In theory, there are lots of reasons for doing mixed-use projects—they look cool, create walkable communities, and set up retail-residential synergies—but the truth is they don’t work everywhere.
“That’s the main thing I want you to take away,” said developer Gregory Vilkin, about three minutes into a master panel on “Urban Mixed-Use Development: the Good, the Bad, and the Ugly” at the Urban Land Institute’s 2011 Fall Meeting in Los Angeles last week.
“It doesn’t work everywhere, and you have to apply it selectively when it does,” said Vilkin, president of McFarlane Partners of San Francisco.
In a freewheeling session, Vilkin traded insights and hard-won bits of industry knowledge on the nuts and bolts of mixed use with industry leaders Morgan Dene Oliver, CEO of OliverMcMillan in San Diego, and William A. Witte, president of Related Companies of California of Irvine.
“Planners have drunk the smart growth Kool-Aid,” agreed Witte, who currently is working on the Village, a retail-residential mixed-use project on an ocean-view lot in Santa Monica, California. “The first question people have to ask is: Why are you doing it? Is there an economic reason?”
“We don’t have a choice,” Oliver said, starting out with a macro-level analysis of the economic drivers for mixed use. “There are more of us all over the world; we have diminishing resources. We’re not all going to be in the suburbs; we can’t afford the automobiles, we can’t afford the fuel; we can’t afford the time. Our infrastructure is going to hell. The question is: Where can you do it? And to me, it’s all about the experience.”
In other words, all three panelists agreed, being successful at mixed use means getting the right mix of uses at the right location—which, in most cases, means high-density urban areas.
“We’re only in those cities that have a high export trade,” said Vilkin. “What they’re creating is wanted around the world. We no longer compete within the United States; we compete as a series of city-states. The Bay Area is a city-state; southern California is a city-state; Boston is a city-state. If you look at where mixed use is going to happen, it’s going to happen in those dense areas where people are shifting to a different way of living.”
The other operative word here, Vilkin said, is “place making,” pointing to his company’s decision to partner with AEG, the sports and entertainment giant, on the L.A. Live entertainment-hotel center in downtown Los Angeles. McFarlane invested $170 million in building the project’s 54-story luxury hotel and condominium complex, he said.
“Why we took the leap of faith is they’re creating something that doesn’t exist elsewhere and can’t exist elsewhere,” he said.
But even with a killer location, Vilkin said, developers can expect mixed-use projects to chew up more time and money than expected.
“It is not the same as building a residential project and a little retail over here, office over there,” he said. “When you mix it up, your costs don’t go up incrementally; they go up exponentially.”
“A lot of mixed-use projects that we get involved with are predominantly residential, but the other uses drive the site; they create the place,” Witte said. “That’s where the costs mount because there’s an inherent inefficiency to aligning these uses.
“Mixed-use projects get into the most economic trouble when one of the components is developed at a scale, quality, or cost level that requires other components to subsidize it,” he said.
Which is why right-sizing retail—and a lot of deep, detailed market analysis—is critical, the developers said.
“It’s all about the demographics and the competing products and the size of the market; how you can penetrate it and why your location,” Oliver said. “Then, you’ve got to do a whole analysis on food and the entertainment uses; they are all relevant today.”
In the current economy, mid-market and even some big-box chains are hurting, he said, but luxury retail has come back with a vengeance.
Still, however well calibrated or exquisitely designed its components, the success of any mixed-use project lies ultimately in its ability to draw and connect people, Oliver said.
“What works is life on the streets,” he said. “You can’t do it without people; they create the experience.
“We’re herd animals; we like to be together. We may pretend we want to run to the suburbs and get a house, but every day we come out and engage the world, and we want to be in and around people.”
