Trend Talk

News
Forest City’s Konterra project in the Washington, D.C./Baltimore area is...
Trend No. 4, creating a sense of place, is being...
The restaurant piece of Divaris Real Estate’s The Town Center...
Trend No. 2—meeting, rather than creating, demand—is answered by Birkdale...
A trend—No. 1—that sees the retail mix evolving because of...

Trends in mixed-use don’t reflect an over-night change. In fact, as with other development formats, mixed- and multi-use iterations evolve methodically, usually not evidencing themselves as “trend-worthy” for half a decade—or more.

However, even slow-developing trends are still worth reporting. In talking with five real estate developers, Chain Store Age uncovered five trends in mixed-use that are shaping the format and its surroundings.

Trend #1: Evolving the retail mix. A tightening economy has, not surprisingly, evoked some changes to the mixed-use formula. For one, said Frank Natanek, group president of real estate and marketing for Peoria, Ill.-based Cullinan Properties, condominiums are giving way to rentals.

“Because the condo and the for-sale market have stagnated,” said Natanek, “residential developers are building for the rental market instead.” This, of course, impacts the look and feel of a mixed-use project, as rental dwellings lack some of the architectural accents and upgraded materials of their for-sale counterparts, but “if a project works with rentals, great,” he said.

More evidence of an evolving retail mix in response to climate changes is the emergence of what Cullinan calls “a hybrid between a discount and traditional center,” said Natanek. “There are a number of centers that have been built over the last couple of years that, because the high-end retailers aren’t doing as many stores, are tenanted by a Wal-Mart or a Target or a Costco.”

Cullinan has projects in the works that reflect both the bent toward rentals and discount retail, but the mixed-use development that the company points to as having the most potential impact is East Peoria/Downtown 2010, an early-stage project that will convert a former Caterpillar factory and its immediate surrounds in East Peoria, Ill., to a reenergized district with retail, restaurants, entertainment, office and, perhaps, residential. Cullinan was awarded the master development role.

“We feel so strongly about this project that we have committed, as part of the development agreement, to move our corporate headquarters to the site,” said Natanek.

Trend #2: Meeting, not creating, demand. Enormously successful mixed-use projects such as Easton in Columbus, Ohio, led some developers to believe that no matter where you build it, people will come. Not so, said Marc Hays, senior VP of leasing, specialty centers, for Beachwood, Ohio-based Developers Diversified Realty.

For a mixed-use project today to succeed, or even to get built in the first place, “All of the fundamentals of what is good real estate have to be rock-solid,” said Hays. “Thanks to the phenomenal success of mixed-use projects like Easton, developers were forging ahead with projects…but they were ignoring the fundamentals of their real estate.

“If you’re going to add 300 residential units to an area, there has to be at least that much demand,” said Hays.

Herein lies the basis for trend No. 2—for a mixed-use project to be successful, it must meet, not create, demand.

Take Birkdale Village, a mixed-use community in Huntersville, N.C., acquired by Developers Diversified in 2007. “Birkdale is a project where there was a clear retail void,” said Hays. “Lake Norman, about 15 miles north of downtown Charlotte [N.C.], has long been ignored for residential, other than to serve as a site for second homes on the lake.” Because the most affluent part of Charlotte is on the south side and continuing to press in a southerly direction, “People began to realize that the commute into downtown from the south end was running 30 to 35 minutes,” said Hays. “Meanwhile, there was this beautiful lake just about 20 minutes north of downtown.”

Birkdale Village answered not only the residential and retail voids but also filled in with destination restaurants and office.

Trend #3: Layering in restaurants early. “The most important trend in mixed-use is to establish the glue up front—and the glue is the restaurant piece,” said Gerald Divaris, chairman and CEO of Virginia Beach, Va.-based Divaris Real Estate. “Restaurants create a buzz and a level of activity that spills out onto the streets.”

The retail component of mixed-use is reliant on cotenancies and cross-shopping, added Divaris, but because restaurants don’t, they can occur earlier in a phased project, “allowing the developer to create a sense of reality and the feeling of a mixed-use environment that is functioning earlier than if it were just a typical phased project,” he said.

The restaurant piece, though significant, is just one part of a Divaris project that is so large in scope that it is practically a city unto itself. The Town Center of Virginia Beach, located at the Central Business District (CBD) at Pembroke, 11 miles from downtown Norfolk, will be approximately 4.3 million sq. ft. of mixed-use space at build-out. Uses include, besides an impressive lineup of retailers and name-brand restaurants, a performing-arts center, Westin and Hilton hotels, luxury apartments and lofts, and a huge office component.

“This is a high-rise, urban-style development incorporating the full spectrum of what you would see in a typical CBD,” said Divaris. “It’s a 25-year process, but you begin to see the fruits of it now come to life.” Of the 17-block span, blocks 3-8, 10 and 12 are open; blocks 2 and 9 are slated to open in 2010.

Trend #4: Creating a place. “Mixed use started out as simply mixing together retail and office and residential, but even if it’s a small project, the idea of creating a place is important,” said Robert Ambrosi, president of Clifton, N.J.-based Arc Properties.

Creating and building a place “to be,” added Ambrosi, means considering the layers, and how they play off each other to draw the desired customer. “Mixed-use projects are now integrating signature restaurants, uses of that nature, to create a sense of place.”

Arc is creating its own sense of place through the company’s 401 Race Street project in Philadelphia. Situated right at the foot of the Benjamin Franklin Bridge, “It’s a billboard location, highly visible as you come over the bridge from New Jersey or leaving Philadelphia on the bridge toward New Jersey. The visibility is tremendous,” said Ambrosi.

The site is also tourist-rich, with Constitution Center, the U.S. Mint and the Liberty Bell just footsteps away. “Most people looked at this individual building and suggested a museum or an architectural office,” said Divaris, “but the area is too busy—at 150,000 cars a day and the myriad of tourist attractions—just to have office lofts. This ‘place’ should have a hotel.” The hotel will be supplemented by a branded restaurant, recognizable to international visitors, and high-end retail such as upscale furnishings and electronics.

“These components will make 401 Race Street a place to be,” said Divaris.

Trend #5: Adding mass transit. Transit-oriented developments, or TODs, aren’t just on the horizon; they are becoming a reality of today’s mixed-use projects.

“I think mass transit is probably going to be the biggest driver of mixed-use projects,” said Emerick Corsi, executive VP of development for Cleveland-based Forest City Enterprises. “It has to be.”

Corsi credits the rising cost of fuel to the increasing interest in mass transit. “People need to be able to walk out of their doors, hop on a train or a bus or whatever form the mass transit takes, and get to their destinations in an efficient and inexpensive way,” he said.

“With fuel costs going so high, the real alternative isn’t so much alternative fuels but how you can get the American public off the interstate and into mass transit.”

An enormous Forest City project that is in the throes of trying to get mass transit aboard is Konterra, located in the densely populated Washington, D.C./Baltimore corridor four miles north of the Capital Beltway (Interstate 495). Described by Corsi as “Victoria Gardens on steroids” (referring to the huge Forest City/Lewis Retail mixed-use project in Rancho Cucamonga, Calif.), the project will include 1.5 million sq. ft. of retail (under the banner Konterra Town Center East), 3.8 million sq. ft. of office, 4,500 residential units and 600 hotel rooms.

“It’s like building a new city,” said Corsi. “It will have basically everything under the sun—live, work, play, shop. It will have all the ingredients.”