Retail developers are finding the industry's infatuation with developing Main Street-type public spaces, where visitors can shop, dine, and be entertained, fits hand-in-glove with another hot button in commercial real estate — the demand for apartments. To marry these trends, retail developers are joining with residential developers to create mixed-use projects that offer rental and sometimes for-sale housing, stores, grocery stores, restaurants, and theaters.

The popular result? Development that appeals primarily to two target groups — young professionals and empty nesters, according to Rick Caruso, CEO of Santa Monica, Calif.-based Caruso Affiliated Holdings. “These groups like the convenience and energy of a mixed-use project,” says Caruso.

The California developer is currently planning Glendale Town Center with the Glendale City Council and multifamily developer Legacy Partners, which has offices in San Francisco and Irvine, Calif. In March, the council selected Caruso's company as developer for a 12-acre project on Brand Boulevard. Since then, he has been negotiating with the city's redevelopment agency to work out a development agreement and meeting with the Glendale community to fine-tune Caruso's vision of a blend of retail, office, and residential uses for the town center.

“There will be a street-front feel to our project,” Caruso says. “And we're seeing large demand for the residential component” in his company's projects.

Focused around a landscaped civic plaza with a lake and fountains, Glendale Town Center will contain about 300,000 sq. ft. of retail space and 500 units of mostly for-rent and some for-sale housing units, Caruso reports.

Caruso targets infill locations in mature markets for his company's brand of high-quality centers that feature outdoor plazas, fountains, and special landscaping and lighting. Recent projects include The Commons at Calabasas, a 200,000-sq.-ft. center modeled on an Italian village, in Calabasas, Calif.; The Promenade at Westlake, a 210,000-sq.-ft. center in Thousand Oaks; and smaller projects in Encino and Los Angeles.

Having a residential component “helps extend the hours of vitality” for a mixed-use project, says Robin Mosle, vice president of development with Rockville, Md.-based Federal Realty Investment Trust.

“But the retail and residential developers have to join forces to come up with a design that each of the users will enjoy,” Mosle says. “Retail is much more commercial than residential, whose users want privacy and quiet. The key is to create a sense of elegance and character in the project's public spaces.”

Federal Realty is working with another REIT, Atlanta-based residential developer Post Properties, on the Pentagon Row mixed-use complex in Arlington, Va. The development will contain more than 300,000 sq. ft. of specialty and service retail space, 10 restaurants and 500 apartments. Located within walking distance of the Pentagon City Metro Station, the project is surrounded by 2,500 to 3,000 high-rise residential units. “Retailers love having a captured market,” Mosle says.

Pentagon Row is opening in stages, she says, with the Harris Teeter grocery store, Bed, Bath & Beyond and 15 other stores having already opened and the residential units to open by February 2002. About 200 apartments have been preleased, more than have been built to date.

When Federal Realty started to plan Pentagon Row, the company initially looked at local residential developers, Mosle recalls. Then, Federal Realty became aware of Post Properties' high-quality apartment communities and invited Post to join the Arlington project.

Pentagon Row will provide “a wonderful neighborhood lifestyle,” she says. The buildings will be three to four stories high, with the residential units above the retail space.

The differences in the two types of development, especially the vertical retail/residential projects that are growing in popularity, should be taken into account when planning mixed-use projects, real estate experts warn. Jerry Snyder, principal of Los Angeles-based J.H. Snyder Co., thinks the trickiness of combining the two types of physical construction in one building takes specialized knowledge and experience. “You better know what you're doing when you put something on top of something,” he cautions.

Putting his 50 years of real estate experience to the test, Snyder has 3 million sq. ft. of retail space, much of it with accompanying residential units, either in planning stages or under way. He also is developing The River, a Jon Jerde-designed mixed-use project in Rancho Mirage, Calif., and is converting several office buildings to residential units.

Snyder says that with the shortage of land and the difficulty in getting entitlements, along with the shortage of rental housing units and consequent “tremendous demand” for residential, the industry will see more of the apartments-above-retail-stores type of project.

Notes the veteran developer about the potent retail/residential combo: “Its time has come, and everybody's going to be doing it.”

Bringing residential in house

To create marketable mixed-use communities, retail developers interested in adding residential to their projects often partner with a multifamily developer. Each partner — retail and residential — brings market sector knowledge and building expertise to the table.

However, several mixed-use developers say they believe in bringing residential expertise in-house. Going solo, they say, is not due to problems in dealing with a residential developer, but results from a desire to achieve total control.

Rick Caruso of Caruso Affiliated Holdings is “moving in the direction of building the capability to develop multifamily housing within our company.”

Jay Scott, partner and head of the Twin Cities office of Cincinnati-based North American Properties, relies on North American's in-house group for the apartment portion of three mixed-use projects he is developing in the Minneapolis metro area, including Southwest Station in Eden Prairie.

Scott says both types of real estate share the same development basics, but can be hard to do unless the developer is comfortable with the different nuances in the construction and financing of apartments. To sidestep such pitfalls, Scott says he “packages retail and residential together as one project with one lender, which gives us a competitive edge in the Midwest.”

And, doing it all yourself means “you don't have different interests being served,” Scott says. “You can render a better project in a much more efficient manner.”

Paula Stephens is an Atlanta-based writer.

SIDEBAR: Designing for density

Retailers in particular can reap the benefits inherent in designing spaces that include residential units. Not only is it true that having residential neighbors supports retail through longer business hours leading to greater sales, but underused retail developments can provide much-needed space for housing.

Creating a mixed-use plan often involves rethinking an existing site, and many times includes tearing down and beginning again. In this same spirit of reconfiguring an existing site, Perkowitz + Ruth Architects is currently designing University Commons, in Azusa, Calif., an urban infill redevelopment project that calls for demolishing an existing retail center in favor of a strong street grid of six blocks with an urban scale.

The composition of the six blocks creates a synergy of uses and a desirable intensity of pedestrian and commercial activity. The mix of planned uses includes a market with loft units above, a drug store with surface parking and a strong landscaped boundary edge, an anchor retail tenant and several small pedestrian-oriented shops that face out to the street. A block of urban-style town homes completes the mix.

Another way to incorporate housing into a commercial mix is the adaptive re-use of an existing urban building. “Adaptive re-use can provide a special opportunity to preserve the urban structures of mid-century or earlier as they often contain a charm that cannot be re-created today,” says Alan Pullman, AIA, senior associate and design director of Studio One Eleven, a division of Perkowitz + Ruth Architects.

On Pine Avenue in Long Beach, Calif., Studio One Eleven is designing the Pine Lofts, an adaptive re-use of two commercial buildings into 16 high-end residential lofts.

“Inherent in these two buildings are elements of distinctive and desirable urban living spaces, such as open wood bowstring truss roofs and high, light-filled ceilings. The building's existing configuration easily lends itself to the beloved California Courtyard style, with all units boasting entries directly onto a garden courtyard area,” adds Pullman.

Existing surface parking provides the space for a communal garden courtyard filled with a lawn, trees, and a sparkling fountain, while new parking for tenants is moved to the back of the building. Each entry features a distinctive semi-enclosed patio, and upper units have exterior sun porches, allowing full benefit to be had of the project location's temperate beach climate.

The movement toward urban-style mixed use that includes housing is driven by both need and desire and creates for those of us in the development community an exciting opportunity to define new ways to create better environments in which to live, work and play.

Tess Ferguson is an Atlanta-based writer.