Executive Profile

Ken Himmel, Father of Mixed Use

Ken Himmel, president of Related Urban Properties, is known as the pioneer of mixed-use development. Starting in the 1970s, with Water Tower Place in Chicago, he and his partners have shown that the combination of office, retail, residential and hospitality can create an exciting urban experience—under the right circumstances. His latest completed project is New York’s Time Warner Center. Next up is City North, a street-oriented urban development in sprawling Phoenix. Mixed-use has become nearly ubiquitous. But it’s not as easy as it looks. Himmel sat down with Global Real Estate Monitor to talk about how mixed-use has evolved—and why a cookie-cutter approach will not work.

GREM: Did you have any idea that you were starting a movement when you created Water Tower Place?

Himmel: Thirty years ago when you thought about doing something on Michigan Avenue in Chicago, that was really pioneering. That was at a time when I think far fewer people were interested in a new urban environment. I can remember how difficult it was to sell condos in the project. But people in that project began to realize the convenience factor the service factor of having all those things on site. The repositioning, the renaissance, if you will of Michigan Avenue, was almost singularly attributable to the success of Water Tower Place The world is very different 30 years later. Today the luxury buyer, the luxury shopper, the customer is looking for multiple choices and the convenience in a single location and these projects have come a long way.

GREM: What are the most important lessons for developers of mixed use? What are the key ingredients?

Himmel: We feel that this kind of project is for the top 15 to 20 percent of the market in terms of income and sophistication. That’s the audience that is going to understand and appreciate what we are doing. Because our projects are so expensive to create we automatically go to the top of the market in terms of pricing. We have to. They cost more money to produce because they are more complicated, by definition.

GREM: What’s the biggest mistake you can make in planning a mixed-use project?

Himmel: You can’t start with a secondary location and try to pull the market to you. The project by itself cannot create a market. But if the market is there and you pick a good location and you execute a great project, the market will definitely come to you.

City North in Phoenix is a good example. It’s an area that already is, but is going to be far more so, a residential place, a place for offices, hotels and significant retail. Our site is next door to what’s called Desert Ridge Marketplace, which is a 1.2 million sq. ft. retail project, drawing 24 million people a year. So I’m piggybacking on that with a city experience, bringing the street experience to a mixed-use project, which is being driven now by luxury department stores, luxury hotels and office. We have very grand residential. We have the best corporate market presentation in Phoenix.

GREM: If it’s so costly and complicated to create mixed-use spaces, what’s in it for a developer/investor?

Himmel: You can look at the numbers on project after project and see that the synergies in these projects create a premium in terms of rents. They create a premium in sales per square foot. It creates a premium in terms of creating a high selling price of residential. And how does that convert to results for the developer? What do you think happens to cap rates?

GREM: They go down?

Himmel: You better believe they do. What do you think the cap rate would be right now for Time Warner Center? Probably a 3.5 or a 4 percent cap rate. My partners and I sold a project on Michigan Avenue, underneath the Penninsula Hotel, which has Ralph Lauren and Pottery Barn in a 240,000 square foot retail development that is part of the hotel mixed-use scheme. That project two years ago sold for a 5 percent cap rate. .

GREM: How well does this concept travel?

Himmel: The model of this has been around a long time. When I started in this business someone who had a huge influence on me was chairman of a huge marketing and advertising firm, who made a presentation called The Europeanization of America. Her whole idea was that there is nothing that we do in this country that wasn’t either learned from or coveted from what was done in Western Europe. I’ve always spent my best research days and done my best learning in Europe. When we did City Place [in West Palm Beach, Fla.], we spent 10 days in Italy, visiting nine cities. We didn’t create this stuff. We are following the trends of these great cities.

GREM: Now, it’s everywhere.

Himmel: I don’t know that there are any major buildings being done today that aren’t mixed use. Now, are they all being done well? Are they all working well? I don’t know them all, but I would guarantee that they are not all working well. How could they? This is not an easy business and they’re in the hands of a lot of people who don’t know how to do it.

GREM: It does seem like a fad. Are you concerned that mixed-use is being reduced to a formula?

Himmel: If you would call it a fad, you would have to call it a 35-year fad. But it has taken off. A few years ago, everybody discovered that the traditional department-store shopping center is dead. You had seven big companies that were building five malls a year each. Well guess what? That’s over, it’s been over for a long time. Now those companies are talking about mixed use and repositioning the mall. But that doesn’t mean they know how to do it or they will ever do it right. It takes a really special set of ingredients and circumstances for a true mixed use project to work well.

At City North, we spent the first two and a half years with our design team and you know what we spent the first two years talking about? Desert architecture. How do you make sure when you build a project here that it is something special to this particular site and marketplace? You don’t pick this stuff off the shelf.

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