By Michael Bull, CCIM
Fueled by cities’ hunger for replenished tax bases and the desire of residents for pedestrian-friendly urban living, mixed-use developments are becoming more prevalent across the country. The success of these properties is due not only to their receptive audiences, but also more careful planning on the part of developers.
Those were some of the observations of a panel of mixed-use development experts on a recent episode of the “Commercial Real Estate Show” radio program.
More willing partners
Entitlement processes can still be difficult, but the recent economic woes of local governments have made them generally easier for developers to work with and more eager to approve mixed-use developments, said Emerick Corsi, president of Cleveland, Ohio-based Forest City Real Estate Services.
“A downturn in the economy tends to bring out the best in everybody and it starts to bring everybody to the table, especially the private sector and the public sector,” explained Corsi. “Instead of looking at one another as the enemy, it’s a better planning process.”
Michael Cohn, an executive vice president with Atlanta-based Cousins Properties, echoed Corsi’s comments. “We are seeing to some extent flexibility [from government officials], a little better process [and a willingness to allow] the developer to do things mechanically that maybe you couldn’t have gotten away with five or six years ago when city planners tended to be more purist and drew a harder line.”
More careful planning
Mixed-use developments also are benefitting from better planning, Cohn noted. Too often in the past, a developer experienced in only one property type would produce a mixed-use project, he pointed out. Today, however, the projects are more often completed by partnerships that ensure each incorporated property type is overseen by a developer with expertise in that sector.
“I think what you’re seeing is much more forethought given to each of the uses and how they work and function together,” emphasized Cohn.
Development partnerships also make sense from a financial perspective, according to Corsi. “I think you’re going to see a lot more joint ventures because these projects are very, very expensive.”
The debt and equity markets are enthusiastic about mixed-use projects, provided that components such as retail and office are sufficiently pre-leased. “With the right pre-leasing, there’s aggressive debt to be had,” Cohn said.
When asked whether they prefer the residential component of a project to consist of for-sale condos or rental units, the show’s guests were unanimous in their preference for rentals.
“You want the cash flow coming from [apartment rentals],” said Art Lomenick, president of real estate development for The Integral Group based in Atlanta. “When you build condos, it’s a one-time pop [from the sale of the units].”
Plus, “when you have a mixed-use project, the worst thing you can have is a condo association getting together to tell you what you’re going to be doing on the rest of your project for the rest of your life,” Lomenick added.
Spreading into new areas
Mixed-use developments have long been popular in major coastal cities and gateway markets such as Boston, New York, San Francisco and Los Angeles, the show guests noted. But their popularity is beginning to spread to cities like Atlanta, Dallas, Phoenix and even to some of the suburbs surrounding those markets, Lomenick said.
“These are proactive cities that are very much wanting to create a tectonic shift in how their cities grow,” Lomenick said.
The residents who are attracted to mixed-use properties often don’t want to own cars, so proximity to mass transit is a must for the developments, Corsi pointed out. “Transit is a real key to making these projects work.”
This conversation led to one of the show’s lighter moments. When guests were asked to name their ideal spot for a mixed-use project, Cohn deadpanned, “Grand Central Station.”
The entire episode on mixed-use developments is available for download at www.CREshow.com.
Michael Bull, CCIM, is the president and founder of Atlanta-based Bull Realty, a regional commercial real estate brokerage firm based in Atlanta, and the host of the weekly “Commercial Real Estate Show” radio program.