In recent years, mixed-use development has become the hottest trend in the shopping center industry; everyone is doing it. But as popular as this property type is, it is a far more risky undertaking than traditional shopping centers.
Mixed-use projects can cost from 20 percent to 50 percent more than single-use retail, and can take twice as long to complete. Meanwhile, lenders tend to be nervous about financing mixed-use because there is greater margin for error and it's harder to underwrite the projects, according to Fred L. Keith, president of HKW Associates, P.C., a Birmingham, Ala.-based architecture firm.
And once the project is completed, it's extremely difficult to convert one use into another. Theaters and cinemas, with windowless interiors, ceiling heights that can reach up to 30 feet and sloped floors cannot be cheaply converted to another use. Meanwhile, residential buildings are another tough nut with multiple unit separations on each floor, says Keith. And small-scale retail space can only be converted to a different kind of retail space. Even office buildings — the most flexible components of mixed-use development — might be problematic if they have large floor plates and few windows.
As a result, developers and architects working on mixed-use projects have to make sure they get things right the first time, Keith says. That means more up-front planning taking into consideration things like adequate separation and integration of uses, visibility for the retailers, juggling parking placement and creating a unique sense of place that draws in people beyond the folks that live and work in the project.
But developers believe that the added time and expense is worth it because, according to them, the returns on mixed-use projects tend to be higher.
“Office and apartment rents typically increase on an annual basis and retail rents do not, so on a long-term basis it's a better deal,” says Brett Hutchens, partner in charge of retail development with Casto, a developer with 20 million square feet of retail space in its portfolio. Meanwhile, the retail component has the added benefit of drawing traffic from the residential, office and hospitality uses.
Main Street, USA
For horizontal mixed-use projects, architects say the most frequent failing is creating a development that feels bland to the customer. Mixed-use projects are expected to recreate the town square setting found in downtowns of the past, but many architects don't look closely enough at what made those settings work, according to John R. Clifford, principal of GreenbergFarrow, a national firm offering architecture, engineering and development services.
“They are trying to recreate the Main Street of Disneyland, this artificial idea of what a Main Street looks like,” says Jack Illes, managing partner of Urban Labs, a Del Mar, Calif.-based urban design and architecture firm specializing in mixed-use retail and residential projects. “You can show up anywhere in the country and you'll find the same kind of place, with the same tenants and after a while, it's going to feel as tired as the mall because it's not unique.”
This is a costly mistake, because horizontal mixed-use projects, where buildings are spread out over many small buildings, bring some added expenses to the mix. Four-sided construction tends to cost 10 percent to 15 percent more than the three-sided approach commonly used with single-use retail properties, says Jack O'Brien, president of Dallas, Texas-based architecture firm O'Brien & Associates.
To break monotony, allowing retailers to pursue their own design visions can help make the place unique, according to Illes. He brings up the example of General Growth Properties' Otay Ranch Town Center, a recently opened lifestyle property in Chula Vista, Calif.
General Growth let each retailer design its own storefront, resulting in details as varied as limestone pillars and striped awnings to stonework and a sunset yellow color scheme for the local Barnes & Noble.
The quality of the materials, however, has to be consistent throughout the development, says Stan Laegreid, principal of Seattle, Wash-based Callison Architecture. A community for the mid-market consumer should not have elements of luxury to avoid confusing customers.
A common mistake architects have made with some of the first horizontal mixed-use projects has been to bury the retail deep inside the project's residential components. The retail and residential should play off each other, but retail also needs to pull from a wider trade area, says Greg Lyon, partner with KTGY Group, Inc., an Irvine, Calif.-based planning and architecture firm. “They need traffic that extends beyond that community,” he says.
When adding entertainment to the mix, designers also need to think about the hours of operation for theaters and restaurants. “A live theater isn't necessarily used 365 days a year and even if it is, it's typically only from 8 p.m. to 10 p.m.,” says Illes. “What happens the rest of the day? You've got a bunch of doors leading to an empty, dark place and that can kill traffic.” And location is important as well. Otherwise, residents may have to deal with noise every night.
To make the projects interesting to explore, architects and planners should vary the width and length of streets within the development, the style and height of various buildings, the size of public area spaces and the distribution of architectural features such as fountains and clock towers.
“Real cities were built over time by different architects and different landlords,” says Clifford. “They have modern structures on the side of Neoclassical ones, with Victorian architecture nearby.”
Spacing is also an important consideration, says Alex Espinoza, design principal in the retail/commercial studio of Dorsky Hodgson Parrish Yue, a Cleveland, Ohio-based architecture firm. When buildings are too close together, people feel uneasy, but putting them too far apart disorients visitors, Espinoza says.
The configuration and placement of parking lots is one of the greatest challenges in mixed-use development. Most experts say that parking in horizontal projects should be segregated by use, with separate lots set aside for residents, retail customers and office workers. These lots have to be connected to their respective uses by convenient pedestrian links and should be within close walking distance for the center's customers, says Michael Alston, of Development Design Group, a Baltimore, Md.-based planning, architecture and design firm. In vertical projects, which tend to use structured parking, segregation is even more critical — the condominium owners don't want to come home a week before Christmas and find that their spaces have been taken by shoppers, says Lyon. He recommends creating separate entrances for residents and office workers from the retail portion of the project.
Vertically challenged
In vertical mixed-use projects national retail tenants with good credit are vital for securing financing, but they have set store prototypes and prefer wide, open spaces with great ceiling height. That is difficult to achieve when there are all kinds of mechanical and plumbing systems coming down from the apartments above, says Simon Sykes, vice president with Development Design Group. One solution is to position these systems horizontally, along the ceiling, instead of vertically, when they come to the first floor. O'Brien recommends creating a 2- to 4-foot tall interstitial space between the retail level and the apartments above for sewer pipes as a way to avoid multiple penetrations of the podium slab above retail.
In vertical mixed-use, structured parking can account for up to 15 percent of the entire project cost, while not producing any revenue, says Laegreid.
Another issue to tackle is how the retailers can load and unload merchandise without disturbing residents. A loading dock can be installed in the back of the building or on the ground floor or basement level, with an elevator delivering the goods to the retailer's main floor. This requires a delicate balancing act — elevators and servicing areas often translate into inefficient space and lost revenue, resulting in up to 15 percent of additional expense, says Laegreid.
Getting the message out
The architect also has to make sure that the retail component is the most eye-catching of all in a mixed-use property, says Jeff Green, owner of Jeff Green Partners, a Mill Valley, Calif.-based retail consulting firm. In such a dense environment, visitors' eyes tend to wander and if the storefronts don't jump out at them, the retailers are likely to suffer. O'Brien recommends using different construction materials to set retail apartfrom residential and office.
Considering what kind of tenants go well with a mixed-use building is also an important decision. Restaurants, for example, are a risk for vertical mixed-use projects because in addition to the smell and noise that might bother residents, they can draw rats and mice that could eventually scurry up and infest residential units.
“That's new information to many people in the suburban hinterland; it isn't necessarily self-evident,” says Illes.
To prevent a disaster, developers need to make sure that the market in which their mixed-use property is going to be located can support each use on its own. They have to educate themselves on what makes mixed-use work and adequately explain their vision to the architect, says Illes.
“If you hire different architecture firms for each use, you've got one team trying to solve all of their problems and another team concentrating on what they need,” says Brian Church, of Urban Labs.
“We've tried that in some cases, but it's really difficult,” Church says.