MIXED-USE DEVELOPMENTS ARE THE HEAVYWEIGHT CHAMPIONS OF COMMERCIAL REAL ESTATE. They're flexing their muscles as they become increasingly important elements in today's urban and suburban development. * These wide-ranging mixes of different land uses can range in size from 100,000 square feet or less to a series of square blocks representing millions of square feet. They dot the nation's urban and suburban landscape, located mostly in or near major population centers. * The Washington, D.C.-based Urban Land Institute (ULI), in its June 2003 Mixed-Use Development Handbook, defines mixed-use developments. It says they are characterized by three or more significant revenue-producing uses that are mutually supporting in well-planned projects; a relatively close-knit use of land with integration of project components, including uninterrupted pedestrian connections; and development in conformance with a coherent plan that often stipulates the type and scale of uses, permitted densities and related items. Typically, the developments include residential, retail, entertainment, lodging and cultural attractions housed in near proximity to each other. * Although mixed use is frequently on the cutting edge of today's real estate development thinking, the roots of the concept can be traced to the Middle Ages, according to ULI. Perhaps the most familiar example is the medieval town, relatively small and surrounded by high walls. To defend the city properly, it was necessary to keep the circumference of the protective exterior walls to a minimum, resulting in a compact city with high densities and integration of governmental, residential and commercial uses.
ULI says many older American cities to this day exhibit some of these mixed-use traits.
Mixed use on the upswing
John McIlwain, senior resident fellow at ULI, says mixed-use development is on the upswing because of increased interest in urbanization. He cites regeneration of central cities and regeneration of the suburbs in a new way through the creation of new centers with urban-like environments, often called town centers.
"Sometimes older towns are being renovated, and in some cases entirely new towns are being created," McIlwain says. He also cites large suburban malls that were shuttered and are now being torn down and rebuilt as mixed-use centers.
Behind the surge in urbanization is a generation of baby boomers entering the empty-nest stage who are opting for the ease and convenience of an urban environment, whether it's located downtown or in the suburbs. "The key in either case is mixed-use development," McIlwain says.
Looking at mixed use from the downtown standpoint, David Feehan, president of the International Downtown Association, Washington, D.C., says this type of development is increasing for three basic reasons:
* More public policy is pointing developers in that direction. Developers can gain an economic edge at the city level by taking advantage of existing infrastructures and increasing densities.
* The market is demanding it. There are more and more indications that people feel a sense of vibrancy and community when they live in a mixed-use development.
* People living in mixed-use developments have a definite transportation advantage. It saves on time if you work near where you live or have nearby access to grocery shopping and amenities such as day-care centers and dry-cleaning businesses.
Thomas Bisacquino, president of the Herndon, Virginia-based National Association of Industrial and Office Properties (NAIOP), says the primary driver for mixed-use development is the demand for work-live-and-play communities combining retail, office and residential space in a tight footprint. "It's all about choice. People don't want to live in disjointed communities," he says.
Herman Bulls, chief executive officer of Washington, D.C.-based Public Institutions, a division of Chicago-based Jones Lang LaSalle, agrees. He says mixed-use demand is a product of lifestyle changes on the part of people who want a confluence of work and play and want to spend more time on leisure activities.
David Cardwell, vice president--finance with the National Multi Housing Council (NMHC), Washington, D.C., points out that mixed-use development is site-dependent. "Development depends on location of the projects. The whole intent of mixed use is to have uses complement each other. That's why residential is an essential component, and multifamily development is a way to make that happen," he says.
David Tripp, vice president and director of investor relations and corporate communications for The Rouse Company, Columbia, Maryland, a leading real estate investment trust (REIT) specializing in large-scale retail projects and master-planned communities, has a somewhat different take on the current market. He sees few opportunities for large-scale retail developments, which, in turn, limits mixed-use development. Tripp traces this to general consolidation in the retail industry.
Looking ahead, McIlwain says the mixed-use outlook will continue to be strong because of growing demand for it. "When it's done well, mixed use makes money across the board," he says. "Also, we're seeing it show up in the new master-planned communities. Most of them have mixed-use development."
Bisacquino describes the outlook as "fairly positive." He sees demand for office space improving as the real estate markets come back. Additionally, mixed-use development is becoming more politically accepted as debate over suburban sprawl continues.
"Urban redevelopment, in particular, is politically popular. It's market-driven and adds life to the urban core," Bisacquino says. He also anticipates a major demographic trend emerging within the next five to 10 years as today's baby boomers become retirees and opt for an urban-core lifestyle.