Norm Garden Vice president of RTKL
Brian Jones CEO of Forest City California
Harvey Green, President and CEO of Marcus & Millichap Real Estate Investment Brokerage Co.
Victor B. MacFarlane Founder and managing principal of MacFarlane Partners
Sy Perkowitz President & CEO of Perkowitz + Ruth Architects.
Q:
How is the mixed-use trend impacting the design of projects? How do you deal with the challenges of collaborating with more partners?
Garden: It is no longer about iconic buildings on the skyline. One use is only as successful as its relationships with the others, so urban design and smart planning is at an all-time premium. … The process also takes more of a “master builder” sensibility, so patience is a requirement as is understanding the complexities of a multi-headed client.
MacFarlane: Mixed-use design is much more complicated because the buildings are more complex, with the varied uses needing certain types of spaces. Both the design process and the partnership need a project leader who understands the overall process.
Q:
Retail developers seem to be pioneering mixed-use development with other disciplines following that lead. Is that your assessment?
Garden: Retail has traditionally been the engine of mixed-use development, but that's starting to change. Because of its power in the market, and its asset value to municipalities, residential is gaining ground.
MacFarlane: Yes, and that is because existing retail sites lend themselves to a mixed-use environment. That said, as our lifestyle habits continue to change — and population densities increase — developers of all types of properties will be addressing this trend and gaining expertise.
Q:
Most mixed-use projects incorporate retail and residential, and to a lesser extent office and hotel space. What other uses are becoming more prevalent?
Jones: Victoria Gardens, a multi-use project in Rancho Cucamonga, Calif. has a Performing Arts Center with a library, community meeting component and a performance area. Stapleton, the ultimate multi-use community and largest urban in-fill redevelopment in the country, boasts schools, a regional park system, a nature center, an Urban Farm, a Sports Club with skating rinks, neighborhood pools and parks and more. San Francisco Center, a mixed-use development, has a transportation venue (BART) within it.
Garden: We're seeing a trend toward creative mixed use — development that occurs around established cultural and civic destinations such as sports venues, museums, concert halls and clustered galleries, which have always been considered economically challenging development types to private developers. But, since these civic uses are acting as a fulcrum for the development and are already there in many cases, all uses benefit from the synergy they bring.
MacFarlane: These days, almost anything goes, particularly because mixed-use properties can be developed both horizontally and vertically in high-density environments. For example, virtually all stadiums or arenas built in urban centers have a major mixed-use project surrounding them.
Many cities large and small tie mixed-use projects to civic centers or new office buildings. In downtown Los Angeles, the Grand Avenue redevelopment that we and The Related Cos. are undertaking might incorporate new government facilities. The planned redevelopment of the old convention center in Washington, D.C., may include the district's main public library. And the Beekman project that we are developing with Forest City Ratner Cos. adjacent to NYU Hospital in Lower Manhattan will have an elementary school and a hospital-services facility.
Q:
Will more retail developers and architects try to take on all aspects of mixed-use projects? Or will they, for the most part, continue as joint venture partnerships with specialized partners?
Perkowitz: Many retail developers that typically would not have considered residential projects in the past are now reevaluating due to the profitability of the residential component, especially given the cost of land in Southern California. We've seen development companies merge, or recruit staff that specializes in the opposite specialty in order to have the combined knowledge base in-house. Many developers are still partnering.
Green: The need for specialized expertise and spreading the financial risk almost dictates the joint venture structure. There are some large players who are likely to take on overall development risks, but even then the development of various components will most often require partners. The public sector should not be overlooked as a major force through financial incentives and streamlined approval processes
Garden: Few architecture practices have the depth of services to create a viable and convincing mixed-use design. It takes more than architecture — it requires strong urban design and planning expertise, retail and residential understanding, as well as office and/or hotel experience. When each element succeeds in its own right, and the connective tissue is right and healthy, the development works.
Q:
What demographic are mixed-use projects targeting? We're seeing a lot of the same retailers and price points repeated. Will there be local and regional retailers?
MacFarlane: The question implies a bias toward a narrow, “downtown” definition of urban, versus a broader, “smart growth” definition. The entire country, in varying degrees, will be significantly denser over the next 25 years. The density in the various existing and new urban nodes may vary — just as they do now — but, overall, we will see higher population densities. Accordingly, every demographic eventually will be served by mixed-use projects; in other words, the access of “downtown cores” will exist in newly-developing pockets of density in what are considered today's suburban locations.
Green: There are 78 million baby boomers that are moving closer to retirement, many of whom prefer urban living, especially since the urban revitalization wave has caught on in most major cities. In addition, the improving employment market is resulting in healthy gains in professional jobs, many of which are located in urban centers. In the past three years 25 percent of all employment growth in the U.S. has been concentrated in professional service, health and education. The result is increased demand for urban housing and services by professional adults. Last but not least, 70 million echo boomers have affluent baby boomer parents who are assisting them financially in buying their own condominiums at a younger age. The median age of the first-home owner has fallen from 36 to 32 in the past five years at least partly due to this trend.
Garden: Growing groups of young professionals, minorities and empty nesters are leaving behind the white picket fence and congested highways of traditional suburbia for vibrant urban-style living that is walkable and provides a range of shopping and entertainment. Mixed use is the response to this trend, but until recently it has appealed to the lowest common denominator, providing retail and residential options that speak to the masses.
Q:
Are more people opting to build the residential units as condominiums or for-rent units? Do you have a preference?
Jones: As the market for condominium units rises with the aging of baby boomers and empty nesters, and the desire to retain homeownership strengthens, we've begun to develop condominiums in some of our markets, particularly Florida where we have several multi-use projects under way. We've primarily built for-rent units in other areas, but we are beginning to enter the condominium market as the demand is rising even in younger markets, such as we see in Denver. As always, what developers do depends on the demand, the trends and the area demographics.
Green: The overall strength of the housing market, rising prices, falling affordability rates and the demographics I mentioned before have been the key drivers of demand for condominiums across the nation. These drivers have been similar for housing in mixed-use projects over the past three years. … However, the market is shifting. As the housing cycle peaks and the market slows this year, some projects with high-end condominiums may be over-supplied, at least for the short-term. Looking ahead, the decision to build rental units as opposed to for-sale units will be driven more by the cost structure of the local product being built vs. the national housing boom that occurred in the last few years.
Q:
Do developers want to retain ownership stakes in what they are building? Are groups emerging that have proved able to manage multiple uses on an ongoing basis?
Jones: Forest City retains ownership in its investment. It is the company's core value to establish and integrate itself into the community through support of city events, issues and causes in the name of responsible citizenship. In some mixed-use projects, such as Stapleton, we are the sole owner of retail, residential and office. In others, Forest City retains the retail and office portions while its partner may be responsible for the residential.
MacFarlane: Most developers want to maintain ownership interests in what they build — as long as the result is profitable. The very large projects are often built as condominium interests, with complex cost-sharing arrangements between the different interests. The individual components — such as the retail center or the office portion — can be owned separately and often are.
Perkowitz: We have seen both. A mixed-use project we are currently working on in Northern California involves the renovation of an existing mall and the development of a new mixed-use campus surrounding the mall, which will include retail, restaurants, residential towers and a hotel. Despite the complexity of each component, the developer will control all aspects of the project. On the other hand, we are also working with retail developers and residential developers to get the project built. As we understand, liabilities, building expenses and land price drives the decision to opt in to a partnership or to develop independently.
Q:
Is mixed use a fad or is it here to stay? If it's here for good, how will it alter the way retail developers do business? What about retailers and architects?
Green: The mixed-use trend is not a fad since it is in response to major demographic forces, urban renewal and traffic congestion issues across the nation. If anything, the trend is likely to take hold more in aging suburban areas in the coming years as they respond to competition from urban areas. Retail developers will most be impacted by the multiple partnership nature of mixed-use projects and having to build product that caters to both the consumer and shifting business and convention needs. In-fill reuse, parking, need for parks and recreation and easy to access public transportation are extremely challenging issues and impact both location and design.
Jones: Mixed use and multi-use are not fads. Actually, they have been going on for many, many years. Before the automobile, urbanism and mixed use were the rule — in Europe and in America. Shopkeepers lived above their places of business, next to their neighbors. People needed to have their services in close proximity to where they lived and worked because of the transportation challenges. With the advent of the automobile, we moved away from the Main Street format because “we could.” Other factors, such as the need for sustainability and the impersonality of technology, have conspired to herald a return to Main Street, mixed use and multi-use, with its inherent opportunities to socialize.