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Mixing It Up

Architects and urban planners have been effusive in their praise of "New Urbanist" mixed-use projects. They are seen as the perfect antidote to the bland, cookie-cutter developments that have spread across America-along with the interstates and the suburbs-for the past 40 years, separating office parks from shopping centers, from recreational and entertainment facilities.

Mixed-use has put it all back together in a nifty, live-work-play package, where residents and visitors mingle in a lively 24/7 environment, walking from office to restaurant to shop. Indeed, as the proponents of the New Urbanism like to point out, the best mixed-use projects strive for and sometimes succeed in creating urbanity-the stuff of socialized civilization.

Bringing a new vibrancy and sense of community to the suburban landscape and reinvigorating urban downtowns are certainly admirable and socially useful goals. But in the real world of commercial development, what will make New Urbanism and mixed-use a lasting trend is a nice payoff for investors and retail tenants. And, after 15 years of experience with mixed-use, it seems that there is, indeed, a nice profit motive in these good works.

According to a study completed at yearend 2002 by real estate historian and author Charles Lockwood (Manhattan Moves Uptown; Bricks to Brownstones), mixed-use developments consistently outperform "standard suburban real estate products in many ways," including office and retail lease rates, residential prices and apartment rents, retail sales and sales tax revenues, hotel room and occupancy rates, and on-site and adjacent property values."

Retailers at The Newhall Land and Farming Co.'s Town Center Drive in Valencia, Calif., which includes 790,000 square feet of retail, are paying between $32.00 and $42.00 per square foot, well above the Santa Clarita Valley average of $16.50 to $27.00. And at Columbus, Ohio's trend-setting Easton Town Center, annual rents average $35.00 per square foot, versus $12.21 in other area shopping centers. Occupancy stands at 95 percent, according to developer Steiner + Associates, which by 2010 plans to erect 6 million square feet each of office and retail space at Easton. Store sales topped $400 a square foot, while the 1.5 million-square-foot center's restaurants were bringing in $600 a square foot. In 2002, average U.S. store sales per square foot were $330, according to ICSC.

The premiums are not limited to the retail components of mixed-use projects, says Lockwood. Rental rates at Montecito Apartments-a 210-unit property at Valencia's Town Center Drive that was acquired last year by Equity Residential Properties Trust-beat the local averages as well. Rents on one- to three-bedroom apartments go for $1,231 to $2,499 vs. $1,180 to $1,932 in nearby complexes, Equity says. And RevPAR at the Hilton in the Easton Town Center is 60 percent higher than the average in the greater Columbus area; occupancy rate more than 20 percent higher, according to Lockwood's study.

He points to one caveat, however: Overall development costs for such New Urbanist projects and other mixed-use designs are often higher than for single-purpose products. "It is more expensive to build integrated mixed-use because you have to make sure the retail operations don't interfere with tenants' lives," says Bob Burke, general manager for northern California for developer Shea Properties. Shea recently opened Waterford, a four-story complex including 125,000 square feet of retail in suburban Dublin, Calif., east of San Francisco.

And some development errors common to many projects now stand out. One, says Jack Illes, a San Diego urban planner, is that projects including Federal Realty Investment Trust's Santana Row and Rouse Co.'s Merrick Park have too many high-end stores. After all, even high-income residents won't visit a Carolina Herrera store as frequently as they will a gym or grocery store.

Shea Properties' Burke agrees. The center is anchored by a 54,000-square-foot Safeway with inline tenants like Baja Fresh and a cellular phone store; it's not an upscale Pottery Barn-anchored development. "How often can you shop at Tiffany?" he asks. Meanwhile, some lower-end retailers are still mixed-use shy. Mark Walker, vice president of real estate for TJX Cos. says less than 1 percent of the chain's stores are in mixed-use properties right now. "We like a location where there is convenient parking on the surface and a gradient level with our storefront," he says. "Most existing mixed-use projects don't offer that. We prefer power centers because occupancy structure, maintenance reimbursements and taxes are all lower."

Developers also disagree about the notion that the on-site population will be a key market for supporting the retailers. It's too early to tell how much of an impact residences have on retail sales, says Illes, who recently founded consulting firm Urban Labs with architect Brian Church. In suburban markets where there has been little or no urban lifestyle, the mixed-use project's residents may matter, but in locations that are already urbanized, you can't count on them as anything more than atmosphere.

Steve Ross, CEO of The Related Cos., which is developing the biggest vertical mixed-use project in the United States-the 2.1 million square foot AOL Time Warner Center on Columbus Circle in Manhattan-has no illusions that the tenants of his condos will support the retailers. "I don't think any mixed-use project has ever relied on tenants to keep its retailers happy," he says. The retail component, opening in October, is 95 percent leased while the 201 condos are only 45 percent sold. On the other hand, he adds, the handling of the residential piece in design, service and pricing "might set the tone for the building" by providing a 24/7 population.


In Columbus, Ohio's downtown, developer Nationwide Realty is putting quite a bit of faith in residential. At the company's $500 million, 1.5 million-square-foot Arena District-which includes a hockey arena, an eight-screen cinema and an indoor/outdoor performance venue-ground floor retail space is earning premiums of as much as 30 percent above local averages, according to Brian Ellis, President and chief operating officer.

Nationwide has decided to beef up the project's residential component from the 250 apartments already under construction to a total of 600 units to support new demand from locals eager to move downtown. "The residential is absolutely integral to creating 365-day activity," Ellis says. "Each component provides tremendous benefit to the other uses. Nationwide is waiting until the project's residential base is built up before it starts courting retailers."

In Cleveland's suburban Westlake district, Stark Enterprises is building Crocker Park, a $450 million, 80-acre project, that will include Class-A office space and 450 high-end rental apartments and 200 condominiums, some garden-style and some above retail space. "The patrons will activate the streets," says Robert Stark, president of the locally based developer. "All of this is a return to authenticity."

And that authenticity is essential to drawing traffic to a New Urbanist development, especially in a suburban location, he says. Stark has already signed Dick's Sporting Goods, Barnes & Noble and Regal Entertainment Group, plus restaurants Brio Tuscan Grille and Champps, among others, to occupy Crocker Park's 620,000 square feet of retail space.


It wasn't the first, but it stands as a true prototype for reinvigorated downtowns. From 1998 to 2001, Los Angeles-based developers CIM Group built a new Main Street working closely with the city, CIM obtained development rights for six parcels in the heart of Brea's faltering downtown, and built out low-rise, mixed-use retail-residential pieces using different design architects.

CIM's stake in the overall 570,000-square-foot redevelopment phase comprises 220,000 square feet of retail, leased to a variety of national and local stores, as well as 62 loft apartments in two buildings-"directly over the store," says CIM partner John Given. "We took on faith the success of urban lofts in Old Pasadena and San Jose." And, says Given, "We were looking to add to density to directly affect retail sales."

How much that effort has contributed to retail success is difficult to quantify. But the stores and lofts are full, says Given. "What's interesting is the perception of something more diverse and multidimensional than a horizontal shopping center," he says. "Engagement of neighborhoods in this district is a positive force."

Given says one proof of success is that apartment rents are on a par with other areas in the area, even though they doesn't have the amenities of other "luxury" buildings in the area-like secured parking, a pool, a rec room, and a secured perimeter. Instead, CIM put the loft-like apartments above a street that has nightlife and movie theaters, with parking across street in a public structure. The laundry room is the amenity, he says. The fact that rents are at market rates and rising introduces "another concept of amenity"-the downtown feel of the place.

At Shea Properties' Waterford, the first apartments rented in the four-story complex were those directly above the stores. That surprised even the developer. Why did tenants snatch up the second-story apartments? "People told us they're attracted by the dynamic street life right outside their window," Burke says.

He adds that the change is proof that even suburban residents can be attracted to town center, New Urbanist, downtown, 365/24/7 neighborhoods. Call it what you will, mixed-use is converting residents and retailers alike to the possibilities-and profits-of Main Street living.

-With reporting by Alex McGrath

A View From Afoot

Retail Traffic asked Jack Illes, a San Diego-based urban planner with extensive experience in creating mixed-use environments, to give us his take on the evolving mixed-use mix. Illes spent 17 years with Ernest Hahn Co., starting with Horton Plaza in San Diego and Prudential Center in Boston, and later on TrizecHahn projects such as Paseo Colorado in Pasadena, Calif. He recently founded Urban Labs with Brian Church AIA, a real estate strategy and design firm specializing in urban mixed-use projects.

In recent visits to Rouse Co.'s Merrick Park, the urban planner in me (by education) and the design freak in me (by nature) responded very positively. Both are ambitious, pretty well designed (by today's retail standards) and have pretty interesting tenants. The old retail-leasing guy in me says they don't work-and I don't think the residential component is at all a factor. Sadly, it speaks to the dangers of innovation and the fragile nature of mixed-use development. It certainly illustrates the importance of the right merchandise mix, as both of these projects have too many high-end tenants.

Be that as it may, Rouse is doing some of the most innovative projects in the business again. The small details all reflected the care and expertise of a company with long experience with good design and sophisticated taste. There are some great, unusual stores, which says a lot these days. The question remains, however: How do residential components in mixed-use projects - apartments, condos, townhouses above, next to or near the store - affect retail sales?

The residential is a nice adjunct, but adds almost nothing to the real viability of the retail. There are just not enough bodies, typically, but the residents contribute some vitality just by their presence, particularly at off-retail hours. As someone who has lived in numerous "urban" environments, the lifestyle for the residents can be appealing if the right mix of uses is included in the merchandising. Basic goods- whether from a supermarket or a bodega-are more critical than multiple high-end restaurants, and a fitness club probably is a close second. As for the favored unit types, the wide-open, loft-style spaces always have the most (sex) appealing, but can be hard to live with. Going to the fixture store to find a place to hang your clothes is not as glamorous as it seems.

My take-away from Merrick Park is that it will work for Coral Gables from an urban perspective, but the better retail will probably be challenged. I spoke to the folks at Ted Baker (a great store I knew from London) and they are at both Merrick and Federal Realty's Santana Row in San Jose, Calif. Both stores are suffering from low traffic/sales. A diverse mix of less expensive tenants mixed in with convenience retail will be the natural landing point.

High-end retail projects are difficult at best, and the "prototype" mixed-use "town square" is proving as tough to pull off as the elusive "entertainment center" prototype everyone was hunting for a few years ago. Residential and retail can work great together- our experience at Prudential Center in Boston a case in point - but the mix is critical. The economic bubble threw people off the track, but equilibrium will be achieved somewhere with the right merchandise mix and blend of uses.

Further Mixed Use Development Reading Mixed Use Development Reading:
Mixed Use Real Estate Developments- How Mixed Use Real Estate Works
Mixed Use SODO - News on Mixed Use Development in Orlando Fla
Mixed Use: Vintage Park - News on Mixed Use Development Vintage Park in Houston Tx.
Retail Developers Dive Deeper into Mixed Use Developments
Shaq attacks mixed use development
Mixed Use: Phoenix - New Mixed Use Development in Phoenix Az.
Mixed Use Developments: Fitting the pieces together
Mixed Use Development on Retail Traffic Magazine
TAGS: News Retail
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