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Mixed-Use Developments Present Challenging Opportunities for Managers

February 15, 2019 | Nancye J. Kirk

By Nancye J. Kirk

The mid-2000s saw a boom in mixed-use developments throughout the country. And that boom is continuing as more and more developers see the benefits of bringing residential and non-residential uses together in a single community and, in the process, diversifying investor risk. The reasons for the popularity of mixed-used developments (MXDs) are many, with walkability topping most lists. Simply put, whether they live in the suburbs or in the urban core, Americans are showing a strong preference for neighborhoods that enable them to easily walk from their homes to grocery stores and restaurants or movie theatres—and even to their jobs.

The retail component of the community plays a critically important role in creating vibrant—and ultimately successful—MXDs, and requires specialized management know-how. As Richard Muhlebach, CPM, and Alan Alexander point out in their new second edition of Shopping Center Management and Leasing, managing, leasing and marketing the retail component can be complex, and the real estate manager who assumes these responsibilities must have specialized knowledge and experience, which is key to maximizing the benefits of the retail component. Simply having retailers and restaurants in an MXD will not ensure retailers’ success. The location of the MXD, its design and the integration of the retail component, coupled with the right retailers and restau­rants for the trade area, are essential criteria for success. The retail piece must be designed for high visibility, provide good signage, and have convenient walkable areas from the parking lot.

The authors go on to explore the different approaches to the management structure of MXDs. They point out that a small MXD is likely to have one manager responsible for the entire development. A large MXD with single ownership may have a general manager responsible for the entire development and separate managers with property-specific skills, experi­ence and knowledge for each use—e.g., a retail or shopping center manager, an office building manager or an apartment manager. If a hotel is a component of the MXD, it will have  separate management due to the unique nature of managing hospitality activities.

The synergy created by the multiple uses is nurtured by the cooperative management and marketing of each property type, note Muhlebach and Alexander. One major challenge to coordinating the management and marketing is that individual buildings or portions of buildings may be under different ownership. The size and scope of many MXDs reduces the likelihood of single ownership. In a large suburban MXD, the regional mall may have been built by one developer, the office buildings by a second developer, and the residential component by a third developer. A convention center or other public facility in an MXD may be owned by the city or public agencies. A development company may sell some or all of its buildings to one or more investment groups.

In such multiple ownership situations, the individual owners are likely to be responsible for managing their own buildings, or they may contract separately for real estate management services. However, the property owners will usually agree on central management of the common areas, especially if some facilities—e.g., mechanical and heating, ventilation, and air conditioning equipment (HVAC)—are shared, which may be the case if the entire MXD is located in one or two high-rise buildings. To accomplish this, the owners may enter into a formal management among themselves for the joint common facilities. Management of the common areas and facilities may be assigned to one party and include responsibility for security, maintenance, design approval, HVAC and utilities services, and financial accounting for these facilities.

What’s the ideal management structure? Muhlebach and Alexander conclude by saying that from a real estate management perspective, the ideal arrangement is to have the entire MXD led by one management—the only exception being when a hotel is part of the development, which would warrant separate management.

Nancye J. Kirk is chief strategy officer at IREM and helped oversee the production of the newly-released second edition of Shopping Center Management and Leasing by Alan Alexander and Richard Muhlebach, CPM

 

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