Development

Mixed-use Developments Bring the City to the Suburbs

Suburban mixed-use projects are on the rise across the United States. “Every suburban city now wants pedestrian-friendly, transit-oriented, vertically integrated mixed-use projects,” says John Breitinger, CCIM, vice president and general manager of real estate investments with United Properties in Minneapolis. He currently is developing a mixed-use project in Wayzata, Minn.

Many suburban towns are recognizing the benefits of mixed-use projects. Developments with office components add new jobs and increase the customer base for local shops and services. Multifamily brings new residents to suburban towns, creating a demand for restaurants, movies theaters, grocery stores, and other entertainment venues. The retail component adds to the town’s tax base and the parking helps control traffic and keep the pedestrian friendly format.

While not without challenges, suburban mixed use developments open commercial real estate professionals’ opportunities in a number of new markets.

Location, Location, Location

Finding the right site for a suburban mixed-use project is important in today’s changing real estate market. Some projects are met with opposition from residents who want to keep the town’s population density low and retain local character. However, developers and commercial real estate professionals look for areas where the benefits outweigh the drawbacks.

“Mixed-use projects are particularly appealing when located in infill areas where there are barriers to entry and a highly-educated and affluent population,” says Steve Willimason, CCIM, senior vice president and director of retail services for Transwestern Commercial Services in Reno, Nev. To combat opposition, make sure that the size and range of the project fit the town’s population and density, he says.

Judy Hatfield, CCIM, president of Equity Realty in Norman, Okla., says residents as well as the city officials are excited about Norman’s first mixed-use project, which she has been involved in since selling the property to country singer Toby Keith. About 17 miles from Okalahoma City and about a half-mile from the University of Oklahoma this location will draw people in from both those areas. The housing component of the project will also help to draw people in. This development will have town homes, apartments, and two-story lofts, which will be affordably priced to attract students and their parents. The Bates Mill office complex (pictured below) in Lewiston, Maine, is a half hour north of Portland, says Kevin D. Fletcher, CCIM, a broker with Coldwell Banker Millet Realty in Auburn, Maine. The city’s location on the Androscoggin River and population spillover from Portland draw a lot of visitors to the downtown area, says Fletcher.

Blending both the old and the new, the mill dates back to 1852 and offers Class A space that is suitable for office, retail, and light manufacturing. Located in the prime location of the twin cities, Lewiston and Auburn form a business and cultural center that has good schools and colleges, high-quality professional and public services, and a wide range of recreational and cultural opportunities, making the mill a strong location for a mixed-use redevelopment.

Tenant Mix

The right tenant mix in suburban mixed-use is challenging. The Lewiston, Maine, project’s anchor tenant is TD BankNorth, Fletcher says. The project also includes future plans for housing, a museum, a food court, and day-care and fitness facilities, he adds.

Breitinger’s tenanting strategy includes driving retail traffic by offering necessary goods and services, such as an upscale grocer, intermixed with specialty stores and restaurants to keep people in the area longer.

Along the same lines, Williamson finds that retail is the biggest draw in mixed-use developments. A successful retail mix includes bookstores, fast-casual dining, bakeries, coffee shops, and boutiques, he says. “Many of these uses have a certain entertainment component, which is beneficial to the overall feel of the project,” he adds.

Financing Considerations

Financing mixed-use projects often can be difficult, Williamson says. If the project’s mixed-use components include retail, office, and/or multifamily, lenders may be comfortable with one property type but not the others. “Managing office space is very different than managing a multifamily project, and of course, retail management has its own nuances,” Williamson says. Finding a good sponsor, developer, and operator is extremely important. A seasoned team with multiple skills is key to attracting the best equity and debt sources, he says.

Breitinger agrees that obtaining financing is a challenge. In some cases, “The only way to make projects economically viable is to dramatically increase their density by adding a mix of uses and integrating them vertically,” he says. Building parking structures with entrances through small surface lots is another way to gain support.

Fletcher used strong business relationships to secure funding. Financially stable private developers he previously worked with were interested in the redevelopment mixed-use project. While the financing is not 100 percent secure, he estimates the project’s total cost will be between $50 and $60 million.

Secrets to Success

Tenant mix and location are key factors in the success of mixed-use projects. However, before reaping the benefits of the developments, real estate pros must overcome many challenges. Brietinger’s main challenge was the site’s poor configuration. Because it is triangular, the current buildings in the location are enclosed and inwardly focused. To make the project work, he had to completely reconfigure the city’s road network, he says.

Breitinger explains that design is critical as well. People want to live and shop somewhere that is eye-catching and attracts more visitors and new residents to the town. “From a design perspective, there is a lot of tension between what people crave and how they really live,” he says.

In the end, mixed-use developments’ main benefits seems to be based on the fact that people, according to Fletcher, can come to work, drop their kids off at day care, get coffee, and work out, adding that the objective is to create a multiuse complex consisting of a compatible mix of retail, office, and cultural uses all in one space.

Stephanie Bell

“I went through the [recession in the] 1980s and purposely set out a market plan that would not have the boom-and-bust [nature] that comes with real estate cycles.” — Joe W. Milkes, CCIM, Milkes Realty Valuation, Dallas“We were anticipating a slowdown in the market and wanted to develop an avenue of business that would create a steady stream of income.” — Yvonne Jones, CCIM, CPM, Zifkin Realty Management LLC, Chicago“I help struggling companies rethink their business models, which includes determining the most profitable use of their real estate.” — Audie Cashion, CCIM, Alpha World Properties LLC, High Point, N.C.Stephanie Bell is associate editor of Commercial Investment Real Estate.

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