LAS VEGAS _ Everywhere you go on the planning and development circuit these days, people are talking about mixed use. But does everybody really want to build it? Or lease it? Or live in it? Or finance it?
Sometimes I'm not so sure. I figured the ultimate test was here during the 50th annual convention of the International Congress of Shopping Centers, where 50,000 people in the retail business gathered in one of the biggest conventions in America. (It's so big that the convention center has streets with names – 20th Avenue, D Street – and the biggest retailers and developers have special business cards made up with their Convention Center address on them.)
As I expected, everybody is talking about mixed use. But the real estate business, like the planning business, is segregated by sector. You know how the New Urbanists are always complaining about a segregation of uses created by the zoning code? Well, that segregation is also institutionalized in the real estate business as well. There are retail developers, single-family developers, condo developers, business park developers. They each tend to do only one thing and they have specialized lenders and financial partners behind them, who also understand only one of these "asset classes," as real estate people call them.
Nevertheless, mixed use was a big topic of discussion at ICSC for a variety of reasons, mostly having to do with money. Some shopping centers have excess land in the form of surface parking lots that could be developed or sold off. In urban areas, the mall owners recognize as well that they can generate more revenue by "going up" – developing housing or office space or some other use in a second, third, or fourth floor.
One thing you get at ICSC – which we don't always get at planning events – is the private-sector take on things. Jon Peterson of The Peterson Co., a Northern Virginia-based developer, pointed out that while mixed-use can sometimes minimize market risk by diversifying the real estate development you're building, it can also increase the risk if you lay your chips on something that is out of fashion.
"If you're trying to put some office space above a retail component and that office market isn't there and this building is a centerpiece of your project, you can't go forward with it," Peterson said at a mixed-use session. "You're not going to build a 100,000 square foot office building in the middle of your project just to get the ground-floor retail." At the same time, if you don't build the building, you may have a critical hole in the middle of your project.
Still, there's a sense that the retail real estate folks are beginning to catch on that mixed use is not entirely newfangled. At the same mixed-use session, Tom D'Alesandro of General Growth in Chicago, which has worked on many master-planned communities, said that in developing Reston Town Center – a New Urbanist downtown in a '70s master-planned community in Virginia – "we took the DNA of the large-scale master-planned community, concentrated it, and condensed it into a more vibrant focus point." They also had to make lemonade out of lemons. Squeezed between three large malls, downtown Reston was never going to get a department store, so they used mixed-use as a substitute.
Still, there's always a sense at ICSC that somebody else is making a lot of money off of your idea and you're somehow not realizing that value. One veteran retail broker told me that retail doesn't get a big financial pop from mixed-use – but seems to create value for offices and condos, which get big increases in value as a result. And although he cast his viewpoint as a lament, I think it's not so bad. If tunnel-vision retail developers think more broadly about the mixed-use district and towns they're located in, that's all to the good.
- Bill Fulton
