http://www.fta.dot.gov/grants/15926_16564.html



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Appendix A: Case Studies

PART I

Why are the two MBTA Red Line station entrances at Davis Square in Somerville,

MA each only one-story tall, when surrounding buildings are at least a few storiestall, with ground-floor retail, and office space on the upper floors? Couldn’t the

MBTA use the (relatively marginal) extra real estate revenue, and wouldn’t it also

enliven the area further, allowing for more places to live, work, and play? Couldn’t

developers help to pay for station maintenance, if they partook in a public-private

partnership joint development process?

We are exploring four joint development case studies, all of which are within the

United States. New York’s Metropolitan Transportation Authority (MTA) has recently

completed the Fulton Center, a retail complex in Lower Manhattan. In Atlanta, the

Metropolitan Atlanta Rapid Transit Authority (MARTA) has been practicing ample

joint development, including the Resurgens Plaza at Lenox Station. Meanwhile, the

a W Hotel has been built atop a Los Angeles Metro station in Hollywood, and the

Chicago Transit Authority (CTA) has partnered with Apple in order to renovate and

redevelop the North and Clybourn Red Line Station in Chicago. These are some of

the best examples within the United States, even though transit-oriented

development is more practiced in other countries.

PART II

Ideally, the MBTA should sell its Davis Square properties, and the City of Somerville

should provide the new developer with generous FAR bonuses if the developerrenovates the station platforms below their buildings, and incorporates the station

entrances into their two sites. This public-private partnership model should be being

implemented throughout the U.S., but people continue to fear density and

displacement, and zoning and land use policies have become 20th century artifacts.

At the CTA North and Clybourn Red Line Station in Chicago, the station entrance

was completely renovated and an Apple Store was placed on the property. Here in

Somerville, an Apple Store could be placed on the property, either entirely on the

ground-floor or on two levels, and the T entrance could be combined into this

structure. Indeed, our group has decided to emulate the case study for the Northand Clybourn Red Line CTA station in Chicago. This study has plenty of information

regarding joint development, and it also is located amidst a similar typology to

Davis Square in Somerville, MA. Both neighborhoods are not the densest, yet they

are up-and-coming, surrounded by residential communities.

The redevelopment of this parcel will make the area more dynamic, attracting more

people for shopping, which will spill over into other businesses, creating local jobs



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and opportunities. It could also increase ridership for the T, thereby improving air

quality, reducing greenhouse gas emissions and traffic congestion, saving energy,

and decreasing reliance on foreign fossil fuels.

Of course, this project will need to approximate the additional number of shoppers

that would come for the Apple Store, but since there is no nearby Apple Store, itcould be substantial. But is it substantial enough for Apple to want to contribute

funds to renovate the station? How much is needed? Going forward, these are some

of our basic questions.

Case Study Summaries

CASE STUDY 1: New York Metropolitan Transportation Authority (Fulton Center)

1. Name and Location: Fulton Center, New York City

2. Program/Project Description: The most prominent example of the MTA’s joint

development practices is the Fulton Center, which opened in 2014 in Lower

Manhattan, across the street from architect Santiago Calatrava’s World Trade

Center PATH Hub. These two hubs will be interconnected by undergroundpassageways lacking retail, but the hubs themselves contain shopping

opportunities. Westfield, a real estate developer, will be maintaining retail

properties at the $1.4 billion Fulton Center

3. Background Issues: At the time the proposals were getting underway, the World

Trade Center had just been attacked, debris will still being hauled out of Ground

Zero, and the real estate market in Lower Manhattan was plummeting; even today,



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the rebuilt World Trade Center remains largely vacant. While the underground retail

at the World Trade Center had been one of the highest profit per square foot

revenue generating properties anywhere, no one knew that Lower Manhattan’s real

estate market would bounce back, let alone survive with a semblance of profitability

at all. Also, according to Robert Paley at the MTA Real Estate Department, if the

MTA were to build up at the Fulton Center and then struggle with vacancies, thetax-payer funded structure would receive heavy criticism.66

4. Operating Characteristics: According to Daniel Peterson, one of the designers of

the Fulton Center, the MTA intentionally wanted to build a “civic” structure, which

was a “project given” from the start, resulting in a humble structure. Designs were

put forward that “lost the light” and “lost the circularity”, and “they spent years on

this problem moving from the design side to the valuation of the rights and working

those into a deal that made sense for everybody”.67 Mr. Peterson states that

“important transit stations have a tradition of open space and striking light”, and

that “commercial exploitation… has given us the numbing warren… that is today’sexpression of Penn Station” .68

5. Target Community/Beneficiaries: The Fulton Center is projected to serve

300,000 customers daily, making it the busiest transit hub in Lower Manhattan. 85

percent of all Downtown Manhattan trips are made by public transit and the Fulton

Center is the hub of the area, which is the second largest CBD in the United States,

after Midtown Manhattan.

6. Economic Development Connection: The Fulton Center is literally an economic

development connection, providing enhanced accessibility and mobility to jobs and

other opportunities. It also has a grand public space for the local community.

7. Economic Development Benefits: The Fulton Center will have over 65,000 square

feet of retail and commercial space. This additional revenue for the MTA will assist

with the maintenance of the facility, and positively impact the continuing

renaissance of Lower Manhattan.

8. Management and Staffing Requirements: Westfield is managing the retail at the

Fulton Center, under a public-private partnership agreement with the MTA.

9. Project Financing: Mr. Paley also stated that the Corbin Building, a historical

structure integrated with the Fulton Center, is being lobbied into a landmark so as

to sell eligible air rights to a developer. Once a developer acquires nearby parcels, a

zoning lot merger could take effect so the MTA to transfer development rights.

66 Paley, Robert. Personal interview. October, 2015.67 Peterson, Daniel. Personal interview. October, 2015.68 Ibid



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Multiple other sites are also being considered, and many have already been

developed in exchange for improvements to MTA infrastructure vis-à-vis transit

bonus funds.

10. Lessons Learned: The Fulton Center is in the heart of Lower Manhattan, and it

is only four stories tall. In the future, the MTA should build taller, and work with theCity of New York in order to streamline zoning and land use, so as to allow taller

buildings in the central business district. Perhaps housing could have been built,

further increasing revenue and ridership for New York City Transit

__________________________________________________________________

CASE STUDY 2: Resurgens Plaza -

tlanta’s Lenox Station

1. Name and Location: Resurgens Plaza - Atlanta’s Lenox Station

2. Program/Project Description: Resurgens Plaza is a 27-story mixed-use, transit-

oriented development, consisting of 400,000 sq. ft. of office space and a parking

garage, connected to the Metropolitan Area Transit Authority (MARTA) Lenox

Station, in northern Atlanta.

3. Background Issues: MARTA began seeking out transit-oriented-development

(TOD) in order to spur cluster development around MARTA stations.69 MARTA had

built much of its current transit infrastructure throughout the 1970’s, but it didn’t

spur the development the city had hoped for.

Much of the downtown TOD development of Atlanta in the 1980’s was a result of

zoning changes there that allowed major development opportunities in the city, andthis model was brought out to less-developed areas like the Johnsontown area

which included Lenox Station. Lenox Station and other similar developments aimed

at increasing office space development in the Atlanta area to retain professional

talent.70

4. Operating Characteristics:

MARTA entered an agreement with Resurgens Plaza Company (RPC) in 1984 for

joint development of Lenox Station. Resurgens Plaza opened in 1988: a 27-story

mixed-use office building including 400,000 sq. ft. of office space above a 10-story

parking garage, and a $218,000 annual Ground Rent agreement paid to MARTA.71

69 Lefaver, Scott. “Public Land with Private Partnerships for Transit Based Development”Mineta International Institute for Surface Transportation Policy Studies. May 199770 Ibid71 MARTA Joint Development Program 2015 Conference Report:http://www.fta.dot.gov/images/photos/TRO_4/5.13.1345_MARTA_TOD.pdf



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5. Target Community/Beneficiaries: Resurgens Plaza provides mobility services for

area workers, while offering convenient business space in a city that needs to retain

its business class Customers will be small-to-medium sized Atlanta area businesses

at risk of flight to nearby communities. Atlanta had seen significant flight of white-

collar workers in previous decades72, and the midtown area of Atlanta was largely

developed. Transit-Oriented Development projects like Resurgens Plaza serve tobolster business cluster development, while generating revenue for MARTA and the

city. Development of the property required displacement of thirty-nine families in

the Johnsontown neighborhood parcel, however those families had joined together

under the Johnsontown Community Development Corporation, negotiating a highly

profitable buyout by MARTA for their properties.73 Tenants were pleased at being

paid $8/sq. ft. for properties valued at $.30/sq. ft.

6. Economic Development Connection: Development of the Commercial space,

parking provision and connection to mass transit was intended to spur and grow an

accessible business cluster in a new less-developed part of Atlanta, after thedowntown approached saturation. This development did the following:

Retained and attracted businesses and the professional class of a major

American city that had been losing its professional talent to suburban

communities.

Lowered costs of office space for area businesses, improved transit

accessibility for tenant workers

Increased neighborhood accessibility through increased parking within the

station

Increased area residents’ accessibility to the city by offering convenientintermodal transportation (car-to-train).

7. Economic Development Benefits: By developing above Lenox Station, and

providing parking resources, MARTA and Resurgens Plaza Company have helped

foster a business hub in the Lenox area, which by 1997 had increased its share of

Atlanta’s office space to 10% from 5% in 1980.74 Additionally, MARTA receives

$218,000 in rent payments per year. Tenant pays an additional estimated $1.2

Million per year in Real Estate Tax75.

8. Management and Staffing Requirements: Tenant provides staffing and

management requirements; existing MARTA staff monitors usage and agreements.

72 Lefaver, Scott “Pubic Land with Private Partnerships” 73 Witherspoon, Roger “Profits out of thin air in Johnsontown.” Black Enterprise: December198274 Lefaver, Scott. “Public Land With Private Partnerships” 75 Atlanta Real Estate Management: “Costs of Leasing Real Estate”

http://acreteam.com/default.asp.pg-LeasingAdvisor



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9. Project Financing: RPC is the private developer who built the project at a cost of

$50 Million, with a $3.5 Million renovation project in 2013 by the new owner.76

MARTA receives $218,000 annually in rent payments from the tenant.

10. Lessons Learned: MARTA brought to this agreement the following: a property in

ripe for development, access to and integration with mass-transit, and ability to actas a hub for negotiations with other governmental bodies.

It received return as part of agreements: lease revenue, infrastructure investment,

retention of jobs within the city limits as part of the creation of a business cluster,

jobs with increased transit access, and increased ridership on MARTA.

This and other MARTA TOD initiatives inform our project because they are an

iteration of a simple principle: leverage government power and property rights to

spur privately funded projects that enhance communities and their local economies.

The main goal of our project will to be to extract the most community and public

benefit out of the economic development project. __________________________________________________________________

Case Study 3: West Hollywood Hotel at Hollywood/Vine Red Line Station

1. Location: Los Angeles, California

76 Sams, Douglas. “$3.5M renovation on tap for Resurgens.” Atlanta Business Chronicle:

April 5, 2013



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2. Program/Project Description: This was a project completed in 2009 by the LA

Metro's Joint Development Program. The LA Metro's Joint Development Program

encourages transit-oriented Development in Los Angeles. This particular project

developed a 2.3 acre plot of land on top of the Hollywood and Vine subway station

to be used for commercial purposes; in addition, a 2.35 acre plot of land was also

developed for housing purposes. Today, the W Hotel, along with several restaurantsand buildings, including supermarket Trader Joe's, restaurants Delphine and Wood

& Vine, and upscale clothing retailers Upromo and Movieland Hat Designers, reside

on the commercial property. In addition, 78 affordable housing apartments were

built along with 297 market-rate apartments on the housing property.77

3. Background Issues: The original motivation behind this project was to increase

tax revenue for the City of Los Angeles, provide affordable housing and jobs for

local residents, reduce traffic in the area, and provide private funding for local

community health, educational, and job initiatives.78

4. Operating Characteristics: Retailers, landlords, and the owners of the W Hotel

pay rent to the developers.

5. Target Community/Beneficiaries: The particular community that this joint

development project seeks to benefit are low to moderate income residents of

Hollywood. 79

6. Economic Development Connection: The economic development connection in

this project is that it seeks to create jobs for local residents, improve local

infrastructure, and increase access to quality goods for local residents.

7. Economic Development Benefits: The project created 78 affordable housing

units. It also provided $30,000 to fund community outreach programs for the

Health insurance Trust Fund. A $500,000 endowment was also given to Hollywood

High School Performance Arts. In addition to these local benefits, the project also

increased tax revenues for the City of Los Angeles. A tax assessment study done in

2007 concluded that the development would generate $167 million dollars in

additional tax revenue for the City of Los Angeles by 2036.80

77 Camino, F. (2010, January 28). Transit Oriented W Hollywood Hotel Opens Today.Retrieved from thesourcemetro.net: http://thesource.metro.net/2010/01/28/transit-oriented-w-hollywood-hotel-opens-today/78 LA Metro. (2007, February 12). Developers Break Ground on Major Joint Development atHollywood & Vine Metro Red Line Station. Retrieved October 12, 2015, fromhttps://www.metro.net/news/simple_pr/developers-break-ground-major-joint-development-ho/79 Ibid80 Ibid



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8. Management and Staffing Requirements: Tenants provide staffing and

management requirements

9. Project Financing: The project was financed by a joint public/private partnership

between two private developers, Gatehouse Capital Corporation and Legacy

Partners, and two public partners, the Los Angeles County MetropolitanTransportation Authority, and the Community Redevelopment Agency for the City of

Los Angeles (CRA/LA). The total cost of the project was $600 million.81

10. Lessons Learned: As of 2015, the Hollywood/Vine Hotel Joint Development

Program Project seems to be a great success. According to the LA Metro, it is the

most successful project that the Joint Development Program has undertaken so

far.82

One criticism of the program is that it has actually increased traffic, not reduced it.

One reason for this is that the developers built an enormous parking garage at the

location. In fact, The W Hotel advertises that it has the best parking in Los Angeles,

while it barely mentioned that it is close to public transit.83

Another problem is that the apartments that were built in the location have been

plagued by poor management. Many residents have complained that the

apartments lack proper security, are noisy, and the grounds are filthy.84

The last common criticism of the project is that it didn't create enough affordable

housing units. Besides the 78 affordable housing apartments, most of the other

units that were created were luxury condominiums whose price ranged from

$800,000 to $6 million.85

81 LA Metro. (2007, February 12). Developers Break Ground on Major Joint Development atHollywood & Vine Metro Red Line Station. Retrieved October 12, 2015, fromhttps://www.metro.net/news/simple_pr/developers-break-ground-major-joint-development-ho/82 Margaronis, S. (2013, October 31). LA Station "Crown Jewel" Development: MayorGarcetti. Rebuild the United States. Retrieved October 14, 2015, from http://rbtus.com/la-union-station-crown-jewel-development-mayor-garcetti/83 (Camino, 2010)84 Ibid85 Ibid



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Case Study 4

Appendix: CTA Joint Development (Apple Store)



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Apple invested up $3.897 million for station improvements in Chicago.

Apple designates about $27 million a year to high-profile stores for brand

marketing and promotion.

As of 2009, Apple had seven stores in Chicago suburbs and one store in the

city. Apple had been looking for the site of its next retail store within

Chicago. When determining store placement, Apple most likely checks itsregistration database to determine where existing customers live and buy

and examines purchase records from both Apple stores and authorized

resellers. Other factors include the presence of universities, overall

education, and economic conditions.

Apple could have chosen the Block 37 location on State Street, but the slow

pace of the project may have prevented Apple’s full commitment. Apple could

have also picked from five vacant properties in Lincoln Park that met its

15,000 square foot minimum criteria. The property on 2214 North Lincoln

Avenue with 25,000 square feet is priced at $28 per square foot. Instead,

Apple chose to pay about $38 per square foot for the North and Clybourn

property. The location was likely chosen because it is in a rising shopping

district, close to high-end stores like Crate and Barrel. The median household

income within a mile of the area in 2009 was $80,110. Consumers spent

$192.486 million on entertainment within a mile radius of the area.

Additionally, certain Apple stores serve as a “brand lighthouse.” The

triangular site will serve as a giant Apple billboard.

Apple’s investment in the CTA investment aligns with its goals of crafting a

superior retail experience. In San Francisco, Apple funded the extension of a

tunnel connection between a BART station and the exit stairways; Allen

acknowledges that this “change was modest, but definitely supportive of the

BART system.” Apple routinely fixes the exterior of their street-level stores,

including removing existing sidewalk, planting trees, and moving kiosks, fire

hydrants, mailboxes, benches, and other obstructions. Apple had a strong

stake in the station because its future store is adjacent to the stop. With the

deal, Apple gains considerable control over the aesthetics of the whole

triangle and the retail experience of its customers. Secondary benefits

include increased foot traffic, good publicity, and advertising or naming rights

Apple, with $40 billion in cash, has enough financial capital to commit to the

project and approached the CTA and the city, which indicates their interest,

initiative and willingness to commit.



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Appendix B: The Public Perspective: Survey on Davis Square

On Sunday, November 22nd, 2015, we surveyed fifty residents on the platform

level of the Davis Square Subway Station in order to gain insights on local

residents' shopping habits for groceries; and secondly, to measure local support for

bringing a supermarket to Davis Square.

The tables below give the results of the November survey:

Question 1:

Would you regularly shop at a Trader Joe's at the Davis Square Subway Station?

Would you shop? Number of Votes %

Yes 48 96

No 2 4 Total 50 100

Question 2:

Where do you currently do the bulk of your grocery shopping?

Number of Votes %

Market Basket (Somerville Ave) 10 20

Star Market (Porter) 14 28

Stop and Shop (McGrath Hwy) 7 14

Whole Foods (Alewife) 5 10

Trader Joe's (Alewife) 3 6

*Several places 9 18

*Other 2 4

Total 50 100

*Several places - nine residents, including 2 new residents and 2 students.

*Other - two persons. One answered – farm share and other woman mentionedthat she do her shopping by her job.

62% of grocery shopping occurs outside of Somerville.



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Consumer Feedback

One respondent stated that the current closest Trader Joe's and Whole Foods are

not easy to get to for residents with cars and that this development would benefit

his community.

Another respondent did not have an automobile and he really thought development

would help people like him out.

Another respondent stated that she would only support the project if there were

sufficient parking. She said that the Trader Joe's at Coolidge Corner is a "mess"

because it lacks enough parking. She also then stated she thought it was too

crowded so this might help.

Another respondent stated that he currently shopped at Whole Foods because he

liked the product selection but complained about the high prices. He preferred

Trader Joe's because it was less expensive but offered similar products as Whole

Foods.

Interestingly, several residents said that they've been waiting for a supermarket to

come to Davis for some time; a couple respondents even cited that they were

disappointed that Roche Brothers did not come to Davis because they felt that their

neighborhood really needed one.

One final point: Many of the people we spoke to stated that they did not live in the

area. Perhaps as many as two out of every three. We're not sure whether or not

this was true or they just didn't want to take a survey. We got the impression that

the residents of Davis Square receive more than their fair share of petitioners and

solicitors.



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Appendix C: Supermarket Access and Saturation in Somerville and the Boston Area

Below we have mapped out the supermarkets in the Davis Square proximity,

marked with 1/2-mile radius circles. The red circle is the Alewife Trader Joes, and

the green is our proposed location. We learned that Davis Square and the area to

the northeast are an underserved for supermarkets, and that Somervillesupermarkets have a considerable amount of overlap, regularly located within 1/2

mile of each other.



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The mapping of current Trader Joe's locations shows that they operate in areas with

considerable supermarket options, and that the geographic relationship between

our proposed location and the Alewife location is similar to the relationship between

the Cambridge and Brookline locations (which were the first Trader Joe's locations

on the East Coast). Significant presence of existing locations indicates that supply

chain issues for the company will be minimal.86

86 Kowitt, Beth. "Inside the Secret World of Trader Joe's" Fortune Magazine. August 23,2010.http://archive.fortune.com/2010/08/20/news/companies/inside_trader_joes_full_version.fortune/index.htm



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Appendix D: Trader Joe's Corporate Office Interview- October 15th, 2015

Although corporate management was not forthcoming with information about the

company's process for expanding their locations, an October 15 contact with two

management employees revealed the following:

Trader Joe's uses a 2-year planning process for store expansion

Their current goal is to expand by 25 stores per year.

Population density, area income, neighborhood growth, customer feedback and

area store performance are major measurements they look at when considering a

new location.

Appendix E: Davis Square Commercial Lease Survey

Location Size(sf) Proximity(ft) Price

(sf)

Characteristics

240 Elm 14,000 600 50 Second floor; pedestrian

artery

17 College 500 100 42 2nd floor; office space

(small)

246 Elm 3000 600 65 1st floor; restaurant zoned

227 Summer 3934 1200 40 Part of 18,000 SF building

318 Highland 7,040 2,400 $3.98M

(sale)

Mixed use, ground floor

commercial



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Appendix F: Evaluation of MBTA Funding and Siting Process

The MBTA is a public entity with independent bonding authority that does not fund

capital projects in the traditional way that private industry or non-profits do. The

MBTA’s capital program is funded by federal grants, revenue bonds, state

infrastructure funds, pay-as-you-go capital, project financing, and other sources.

The MBTA finances maintenance, upgrades and new construction through its Capital

Investment Program (CIP). S1.05 Billion in funds have been allocated for FY2016,

CIP). The funding sources for the CIP can be grouped into three general categories:

$479 million (45.8%) in federal government funding through federal formula funds,

flexed federal highway funds, small starts, new starts, the Department of Homeland

Security, and ARRA (the American Recovery and Reinvestment Act)

$225 million (21.6%) in bonds supported by MBTA revenues, project financing

(borrowing through a federal loan program), the capital maintenance fund (cash-in-hand), and reimbursements

$342 million (32.7%) in state funding for Commonwealth projects authorized in

legislation (the MassDOT CIP authorizes $396 million for MBTA projects; the

difference is represented by projects that the Highway Division is doing on behalf of

the MBTA)87

Thus, the MBTA finances its new construction with a combination of grant funding,

zero-interest loans and higher interest debt, and internal revenue. Understanding

the complexity of the MBTA borrowing and funding streams, we have decided to

present capital costs to the MBTA on a sliding scale of effective interest rates,ranging from zero to seven percent annually.

Additionally, MBTA debt and income are fluid and long-term: the Authority can

review cost and revenue outlays over a longer timescale, and thus we present

rental revenue as an average over a 20-year lease.

87 MBTA "Capital Investment Program FY2016". Web.http://www.mbta.com/uploadedfiles/About_the_T/Financials/FY16CIP.pdf



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SOURCE: MBTA CIP 2016

The MBTA prioritizes capital projects based on the following criteria:

Impact on the Environment

Reduce Pollution and ConsumptionPromote Mode Shift (walking, biking, and public transit)

System Preservation.

Upkeep (maintaining a "state of good repair")Lifecycle Management Reduce Environmental Vulnerability

Financial Considerations

Impact on Operating Costs Impact on Operating Revenue

Operations Impact

Improve Customer ExperienceNumber of Riders Affected Operational Sustainability ( impact/benefits of the project are sustainable)

Legal Commitments

Environmental regulations; ADA and other Federal mandates)88

88 Ibid.



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Appendix G: NAICS Profile of Trader Joe's on Memorial Drive

Below is a copy of the NAICS profile89 for the Trader Joe's on Memorial Drive in

Cambridge. It is a similar size to the store we're proposing.

Corporate Name:

Trader Joes Company

Tradestyle Name:

Trader Joes 502

Point of Contact:

Ms Denise Hutzel

Title:

Manager

Address:

748 Memorial Dr Cambridge MA

02139-4614

Telephone: (617) 491-8582

Latitude: +42.357845 Longitude: -071.115146

Sales Volume: 0

Employees on Site: 40

Line of Business: Grocery Stores

NAICS 1: 445110 Supermarkets and Other Grocery

(except Convenience) Stores

NAICS 2:

SIC 1: 54110000 SIC 1 Description: Grocery stores

SIC 2: SIC 2 Description:

89 US Business Directory North American Industry Classification System

http://www.findnaics.com/paid.aspx



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