Construction Under Way for Potomac Yard Rail Station

The addition of a Washington Metropolitan Area Transit Authority (WMATA) rail station at Potomac Yard is a central feature to successfully redeveloping a 300-acre former rail yard into an accessible and walkable mixed-use development, poised to give an economic boost to the area.

The area is part of National Landing, the future home of the Virginia Tech Innovation Campus and Amazon’s HQ2.

After years of planning and preparation, a public groundbreaking ceremony for the new Potomac Yard Metrorail Station was held in mid-December, marking the start of major construction for one of the largest infrastructure projects in the region.

The event took place at the future location of the station’s northwest entrance. Hundreds of project partners and stakeholders attended the event, including Virginia Governor Ralph Northam, Alexandria Mayor Justin Wilson and other elected officials; community members; consultants and contractors; and representatives of many federal, state and regional agencies.

“This will be a world-class station that will soon serve new riders,” Governor Northam said at the event. “I’m proud of the great work our public transit systems all across Virginia continue to achieve as we work together to connect all Virginians to more job opportunities.”

For more than a decade, WSP has been providing the City of Alexandria with ongoing financial analysis consulting services to assist several city departments, including the city manager, planning and zoning, and the department of finance on how best to pay for the new station. The initial work culminated in a value-capture analysis to fund the new rail station, followed by ongoing assistance and updates as the project evolved from planning to implementation. The firm’s analysis led to a viable solution that kept the station project on track.

In April, Alexandria City Council approved construction of a $50 million modified southwest entrance to the new station. The change adds a second pavilion to complement the northwest pavilion, which includes an elevator and stairs connecting to a 520-foot-long pedestrian bridge. Bridges connected to both pavilions lead to a 165-foot-long pedestrian overpass that crosses the rails and connects to the inbound and outbound platforms at the station.

This enhancement, which raises the overall project cost to $370 million, was funded by the Commonwealth of Virginia’s Amazon HQ2 incentive package.

With ground broken and construction under way, the project is targeting completion in 2022.

“Given its scale, its close proximity to the Washington, D.C. metropolitan area, and adjacency to the Metrorail Blue and Yellow lines, the Metrorail station at Potomac Yard will increase the economic development potential of Potomac Yard, as well as ease vehicular traffic demand along the Route 1 corridor,” said Tim Thornton, director of economic analysis and strategy at WSP.

The new station will be located along a three-mile stretch of the heavy rail line, between the Braddock Road and Reagan National Airport Metrorail stations, that is currently the longest distance between two stations inside the Capital Beltway (Interstate 495). City of Alexandria officials felt a new Metrorail access point between those stations was essential to the success of the overall redevelopment plan, and sought innovative financing strategies that would serve residents, employees and businesses.

In 2009, city officials began to explore options, trying to determine how best to plan and budget for the new station. A few years ago, uncertainty surrounding the station’s cost and real estate development timing threatened to derail the project before work could begin. To find a solution that could save the project, WSP was tasked with looking at funding options for the city to consider.

“Our team developed a financial analysis, which demonstrated that channeling revenue from new real estate development surrounding the station through several value capture mechanisms would completely pay for the station,” Thornton said. “This helped shape the terms of a station funding plan and developer agreement that had been adopted by Alexandria City Council early in the process.”

As the project evolved, Thornton said WSP helped the city officials evaluate critical decisions and generate additional potential funding sources for the station.

“The biggest challenge initially was determining not just the most financially viable revenue scenario, but the most politically feasible combination as well,” Thornton said. “With revenue sources from net new taxes, special district taxes and developer contributions, a diverse set of stakeholders are impacted, and striking that balance where everyone is happy with the outcome is a huge challenge.”

This flexibility allowed WSP to be very responsive to new client questions, and answer questions quickly, even at times when there were three different real estate buildout scenarios and four different station location alternatives, resulting in a dozen different scenarios to analyze.

By helping the visualize its revenue stream, WSP was able to place the City of Alexandria in a stronger financial position to secure financing that made the project possible. This relationship was highlighted by Alexandria City Manager Mark Jinks during the Dec. 19 groundbreaking ceremony, who credited WSP with helping them solve the financing issues.

“The challenge was, when you build a station, you write the check up front; but you don’t get that money from the tax revenues until 10, 20, 30 years from now. That created a cash flow problem,” Jinks said. “We had expert assistance from WSP. They developed the financial model and kept with us for a decade while we worked through each of the challenges as the station became more expensive, and as we tackled how we can put the pieces together.”

As a result, WSP helped the city prepare a successful application for a $50 million loan from the Virginia Transportation Infrastructure Bank (VTIB).

Station construction will be paid for with new tax revenue from development in Potomac Yard over the next 40 years, funding from the Northern Virginia Transportation Authority, a special tax district in North Potomac Yard, a low-interest loan from the Commonwealth Transportation Board, and significant developer contributions.

Three key revenue-generating mechanisms emerged from WSP’s analysis that showed the project could be substantially financed using revenue generated by the nearby development with minimal impact on the city’s existing tax base. The city’s station fund began collecting revenue from these sources in 2011 in advance of station construction:

• Net new taxes created from the development – this tax-increment finance-like structure accounts for the fiscal costs of new development—including public safety, schools and other city services—then channels the remainder to the station fund.
Developer contributions based on square footage of new construction within a quarter-mile of the station.

“Each of these value capture mechanisms have been used in the past in various forms by other jurisdictions, but it is unusual to combine them in this way so effectively, without diverting revenue away from a city or county’s general fund,” Thornton said.

City officials also negotiated a shortfall guarantee provided by the developer, such that if station fund revenue collected was not sufficient to cover the city’s debt service in a given year, the developer would fill the gap, further reducing the city’s financial risk.

When completed, Potomac Yard will provide the region with 12 million square feet of new commercial and residential development and introduce 26,000 new jobs and 13,000 new residents to the revitalized neighborhood. The station will be a centerpiece of a development that will generate billions of dollars in new private sector investment over the long term.

For more about the project, read “Potomac Yard Metro Station Coming to Alexandria.”

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