LATTE LOVERS, BEWARE. AFTER STARBUCKS closed 600 stores last July, mixed-use developers and owners began to eye their pro formas with uncertainty. Their conclusion? Thanks to today's flat-lining economy and shrinking commercial capital options, caffeine-addicts will have to search high and low to find their daily fix. Indeed, commercial vacancies are on the rise—several major retail chains announced store closings in 2008 and into 2009. That's left those in the business of delivering mixed-use projects working harder than ever to recruit and retain retail and office tenants.
Coupled with plummeting home prices that have taken renters out of the market in some areas and cash crunches that might make moving less desirable in others, this mixed bag of factors presents quite the conundrum for multifamily developers and owners trying to lease up mixed-use properties. Here are five strategies MULTIFAMILY EXECUTIVE gleaned from industry leaders on how to handle mixed-use occupancy and structure leases in this challenging market.
1. FOCUS ON ADDED VALUE. Though a competitive location will never go out of style, in today's market, what's happening on the inside is as important as what's going on outside. High-end finishes and fixtures are nice, but residents today are looking for more than just luxury. Cost-savers, including on-site gyms and amenities such as green appliances and features as well as access to public transport, are rated just as highly now.
Satori, South Florida's first eco-friendly apartment community, draws residents possessing a green mentality. But the appeal doesn't stop there. Amenities that were once marketed as “luxuries” at the Boca Raton, Fla.-based Altman Cos. 279-unit property are now billed as cost-savers, making them even more appealing to budget-conscious residents.
“We offer fully equipped fitness centers, cafés with flavored coffee, cyber cafés with free high-speed Internet access, WiFi within the clubhouse and common areas, entertainment pavilions with large, flat-screen televisions and grills, and a swimming pool and hot tubs,” says JeffCohen, Satori's residential property manager. “These amenities eliminate the need for a fitness center membership, pool membership, and Internet access expense, and offer a cost-friendly alternative to entertaining guests. We reduce tenants' expenses and save them money.”
Another example: Dallas-based Hughes Development's Mockingbird Station, the Big D's first mixed-use project built around a rail-based, multi-modal transit station. “We're using changes and trends in consumer behavior—such as where we live, how we commute—to our advantage,” says Pam Baker, Mockingbird Station's general manager.
The project attracts residential tenants who like the location and the cachet of doing the “right thing” for their wallets and the environment. And commercial tenants love the high traffic from commuters and residents.
For commercial clients, flexibility has become really important. “Now that the economy isn't in the best shape, make sure units are flexible,” says Scott Morrison, senior vice president for Irvine, Calif.-based Legacy Partners Residential. “You want to be able to subdivide space, so make sure you have enough doors. For instance, in a 10,000-square-foot retail component below an apartment building, I'll put in 10 doors for 10 1,000-square-foot bays. That way, people can still take one-and-a-half spaces. If you don't have the doors, you can't subdivide. For a lot of retailers, it's about how much rent they have to pay. If you can lower the square footage, you can lower the absolute rent.”
2. BE GENEROUS WITH YOUR CONCESSIONS. In a bad economy, dark units jangle the nerves of potential residential and retail tenants already worried about foreclosures and bankruptcies. “You don't want space going dark, so you have to give tenants some kind of concession because of the times, even if it's just temporary,” Morrison notes. Legacy is currently developing 7950 Sunset, a 183-apartment, 13,000-square-foot retail project in the heart of Hollywood, Calif. The project is already 60 percent leased.