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Rendering of a nearly 300-unit housing project near the Frontenac Métro station planned by the Société de transport de Montréal.Firme d’architectes Lemay

Montreal’s transit agency will soon be breaking ground on a new project. But this time it won’t be the usual subway-line extension or transit hub. In a first for the Société de transport de Montréal (STM), the agency is venturing into the real estate business with plans for a residential-office complex that will go up on a parking lot it owns, located just steps away from one of its Métro subway stations in the east end of the city.

It’s a bold foray for the STM as it seeks to boost much-needed non-farebox revenues to fund capital investments, operations and maintenance costs while at the same time promoting transit-oriented development (TOB) and helping the city reach its affordable/social housing targets.

The concept of transit agencies using real estate development for financing and urban planning purposes is not new; Hong Kong’s Mass Transit Railway Corporation has been a major real estate player for decades and other transit commissions involved in property development in one form or another include Singapore, Paris, London and New York. But Canadian cities to date have not been very adventurous on this front and Montreal’s modest first step is certain to be closely watched by transit agencies across the country as they seek innovative ways to capitalize on existing or new infrastructure and land development.

“This is a project that has several aspects and it’s important it have several aspects,” STM chairman Philippe Schnobb said. “There’s a huge need for social housing in Montreal.” The venture – at the Frontenac Métro station – allows for the densification of a low-income neighbourhood; in addition, its location right next to the subway helps promote public transit use. It also gets rid of an eyesore parking lot/heat island and replaces it with a structure that will include a green roof and a courtyard.

The four-building complex will have a green roof and a courtyard.Firme d’architectes Lemay

Plans call for a four-building complex that will include 298 residential units – 60 subsidized apartments for low-income residents, 109 affordable condo units and 129 market-priced condos – as well as office space that the STM will either occupy itself or lease out. Building heights range from two to 12 storeys. An underground parking space will have room for 213 cars and 175 bicycle stalls.

Mr. Schnobb says the Frontenac venture could open the door to more real estate related transactions in the future that will provide for recurring revenues. “We could have simply sold the parking lot, pocketed the money and invested it somewhere. But what’s also important for us is to be generating recurring revenues,” he said.

Spearheading the project for the STM is its commercial subsidiary, Transgesco. Partners include the non-profit housing agency Société d’habitation et de développement de Montréal (SHDM) and local social housing groups. Under the terms of the deal, the STM is selling the land to Laval, Que.-based general contractor Cosoltec Inc. for $5.35-million. The STM will in return get ownership of the two-storey, 25,700-square-foot office building.

Construction is set to get underway next year, with delivery slated for 2021.

The Frontenac plan has been in the works for about two years, with close collaboration between the STM, the SHDM and local groups, SHDM spokeswoman Leslie Molko said.

Construction is expected to be completed in 2021.Firme d’architectes Lemay

“We need to look at what Montreal and other cities are doing,” said Cherise Burda, executive director of Ryerson University’s City Building Institute. “It’s thinking about how you create neighbourhoods around these transit lines, which is something we don’t usually do.”

There is still too much of a “silo” mindset in Ontario, with a lack of cooperation between the various transit, housing, city and other agencies, Ms. Burda said. “It’s such a wasted opportunity.

“Why not have a real estate development arm of [regional transit authority] Metrolinx or other agencies staffed with smart people who can make informed decisions and work with developers?”

James Perttula, director of transit and transportation planning for the City of Toronto, says the Montreal experience will be closely followed. “We don’t have anything like Montreal to announce, but this is something we are looking at more and more now,” he said.

“The role is to think much more strategically about the city’s real estate assets. Certainly we’re looking at opportunities for affordable housing.”

The city recently merged four separate real estate related agencies into one umbrella group, dubbed CreateTO. Its mandate is to manage Toronto’s real estate portfolio, develop city buildings and lands and provide real estate solutions to the various divisions, agencies and corporations, including the Toronto Transit Commission.

CreateTO is currently conducting an inventory of the land around existing stations and examining ways to use city-owned properties for housing solutions, including affordable housing, Mr. Perttula said.

In Calgary, Calgary Transit works with the city’s real estate and development services team to assess and plan developments at train stations, spokeswoman Sherri Zickefoose said. One recent transit-oriented development project that was approved is a 20-acre mixed use “urban village” next to the Anderson LRT Station, she said.

The key policy approach underlying many of the real estate related transit projects is known as land-value capture. Essentially, the concept is that transit agencies as a rule help boost property values via public projects such as transit hubs and should therefore be entitled to part of the returns that the private sector benefits from as a result of those infrastructure improvements.

Land-value capture can take many forms, including direct involvement in real estate development by transit commissions, indirect participation through private-sector partnerships, or other mechanisms such as transit-supporting levies imposed on developers.

A new, 67-kilometre automated electric light rail network in the Montreal area being built by Quebec’s pension-fund manager Caisse de dépôt et placement du Québec includes plans for land-value capture. The Caisse will build and operate the system, known as the Réseau express métropolitain (REM); a recently upwardly revised estimate puts the cost of building the network at $6.3-billion. The project offers several options for tapping into the revenue-generating potential of property-value increases on the land the trains will pass through. The Caisse could, for example, get involved in property development through its real estate subsidiary, Ivanhoé Cambridge.

“Because transportation and land development are so intertwined in cities, pairing real estate development with transport system investments makes perfect sense,” said Deborah Salon, assistant professor at the school of geographical sciences and urban planning at Arizona State University.

“Public investments in new transit infrastructure have served to make money [and sometimes a lot of it] for those who own land near the stations and developers working in station-area neighbourhoods. At the same time, many transit agencies have trouble covering their costs.”