Certain trends are becoming apparent as more mixed-use developments emerge in the United States. A focus on walkability, smarter planning for transportation, affordable housing mixed with market-rate units, centers for gathering to create a sense of community, and a mix of commercial and office space, enabling people to know their neighbors and local businesses—much like the feeling of small-town living—are just some of the components likely to make mixed-use development more popular during coming years.
As society as a whole works toward a greener, more sustainable lifestyle, more and more mixed-use developments are being created in central locations near transit and with biking and walking paths, reducing the need to drive to work or run errands and enabling entire communities to be planned with multiple routes to major destinations.
A product type that is constantly changing to serve new residents, businesses, or retail tenants, mixed use continues to dominate new commercial and multifamily construction. Successful projects are usually located in dense urban or suburban areas, close to transit, and with a rental rather than for-sale residential component. There also is a trend to give architecturally significant buildings a new mixed-use identity. One niche market—especially at or near the edge of downtowns—is boutique class A office space catering to small business owners.
Given the demographic trends of recent college graduates and empty nesters wanting a more urban lifestyle coupled with low land and construction costs, mixed use will continue to meet certain consumer preferences, say members of ULI’s Urban Development and Mixed-Use councils. Lifestyle mixes have the most potential, with entertainment/lifestyle centers still working well. Residential space is definitely the driving force and market favorite. Until employment picks up, however, prospects will be limited. Near-term opportunities will probably be in “redeveloping and reprogramming existing broken mixed-use projects,” said one council member.
Opportunity capital is the most available form of financing for new mixed-use projects. A huge amount of equity capital is waiting to be invested, with some equity players more interested in becoming partners. Sales of operating properties are starting to take place at very high prices. The business model also is changing due to formation of public/private partnerships. Governments now are accessing complicated financial structures and new streams of federal dollars, while some are actually borrowing money from private developers in exchange for guarantees.
The recent recovery in demand for housing tax credits is expected to lead to more robust affordable housing construction, with demand for those tax credits now exceeding supply for the first time since the recession started. Projects built in part with tax-exempt bonds are penciling out, as are various workforce housing models in higher-cost markets. The U.S. Treasury Department’s New Issue Bond Program is helping keep project financing costs below market rates.
Speakers at the ULI 17th annual McCoy Symposium on Real Estate Finance see recovery remaining slow, with several more years of financial disruption possible. Unfortunately, asset prices rather than job numbers were inflated by the federal program of purchasing securities to provide liquidity to the markets. Loan-to-value ratios have increased from 50 percent to 60 percent. Small to medium-sized bank failures are slowing. Life insurance companies are becoming very active in Class A assets in cities such as New York and Washington, D.C., but the data have yet to show the overall effects of the lack of job growth.
Symposium participants predicted that the current situation in commercial real estate will last another three to five years—and that it could take ten years to produce the 10 million jobs needed to bring unemployment down to normal levels.
