After ten years of teaching the Urban Land Institute’s ‘Advanced Residential Development’ Course, 2013 ushered in a new era as Tennyson Williams and I combined forces to instruct a new course in Mixed Use Development. The inaugural course was taught in Los Angeles which provided a good proof of concept for suburban focused communities trying to resolve the mixed use puzzle.
Unlike my recent programs in Seattle and New Orleans leading ULI ‘s ‘Entrepreneurial Developer’s Program’ where fine grained mixed use projects were an artisan craft, LA’s state-of the-art was much less refined and craft like. Partly due to the scale of the projects and the capital sources driving the formulas, LA’s suburban context lacks the grit and patina of New Orleans and Seattle, so the resulting projects are less fine grained, but arguably more bold.
To kick off the program, I synthesized my observations and research into a succinct summary of ‘The What and Why of Mixed Use’ . The process of creating this allowed me to reflect on where we have come from and where we may be going with this genre of development.
The big takeaways from three days of program tours, lectures and discussions include the following themes:
- Evolving Public and Policy Acceptance: In places like Los Angeles where ‘fixing suburbia’ is the critical issue, mixed use is still an evolving art and zoning tool with the specifics to be defined. According to David Waite, partner with Cox Castle and Nicholson, mixed use provides valuable incentives for density, setback relief and height increases, but is being experimented with by communities to incentivize the redevelopment of ‘placeless’ corridors. However, what the market and, more importantly, the community will accept in terms of density is still evolving.
- Viability of commercial: Commercial mixed use in residential projects, particularly ground floor retail, is challenging. Jeff Kreshek, Vice President with Federal Realty underscored the challenges of making the ground floor retail an income producing component when he said ‘sometimes $0 per SF is just too much’. We toured projects where the residential units had to basically underwrite multiple mixed use elements, including affordable housing units, construction and carry of ground floor retail, and public realm improvements, its no wonder the cost of market rate housing is out of reach for so many.
- Financing: The old saw that ‘financing mixed use development is just too difficult’ seems to be giving way to a more hopeful and enlightened outlook. Steve Bram, President of George Smith Partners stated that mixed use is now more readily accepted by the capital markets, and may actually be of increased interest because of the inherent flexibility.
- Complexity: The over-riding theme in every project we toured was complexity. Not just in construction, but in land acquisition, partner and partnership structure, resolving shared interests, and creating enduring but flexible operating structures. We saw this exhibited in a complex 99-year pre-paid ground lease with 50 year option for Related’s Village in Santa Monica, and in John Reed’s brilliantly executed 8,000 SF home and office in Venice Beach. Bob Diamond, Partner of Reed Smith shared a new residential project where the site was split into lease and purchases sections which required a combination of uses – senior affordable housing, a legacy farmer’s market, and ‘condomini-ized’ retail components over lease and fee sites as a single for sale component. What we experienced was complexity as the rule, not the exception.
Given the success of this year’s inaugural program we will be back for more in 2014. Check with Urban Land Institute for dates, times and locations.