Mixed-use projects such as Houston’s CityCentre—a 47-acre (19 ha) complex opened in 2009 that includes hotel, office, dining, recreational, and retail space—have the potential to transform urban areas and create long-term value for developers and investors. But as members of a panel at the 2015 ULI Spring Meeting in Houston explained, it is a lot trickier than it might seem to create a successful synergy of uses, at a time when demographic shifts are altering how people live and work.
“A lot of people think there’s a basic plan that you can replicate,” said Jonathan Brinsden, chief executive officer of Midway, the Houston-based developer of CityCentre and numerous other mixed-use projects. “But that’s not really how it works.”
According to Brinsden, developers instead need to focus on creating a place that will appeal to their intended market of residents, workers, and visitors. He identified two critical elements in that process. One is selecting the right variety of uses and design elements to give the intended users an enriching experience.
Related: ULI Case Study: Houston’s CityCentre
“I think you need three or more uses to be mixed use,” Brinsden explained. “A shopping center with a little bit of office space doesn’t really get at what mixed use is.”
Demographic shifts, such as the graying of the baby-boom generation and the rise of younger millennials with a differing set of expectations and values, require developers to think more expansively about what uses to include, according to the panelists. To Brinsden, that means branching out into uses such as education, senior living, and wellness, which he said included both exercise facilities and design that promotes a healthier lifestyle.
“When we talk about wellness, people often think fitness,” Brinsden said. “But wellness is a mental phenomenon as much as anything. Connectivity in communities is about wellness. We’re delivering walkable environments, where fitness can be a part of people’s daily lives.”
In addition, projects need the right visual and architectural mix, according to Brinsden, who noted that Midway typically uses three different architects in a development, and strives to replicate the eclecticism of an organic city environment. “Not everything has to look the same, just like in a downtown,” he said. “We try to create the sense of true urbanism, in an authentic way.”
Brinsden said that picking the right mix of uses—including anchors that set the tone for the entire project—is just as critical. “Early in a project, you have to set a brand identity or level of brand integrity,” he said. “You have to make sure every use fits that.”
At CityCentre, for example, the inclusion of the 255-room luxury Hotel Sorella, with its elegant Italianesque design and lavish amenities, established the project’s identity as a high-end environment, and enabled Midway to attract retailers and residents who were willing to pay a higher price. Projects typically have such a “secret sauce” that creates their identity, Brinsden said.
Brinsden was joined on the panel by Scott Johnson, a partner in the Los Angeles–based architecture firm of Johnson Fain, and moderator Peter Weingarten, a principal in the global design firm Gensler.
Johnson, whose firm has done numerous projects in Asia, said that the mixed-use concept has evolved into permutations that suit different cultures as well. For example, his firm designed the 35-story Leopalace 21 in Osaka, Japan, which has a dense, costly real estate market, to be a vertical mixed-use project, with separate layers of office space, luxury hotel suites, banquet space, restaurants, a spa, and branded condos.
For mixed use, “design must focus on what people need,” Johnson said. “It’s important to know how to mix your salad.”
While researching market demographics is crucial, Johnson emphasized that it is critical not to be driven by rigid preconceptions about generational needs and wants. He cited the example of a project that his firm designed in downtown Los Angeles. “We were targeting 25- to 35-year-olds,” he explained. “But the tenant surveys show that the average age is in the mid-40s.” He described what he sees as a “millennial drift,” in which some of that generation’s attitudes and preferences—such as the desire to live, work, and play in the same walking-scale neighborhood—are catching on with baby boomers and members of generation X as well.
Brinsden also cautioned that finding capital for mixed-use projects requires more ingenuity and innovation than less complex projects. “People want to flip in four years, but we’re telling them that the greatest value is over ten to 15 years.” In addition, because the execution of such projects is more difficult and office, residential, and retail markets have different timing, lenders see more risk, he said.
Brinsden said that Midway has coped with those challenges by finding different investors for various parts of a particular project, so that someone familiar with retail is behind that portion, while the residential is funded by a residential-savvy investor. “If you make someone who wants to be a multifamily residential investor into a hotel investor, that capital tends to get expensive,” he said.
The panelists said that they see a bright future for mixed use in a real estate market that they believe is still in the early to middle innings of a rebound. “I think we’re going to see more of it,” Brinsden said. He is particularly intrigued with the possibility of doing future projects in San Antonio, a growing Texas city that he said is “just now starting to think about urbanization.”