Just when it appeared that the industry was getting a handle on this mixed-use thing, the housing market had to go and shake things up. Now the residential components of mixed-use projects don't look quite as appealing as they once did. At the same time, the fallout on Wall Street from the subprime implosion has made capital scarce.
Less money means that design visions have to be compromised. Developers are slashing budgets. So you can forget about using exotic materials or doing anything that's too out of the norm.
Welcome to 2008.
For the past few years architects have embraced the mixed-use trend with open arms. No one is building regional malls. Instead, the largest projects coming on-line today feature a combination of retail, office, hospitality and residential. You can't just throw a bunch of different uses on a site and expect it to work. Design matters in making a project work. Finding the right tenants and the right aesthetic requires a deft hand. And it has resulted in a flurry of compelling environments rising across the country — enough to lead communities once averse to new construction to come knocking on developers' doors asking for their own mixed-use meccas.
All of that gave retail architects a powerful say in the process. Cookie-cutter boxes were out. Every mixed-use project tries to be different. The most successful designers found a way to placate egos and blend brands and uses. But now they have a new challenge. With the economic landscape shifting underfoot, it's time for architects to again burn the midnight oil and rethink schemes to create projects that can still work in spite of the new uncertainties. Architects dealing with this new reality offer this bracing counsel: “Be ready to change your design on the fly.”
Back to the drawing board
Somerville, Mass.-based Arrowstreet Inc. reports that more and more it designs mixed-use projects with the expectation that the design will change even after construction starts.
“I think the marketplace is much more complex for the tenant,” says Scott Pollack, principal with Arrowstreet. “It's very hard to read what different markets are going to want out of the tenants.” So Arrowstreet is “much more careful to design more flexibility into the project.”
To wit: Arrowstreet's plan for Wayside Commons in Burlington, Mass., called originally for a high-end grocer that Pollack declines to name. But the grocer deal never bore fruit and Arrowstreet scrambled to re-create the two-level, 215,000-square-foot project. When it opened in late 2006, its tenants were L.L. Bean and Borders.
The same kind of thing can happen with much larger projects — and it falls to the architect to adapt the design and make it all work. At the Bravern, a one-million-square foot mixed-use project in Bellevue, Wash., developer Schnitzer West LLC started signing retail deals before it signed up office tenants and even before it committed to residential, says architect Stan Laegreid.
Then Neiman Marcus signed up as an anchor in the 300,000-square-foot retail space. That meant an upgrade in the housing component, and Neiman Marcus and upscale housing in turn pointed to a premium collection of luxury and boutique shops flanking the anchor. “We wanted to be real consistent about what the retail offering was,” says Laegreid, principal with the Callison architecture firm in Seattle. “Once we did the Neiman Marcus deal, that started to positon the whole project It pointed to a premium collection of shops,” says Laegreid.
Retail developers and their tenants don't like change, however. Getting them to agree to new combinations may not be so easy. But that's the direction in which designers will push. If you're involved in a mixed-use project, don't be surprised by things becoming more uncertain. And if that happens, architect Pollack has this advice: overcommunicate.
Owners, leasing agents, construction managers and architects should meet weekly — or more. “If you meet on Wednesday and something comes up on Friday, you may not be able to wait until the following Wednesday to meet again,” Pollack says.
And get unit costs from suppliers, he adds — detailed prices for specific materials. If you redesign midway and need more building supplies, unit costs will help you patch up your budget with some precision.
Meanwhile, anticipate more active financiers. Banks tend to lend and let you do what you do, but private equity groups are more involved — offering ideas for design and visiting construction sites.
“The private equity groups tend to be very sophisticated about development and construction and leasing issues,” says Arrowstreet's Pollack — on retail as well as other components of mixed-use.
Retail development may see more of this hands-on financier as the economy struggles. “Interest rates are lower,” says Pollack, “but the availability of capital is still fairly tight.”
Projects may need such fresh eyes. The proliferation of lifestyle centers is such that now they compete with one another, not just with the regional malls, says Laegreid. Each such “village,” as Laegreid calls them, must distinguish itself somehow. Food and beverage, for example, is a key component — but you can't count on Starbucks the way you once did. That chain announced early in 2008 that it was cutting back new store plans. So your designer and/or leasing agent may have to look at a hip local independent restaurant as a key draw.
As mixed-use projects get tested by the economic climate, the diversity of uses is allowing development to move ahead, even if some components don't look like strong bets in the present. Uses can be phased. So residential portions of projects can be put on hold for now while development continues on other portions. The fact that mixed-use includes multiple property types lets designers make fine adjustments. “What we're looking for is kind of a niche market,” says Tammy McKerrow, partner and director of design for Jerde Partnership, a Los Angeles architecture firm. “More creative leasing mixes to drive the projects.”
That means, in McKerrow's case, reusing upper levels — such as converting an old department store to residential or an old theater to office, two of her own firm's projects. McKerrow thinks retail will adapt. She sees “a future in more dense areas that are going to be making sense economically — if the customer will get used to it.”
In spite of how uncertain things may seem today, some architects are soldiering ahead.
Laegreid says he and his clients can't get caught up in the volatility of Wall Street when making long-term decisions. For now, everyone's banking on the economy staying out of recession or — if that happens — that it will be short and shallow. With that view, it makes sense to persist with plans for 2011 and 2012 unaltered.
But it's also an all-or-nothing kind of bet. In Laegreid's view, if the market turns, the projects will go ahead. If things get worse, it won't be a matter of going back and scaling down plans. Instead, a prolonged recession would mean that those projects will be scrapped entirely.