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(2) Even where station areas are in redevelopment project areas, the amount of projected tax increment that the project area is expected to generate often still falls short of the amount necessary to pay for all of the infrastructure and placemaking costs associated with TOD. (3) Many of the costs associated with TOD require "upfront" revenue expenditures. While redevelopment agencies can issue bonds against future revenues, bonding creates pressure to develop land uses that are not transit supportive due to demand to generate revenues in redevelopment areas. Therefore, there may be a timing mismatch between a city's revenue needs associated with TOD and the timeframe in which tax increment revenues would be available for use. Despite these shortcomings, redevelopment funding remain an essential tool in the implementation of TOD and infill projects that meet regional goals. Rather than consider an expanded TLC Program as some form of substitute for redevelopment, the program should be considered as a way to augment the role of redevelopment agencies where there is a spatial, revenue, or timing mismatch between redevelopment areas and TOD and infill development visions. THE ROLE OF THE INARKET AND PRIVATE DEVELOPERS In some circumstances, developers can afford to pay for all of the higher costs associated with TOD up front due to the higher profits they make by building a project in a location with a strong real estate market. The strong markets are places where people are willing to pay high sales prices or rents to be in certain locations. Despite the Bay Area's overall market strength over the last 10 years, there are many parts of the region that have been passed over in the boom in development and real estate activity. These emerging markets are places where the expected returns from development may not be enough to stimulate development activity, either because of inflated land prices or the cost of infrastructure upgrades. Transit is one factor that can make a location desirable, but it is only one factor of many, and usually not the most important fact that people consider. In fact, research shows if all other features are equal, the presence or absence of transit is not enough to necessarily create a strong real estate market. Neighborhoods in cities ranging from Los Angeles to Miami have experienced this problem. Yet while sales prices and rents can vary from place to place, construction costs and expected developer profits are more or less constant across any given city or region. This explains why a development project may be feasible in a strong market neighborhood, while the same project is infeasible in a market with an emerging real estate market. Figure 4 illustrates this principle. As the chart shows, a standard expectation for developer profit, after netting out all development costs, is about 15 percent: This expected rate of return will largely hold constant not only in locations throughout the Bay Area, but also in other regions around the country, and developers in the Bay Area must compete with developers in other parts of the country for the same capital for development. 1 These costs include both the hard costs for construction materials and labor, and the soft costs of design, legal fees, and the interest owed to investors who put in capital up front 14 FINANCING TRANSIT-DR 'CN[ED HI/FIGMENT IN THE SAN FRANCISCO t1AY AREA