Small, mixed-use infill projects are becoming favorites of the planning and development industry because of their compact urban scale, innovative design, and positive impact as catalysts for their neighborhoods.

Mixed-use urban infill developments— small in scale, often comprising far fewer than 100 housing units and 10,000 square feet (929 sq m) of commercial space on less than an acre (0.4 ha) of land—can aptly be termed “little infill.” They don’t fit neatly into real estate investment categories, as some are affordable, others market-rate, some for-sale condominiums or townhouses, others live/ work, some standard retail, and still others small-scale incubator space. They often don’t have high building efficiency or produce quite the margin levels developers seek, but they are favorites of the planning and development industry for their compact urban scale, innovative design, and positive impact as catalysts for their neighborhoods.

If demographic forecasts by the University of Utah’s A.C. Nelson and others are correct and there indeed is demand for nearly 20 million attached housing units by 2025, and if it’s true that close to 3 million acres (1.2 million ha) of greyfield infill sites will become available for redevelopment in roughly the same time frame, then it seems as though supply and demand for small infill projects could be in perfect balance—maybe.

“The pegs are bigger than the hole,” is how Michael Lander, a developer and founder of the Minneapolis-based Lander Group, frames it. Lander believes the regulatory process is too siloed for cities to accommodate forecast demand for urban infill. His observation may be accurate in a number of cities, but it also takes a skilled developer to not only negotiate city hall, but also manage challenges to planning, site design, architecture, lending, market knowledge, and the neighborhood approval process.

“The city never reviewed a project like this before,” explains architect Scott Harmon, one of three partners developing the Mangum 506 project on the edge of downtown Durham, North Carolina. Although the municipality’s comprehensive plan and zoning allowed the 21-unit project with four retail spaces, there were regulatory barriers. The city’s solid waste department required a project of its size to include two Dumpsters. The transportation department would not let a Dumpster truck pull into the site and back out, but rather insisted it be able to drive through the site—something more easily accommodated in less dense suburban environments.

In addition, the major street passing in front of Mangum 506 is a one-way collector road that is part of the state highway system. Not only is there no parking allowed on the street, which hampers the leasing of retail spaces, the state highway department required a diagonal section to be removed from the building design so that vehicles on the cross street would have a better view of traffic on the one-way collector road—again, a rule that works better in a suburban context. The garbage issue was solved by a city compromise, but the developer did lose a 25-foot (7.6-m) portion of the 506 Mangum building. However, the rule applies only to the first story of the structures, so no square footage was lost on the second and third floors.

Elsewhere in Durham, another of the development partners of 506 Mangum, Susana Dancy, is proposing a live/work project. Although live/work units are allowed by zoning, the parking requirement is quite onerous, as residential units are required to have two parking spaces and each individual workspace is required to have three, so each unit is required to have a total of five parking places, something Dancy refers to as overreaching and inflexible. The city of Durham offers prime examples of the kinds of regulatory issues faced by developers in countless cities that encourage small infill development projects in principle, but that enforce codes that can create major hurdles.

Getting neighborhood approval is often a challenge as well. For the Lander Group’s West River Commons project in Minneapolis, Lander reports that he attended 45 public meetings, primarily with immediate neighbors who objected to the project—in spite of support from the city and the larger neighborhood organization. “The building is 60 stories tall in their mind,” he says, noting people’s inflated fear of how a proposed project will negatively affect their neighborhood. Although Lander believes that 45 meetings is excessive, some of the feedback from neighbors was not entirely negative, he concedes, and even helped to improve the project’s design. He strongly advises having a neighborhood champion for the project from the beginning.

“Community is what we’re all about,” emphasizes Johnny McDonald, a Realtor with Onion Flats in Philadelphia, a developer that has built numerous small infill projects, including Rag Flats and Thin Flats. (See cover and page 40, August 2009.) McDonald indicates that Onion Flats always approaches the neighborhood first, fully expecting feedback that will result in revisions. “Rarely do we get a, ‘Yeah, great, beautiful, go for it,’ response,” he notes, but McDonald concedes that their projects are stronger as a result.

Depending on circumstance, the neighborhood can be an ally rather than a deterrent. For instance, when Portland-based Kemper Development proposed a 16-unit condo building with 18,000 square feet (1,672 sq m) of ground-floor retail space in the Hawthorne neighborhood of that city, the neighbors strongly supported it over an alternative proposal for a single-use McDonald’s restaurant.

Small infill developments don’t necessarily need to feature award-winning architecture, but it helps if the design is functional and marketable, adds to the project’s context, and improves the urban fabric. West River Commons in Minneapolis includes 53 apartments, 8,000 square feet (743 sq m) of retail space, and three for-sale townhouses on a one-acre (0.4-ha) site, with all off-street parking located under or behind the structures. The four retail spaces share a common corridor that provides direct access from the customer parking, making the shops and restaurants accessible to those arriving by car or bike or on foot.

Artisan Lofts on Central, located just north of downtown Phoenix along its new light-rail line, was developed by Eric Brown, principal of Artisan Homes, a Phoenix-based developer. With 40 condominium units situated above a ground-floor restaurant, the site called for a pedestrian-friendly design as well as sufficient off-street parking and convenient access for customers. Surface parking for the restaurant is provided along the side of the building, although the view of the lot from the sidewalk is screened and the pedestrian realm enhanced by an outdoor patio.

At Saltillo Lofts in Austin, Texas, a row-house-style design was used for the residential project rather than a more conventional design with an interior corridor. All 29 residential and the nine commercial spaces below have a ground-floor entrance, either facing inward to a courtyard or outward to the street, which helps activate the pedestrian realm. Saltillo Lofts, developed by Constructive Ventures and designed by Hailey Johnson Architects—both locally based firms—used relatively basic materials to keep costs down, but also included colors and design flourishes to help give the project an “edgy” feel. Saltillo Lofts is not located on major thoroughfares, and there is no off-street parking dedicated to commercial space, so the commercial spaces were designed and positioned accordingly and include an acupuncturist, a massage therapist, a hair salon, an attorney’s office, an art studio, a marketing firm, and a boutique women’s clothier.

In Milwaukee, Park East Enterprise Lofts, developed by Madison, Wisconsin–based Gorham, contains a combination of affordable and market-rate apartments in addition to less than 2,500 square feet (232 sq m) of retail space. Ground-floor residential units at Park East are designed to be live/work spaces, a concept that has been popular with a number of tenants who work from home, notes Ted Matkom, developer with Gorman. Some, he notes, have even “hung a shingle” to advertise their business outside of their live/work units.

Matkom also points to the challenges of leasing the 2,500 square feet (232 sq m) of commercial space at Park East with no dedicated off-street parking. As a result, it has taken longer than expected to attract tenants, and even then, he notes, the developer had to pay for the buildout of the space. Matkom observes that this is a common problem with new mixed-use projects in cities, where a combination of a lack of parking and/or critical mass of foot traffic hampers leasing of retail space. Commercial space has proven to be the most successful at small-size infill projects when the right balance of tenants, design, and parking is achieved.

Little infill projects require knowledge of the micro-market of a neighborhood to get pricing and rents right. For example, even though Kemper Development’s Hawthorne project was in an established popular neighborhood in Portland, there was still no precedent for condo sales in the area. As a result, the developer based pricing off the well-established and popular Pearl District, adjusting pricing down for value. Saltillo Lofts and 506 Mangum followed a similar strategy, as they took advantage of untapped markets.

Lending for these smaller infill projects can create problems, as criteria are often different for the variety of uses proposed. Creative solutions are often necessary, and some developers even create pro formas that show zero occupancy in commercial space for a period of time, or include the buildout of commercial space in the larger residential portion of the project. Project financing will continue to be an issue in tighter lending conditions.

The rewards of developing small-size infill projects can be many, suggests Lander who relates the story that when West River Commons was finished, a man approached him at the grand opening ceremony; Lander recognized him as one of the immediate neighbors who had been viscerally opposed to the project. The man shook Lander’s hand and told him that his opposition was misplaced—instead, he loved the development and noted that it added to the character of the neighborhood.

“Developers must be nimble,” says McDonald of Onion Flats in Philadelphia, describing the various obstacles facing developers of smaller infill projects. Margins are already thin, subsidy is often required, and economies of scale are an issue. In addition, there are drawbacks like finding unexpected contamination, working with a lender unfamiliar with mixed use, having the city require a costly improvement such as elevators or parking, over-retailing the project, or even facing the opposition of a motivated neighbor—all factors that can scuttle a deal.

While the development of little infill projects is not necessarily easy, in the next decade and beyond there should be opportunities in cities for development teams to create a variety of product types that suit urban and inner suburban locations. Indeed, if the forecasted demand for housing on infill sites is to be satisfied, it may take a concerted effort from architects, planners, lenders, municipal staff, and neighborhood activists to accommodate the predicted demand.

Ten Principles for Small Size Infill

  1. Go to the neighborhood first. Neighborhood opposition can often not be avoided, but it can help to get a resident in the immediate area to champion the project.
  2. A comp plan that encourages mixed use is not enough. Work with a city that has good interdepartmental cooperation and codes that support small-scale infill development, or— better yet—one that expedites good urbanism.
  3. Do the market research. Be realistic about rents and/or sales prices. There may not be direct comps, but measure the risk needed to take—and do not overreach.
  4. Do not over-program mixed-use space for retail. Nothing makes a mixed-use project look like a failure like empty storefronts as the result of an overly optimistic development team.
  5. Activate the public realm. Provide multiple entrances to commercial and residential space from the sidewalk. If possible, create a quasi-public outdoor space as an amenity for not just the project, but also the neighborhood.
  6. Be realistic about parking. Provide enough off-street parking for retail space. Parking is expensive, and high-profile tenants such as restaurants will demand it, but do not overdo the parking spaces, particularly if on-street parking is available nearby.
  7. Retail entrances from the sidewalk are important to create a sense of place, but be sure that retail access is easy from parking areas.
  8. Innovative design has its place, but the building does not have to always stand out. It is often better to be a good fit within its surroundings.
  9. Find a lender with experience in mixed-use development.
  10. Hire a marketing team with sensitivity to the local market.