Mixed used properties offer maximized investment

Real Estate Weekly,  August 1, 2007  by John Clifford

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In the wake of anti-growth regulations across the country and a heightened awareness of urban sprawl in and around major metropolitan areas, architects and developers have been seeking innovative ways to incorporate all of a project's elements into smaller parcels of land, giving rise to a wave of mixed-use and "vertical" developments.

Once a big city phenomenon, the vertical concept was once especially popular in cities like Miami, New York, Los Angeles and San Francisco, where high construction and land costs were prohibitive to new development. However, as city centers developed reputations as inviting places to live, vertical centers have gained popularity in cities like Atlanta, Chicago and Dallas.

By increasing a project's square footage--and often incorporating such different elements as retail, office, residential and entertainment venues--developers are able to maximize their investment and the project appears more attractive and more profitable for lenders.

Cost, leasing and return on investment (ROI) are primary objectives for developers. With more than 30 years of experience, GreenbergFarrow keeps these issues at the forefront during any urban design project. Developers and tenants often have different objectives, so balancing the demands of both parties requires constant negotiation. Architects act as a mediator of sorts, making design recommendations that satisfy the needs of both interests, while taking maximum advantage of possible constraints associated with the site, building codes, zoning and the investor's ROI.

As a general rule, a mixed-use development requires some degree of "give." Developers need to bend a little to accommodate a retailer's needs into the design. Mixed-use development requires developers to be flexible with their plans and make certain allowances to accommodate retailers' needs into the design, even if this means veering from an already successful model.

From the standpoint of the lender, who has millions of dollars invested into a project, it pays to spread the risk. Investors understand this dynamic, and this has accelerated the number of mixed-use developments in urban areas.

A mixed-use property's steady, stable income is typically generated by the residential component. A 50-unit condominium project along with a 75,000-square-foot retail base appeals more to lenders than a stand-alone, 500-unit condominium tower.

In Rego Park, Queens, GreenbergFarrow is designing a project that reflects the appeal of mixed-use. The development incorporates residential towers soaring above a retail base that will house national big-box retailers.

Critical in attracting future retail tenants, mixed-use space must be designed to be flexible. As most industry players know, nearly one in five retailers will disappear within a decade or so.

Therefore, as an industry rule of thumb, the retail portion of the project will need to be redeveloped roughly every 15 years to stay viable. By contrast, the residential portion can remain essentially unchanged for decades.

It's easy to see why stacked projects are enticing for developers. And it can be tempting to squeeze in some "throwaway" retail space just to reap the extra benefits. But a project that lacks the proper planning and quality assurance will fail in the long term. A successful residential developer who wants to build a mixed-use building must think about its retail component with the same level of care, subtlety and sophistication as its residential portion.

For example, designers often make mistakes with parking. Shoppers will not return to a mixed-use center if it is hard for them to remember where they parked, if they feel unsafe waiting for an elevator in a dark garage, or if they have trouble navigating a parking lot.

Parking is an even bigger issue when the project includes commercial office or residential space. In residential settings, segregated parking is a must. Understandably, residents do not want to encounter shopping carts in their lot on a daily basis, and retail customers seek a parking lot that is bright, safe and easy to enter and exit. For residential parking, it is acceptable to use columns, ramps, or turns to designate certain areas because, over time, residents will become familiar with the layout or may even have a reserved space.

Crafting a parking solution that is acceptable to everyone thus requires creativity--and often some design acrobatics.

The creation of a top-quality, stimulating mixed-use project requires flexibility on the part of the developer and a willingness to complete a carefully planned and well-executed design for all of a property's components.

By paying attention to such factors as the long-term flexibility of retail space and the need for parking that suits all needs, mixed-use developers can expect to see much better results with their projects in respect to cost, leasing and return on investment.

BY JOHN CLIFFORD, PE, PRINCIPAL,

GREENBERGFARROW

COPYRIGHT 2007 Hagedorn Publication
COPYRIGHT 2008 Gale, Cengage Learning