TDR Market InformationJust as with other commodity markets like food and oil, the Transfer of Developments or "TDR" market, is driven by supply and demand. Landowners of sending sites create the supply of development rights when they choose to put a conservation easement on their property in exchange for TDRs to sell and transfer to other areas. Developers using development rights to increase density at receiving sites create the demand. To see TDRs currently for sale, check out the TDR Exchange. The market price of TDRs is set by four factors: - The price individual developers are willing to pay for a TDR – that is, an increment of density such as an additional unit/house in their development project. This will vary by location and development project;
- The price at which individual rural landowners are willing to sell their transferable development rights;
- The amount of TDRs readily available in King County’s Program (i.e. the landowner TDR supply);
- The development industry’s interest in buying additional density in King County (i.e. developer TDR demand)
Since 2000 TDR prices have ranged from $4,000 to $30,000 depending on the type of TDR - “urban” TDRs or “rural” TDRs sell for differing amounts because they are worth different amounts of development capacity (urban TDRs = 1 additional receiving site dwelling unit, while rural TDRs = 2 additional dwelling units). The most recent transaction occurred in January 2011 and involved 4 “urban” TDRs for $28,000 ($7,000 / urban TDR); prior to this “rural” TDRs sold for $15,000 apiece in June 2010. Rural TDRs peaked in price between 2006 - 2007 when they sold for $30,000 and $26,000 respectively. Transferrable Development rights are most often bought and sold through private party transactions, facilitated by TDR program staff; under limited circumstances they may be purchased from the King County TDR Bank. Private TDR Market Analysis (Data from 2000 - 2010, excluding King County TDR Bank transactions) - Over 50 private developers have used TDRs in their projects
- Over 60 private market transactions have occurred
- Nearly 500 TDRs have been bought and sold
- Average of 10 transactions per year
- Average of 108 TDRs bought and sold annually (However, in the last 3 years in the wake of the real estate crash, average annual transactions and the number of TDRs bought/sold have dropped significantly).
- $6.9 million exchanged between private developers and private landowners
- 1,105 TDRs allocated to private sending site landowners
- 254 TDRs redeemed by developers for increased density in receiving site development projects
- With 500 credits bought/sold and 254 redeemed, there is some credit speculation occurring in the TDR market (i.e. market participants buying, holding, transferring, etc)
- Current private market supply is 851 available TDRs
To help you understand and participate in the TDR market, the King County TDR program offers: TDR Market Analysis – the Bad and the Good (Updated April 2011) It is important to remember that development demand drives the TDR market. Therefore, the TDR market directly reflects the oscillations in the local real estate markets. Given current economic conditions – that is, the downturn in the local real estate market and difficulties developers face with financing – the TDR market has slowed and softened since early 2008. Simply put, the current demand for TDRs is low as developers struggle to sell their current stock of houses and secure financing for current and future projects. Subsequently, developers – both large and small – are cautious about new development projects. The result is limited developer demand for TDRs. To put this demand downturn into perspective, during the 3 years prior to 2008 – the recent height of the real estate market – private-to-private transactions in the TDR market averaged 10 transactions per year with an average of over 100 TDRs bought/sold annually. From the beginning of 2008 to the first quarter 2011, the private TDR market has seen only 4 transactions for 9 TDRs. 2011 will likely see few new construction starts. Oversupply in the existing inventory of finished commercial and residential products from the height of the real estate boom will force demand for new construction – and subsequently TDRs – to lag behind early stages of a real estate recovery. The good news is the real estate and TDR markets hit bottom during 2nd quarter 2009, and in 2010 we began to experience a recovery – albeit a slow one, with several TDR transactions already occurring over the last 9 months. In 2011 the local real estate market is likely to continue a protracted recovery, with a slow rate of growth that will persist into 2012. Therefore, the 2011 TDR market will similarly experience little, but steadily growing, demand. In 2012 are we likely to stronger and substantive developer demand for TDRs. However on a positive note, at present, there is strong and growing demand for rental products in the real estate market as the number of potential homebuyers shrink and number of renters increase under the new economic conditions. Many developers are motivated to meet this rental demand and are looking for ways to build multifamily rental projects. TDRs can help developers meet this market need by cost-effectively increasing their project unit counts. The better news is that the TDR market, over the medium and longer terms (3-10 years), has tremendous potential for growth. As the housing market continues to strengthen in King County, as it will undoubtedly do with the County as a regional and international employment center, developer demand for additional density via TDR will also grow. By the year 2020 King County is expected to absorb 350,000 new residents. The County, and a growing number of its cities, are committed to using TDR as a mechanism by which developers can provide this new housing for these future residents. |
