In 2022, the U.S. Department of Transportation introduced new guidance referred to as TIFIA 49 which allows infrastructure dollars to support real estate projects. With a housing shortage looming, this bold move could help the U.S. meet the demand for 4.5 million homes. Yet, despite strong support at all levels of government, only one TOD project has secured DOT’s TIFIA financing so far.
Why aren’t more TOD projects leveraging this funding? Here are the key challenges:
Outdated Land Use Policies: Many cities are grappling with outdated policies that restrict development near transit. Within the last year, Washington and Colorado have created TOD-friendly policies, enabling cities to better engage developers and streamline projects.
Financing Standards Misaligned with Reality: A significant hurdle to TIFIA financing is proving creditworthiness. Most TOD projects are financed through special purpose vehicles (SPVs) with no financial history, making it nearly impossible to meet federal credit standards. To over come this, developers can rely on a city’s (or agency’s) credit score made possible through a public-private partnership agreement.
Project Structuring and Team Setup: Navigating regulations like Davis-Bacon, Buy America, and competitive procurement rules adds complexity (and costs) to developer processes. Aligning with wage laws and competitive standards during predevelopment is essential to keep projects eligible.
Environmental Regulations: Federal financing requires compliance with the National Environmental Policy Act (NEPA), which reviews projects for environmental and social impacts. Recent streamlining efforts under the Biden administration have made it easier for infill and adaptive reuse projects to advance.
Underwriting Complexity: Construction loans for infrastructure assets are typically paid back through user fees, developer assessments, and taxes. Since TOD projects integrate real estate and infrastructure projects, property taxes and/or real estate rents become part of the infrastructure’s project revenue (and risk) making underwriting more complex. Depending on which project components are publicly financed adds complexity for creating a complete capital stack.
TIFIA is an untapped resource that could drive critical TOD projects forward. But to unlock its potential, we need targeted policy changes in the upcoming legislative session. And, for this tool to have the most impact, developers need to anticipate such moves and establish the right structures to seize this opportunity.
At Building Better Cities, we’re committed to helping cities and developers navigate the complexities of transit-oriented development. If your project could benefit from expert guidance in leveraging federal financing tools like TIFIA, or if you need support structuring your TOD initiatives, don’t hesitate to reach out. Let’s work together to turn bold ideas into transformative, sustainable urban projects.