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A rendering of a Réseau express métropolitain station.CDPQ Infra

After years of preparation, work has finally begun on the new $6.3-billion light-rail transit system for the Greater Montreal Area.

Dubbed the Réseau express métropolitain – or REM – the 26-station, 67-kilometre electric rail network is being touted as the city’s biggest public transit project in 50 years.

It’s an ambitious undertaking that has major implications not only for the movement of people along new commuter lines linking the South Shore, the downtown, the airport and the West Island and North Shore.

The REM – billed as the fourth largest LRT in the world, after Singapore, Dubai and Vancouver – will also likely have an impact on land use and real estate development.

As a general rule, when new transport infrastructure is built, property values in the immediate area have a tendency to rise. Traditionally, real estate developers – as well as homeowners – have been the main beneficiaries of the increase in value of land close to public transit hubs. But cash-strapped transit agencies are increasingly seeking ways to tap into this potential revenue source to help fund their operating, maintenance and expansion needs.

Some, such as Hong Kong’s MTR Corp., are real estate developers in their own right, maintaining control over projects so as to take advantage directly of so-called land value capture. Others opt for an indirect form of financing, such as drawing royalty fees from developers who build on land close to new rail or metro stations.

The REM’s builder and operator – CDPQ Infra, the infrastructure subsidiary of pension-fund manager Caisse de dépôt et placement du Québec – has chosen to go the royalties route.

Developers building new housing, retail, office or commercial space in the vicinity of REM stations will have to pay a royalty fee of $10 per square foot. The fee will be phased in gradually over several years.

“Experience shows that these types of projects [REM] bring about favourable conditions for the creation of transit-oriented development,” said Macky Tall, CDPQ Infra president and chief executive officer.

“Stations with high levels of usage encourage well-integrated development, the kind of urban densification that is viewed by many urban planners and environmental groups as a positive method of urban development and a way to counter urban sprawl,” he said.

However, it’s too early to say how much – and what kind – of impact construction of the 26 REM stations will have on property development in the Greater Montreal area. Some observers are skeptical.

“Whether we will see substantial channeling of building activity toward some of these stations seems doubtful to me at this time,” said Craig Townsend, associate professor in Concordia University’s department of geography, planning and environment.

“The REM effect is likely to be muted by Montreal’s comparatively plentiful and cheap suburban locations served by highways,” Mr. Townsend said.

“In comparison with Toronto and Vancouver, Greater Montreal has less regulatory constraints on the conversion of agricultural or other non-urban land to urban uses on the suburban outskirts, so there is less incentive to build on more expensive land closer to the centre of the metropolitan area.”

André Boisclair, the head of the Institut de développement urbain du Québec – a lobby group for the province’s real estate developers – said the REM will likely have a sizeable impact in terms of stimulating development, but adds that his group would have preferred the royalties scheme not be one-size-fits-all, but rather on a sliding scale, with lower fees to match the lower property values in the suburbs.

“The value added of the REM in the city centre is not the same as in the suburbs,” he said.

Mr. Townsend believes that the royalty charge “will be passed along by developers to buyers, so it will contribute to raising the costs of residential and commercial real estate around stations. Without strong constraints (such as those found in Toronto and Vancouver) on the conversion of agricultural land for the creation of new subdivisions, these development cost charges will make real estate surrounding the REM stations comparatively expensive and if there are plenty of options away from the stations without the charges, it’s likely to reduce the appeal of TOD (transit-oriented development).”

François Des Rosiers, a Laval University urban planning professor, said funding through royalties has proven to be counterproductive. “They are almost systematically passed on to the end user in the form of price and rent increases,” he said.

Mr. Macky said he’s convinced the royalties mechanism is the fairest and most efficient way to generate additional revenues for the REM, which is receiving $1.28-billion in funding from the provincial government and a matching amount from the federal government.

In order to address concerns expressed by critics and environmental groups that some REM stations in suburban areas will end up contributing to urban sprawl and the loss of agricultural land, CDPQ Infra has struck a partnership with the provincial farmers’ union and the Greater Montreal region.

The partnership calls for the creation of a land trust and eventually – of a metropolitan agricultural park on the South Shore of Montreal, where an REM commuter line will run; the trust’s mandate is to acquire and protect agricultural land.

One big real estate project on the South Shore that was already in the planning stages before the official announcement of the REM venture two years ago is the $1.3-billion mixed-use Solar Uniquartier by developer Devimco Immobilier, which will include a hotel, office and retail space, condos and rental units, along with a public square.

Devimco modified its plans to include a direct pedestrian link to the REM station that will be built nearby, said Marco Fontaine, the president of consulting firm Premius Conseil who is advising Devimco on Solar Uniquartier.

The link to the REM is an added plus in helping make Solar Uniquartier truly transit-oriented, he said. Before REM, the main transit asset was a bus station providing service to and from Montreal, Mr. Fontaine said.

“The REM brings a new dynamic. It’s much more efficient, with more frequency and open 20 hours.

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