Commercial real estate investors often specialize in certain types of properties, developing expertise in apartment buildings, retail, parking and more. The mixed-use development, involving components of all of the above, can therefore pose some special challenges. They’re often larger investments that require planning, risk and steep buy-in costs.
This doesn’t mean mixed-use development isn’t a worthwhile investment. On the contrary, these projects have seen a boom in demand in recent years thanks to a growing desire for walkable and amenity-filled communities. Real estate developers with a strong vision and resourceful approach can craft a mixed-use property that reaps benefits over time. Here are a few ways to make the most of this investment opportunity.
Location, Location, Location
Real estate investors know that location is always key to a winning project. Finding the right property in the right place is essential to the success of mixed-use development. Many developers find success with regionally-focused projects, drawing on local connections to fund development and engage the community in new retail and housing opportunities.
Some of the most popular centers for mixed-use development today are in the suburbs. While urban centers certainly lend themselves well to the kind of walkable, multi-use community these projects help create, more and more people are looking for non-traditional living opportunities outside the city center as well. Real estate investors also have the benefit of more available land or existing properties — such as abandoned big-box buildings — to use for development in these regions.
The perfect location will ideally take advantage of local transit so the development is truly walkable. This way, developers can integrate parks, sidewalks and other amenities to create a vibrant community feel. This also sustains the development over time so retail tenants can benefit from foot traffic and neighborhood support. While parking is an important component of mixed-use property, a location that relies too much on highway access will likely not lend itself well to a modern living environment.
Finding the Right Tenants
Real estate developers must be prepared to secure commercial tenants that will allow the development to thrive. This can be complicated, since management teams will need to communicate to both residential and commercial tenants and manage their needs over time. Make the task easier by finding good fits in the early development of a project.
Diversity is key. Residents will value restaurants and local retail so they can easily access small businesses. Creating office space, including co-working spaces, can also help develop a property and offer good marketing opportunities for companies. Gyms and grocery markets are also key to an all-inclusive living community.
Developers should also make sure spaces are affordable enough to support the kind of small, upstart businesses residents will be excited about. This might mean choosing to invest in a few smaller storefronts rather than relying on one larger tenant to keep the development afloat.
Take Over an Out-of-Date Property
Feeling overwhelmed by the idea of planning, constructing and designing a completely new development? Some investors have successfully taken over abandoned or outdated commercial properties and transformed them into mixed-use communities. Urban and suburban centers are filled with dying shopping complexes, unused school buildings and out-of-business warehouses that are in need of revitalization.
The first step to this type of project is surveying local opportunities with an inspection team. Properties that are out-of-use but still in reasonably good condition will be ideal in order to reduce the expense of remediation. Some crucial considerations are:
- Do zoning laws allow for conversion into a mixed-use property?
- Will the commercial roof need to be repaired or replaced? Years of standing water, storm damage and weatherization can create leaks and tears that pose risks to building integrity.
- Is the retail or commercial part of the property ready for modern business needs? Mixed-use means that living spaces and shopping spaces will need to peacefully coexist. Updating features to incorporate noise-absorbing flooring, windows that allow for retail displays and other touches will make all your tenants happier with the arrangement.
- Can the property be retrofitted to create energy-efficient heating and cooling solutions? This not only decreased operation costs, but it allows green development to be a marketing point for the investor.
Design a Good Living Experience
Finally, investors will need to keep the residential component of the development in mind. Securing leases or home purchases will be crucial to overall success. Designing apartment units or condos with attractive features and accessible amenities will add appeal for the types of people most interested in non-traditional housing options.
The most popular community amenities today are pet-friendly housing, on-site (or in-unit) laundry facilities and fitness centers, among others. The benefit of mixed-use development is that investors can build these features at scale and know renters and homeowners will pay more to access them.
Strike a balance between top-of-the-line living and affordable housing. Creating market-rate housing will help you secure residents consistently and still drive profit for the initial investment. Unless you know you’ll be building in a competitive, high-cost market, it’s best to meet the community where it’s at and offer a truly competitive alternative to single-family homes in suburban regions.
Are Mixed-Use Developments Worth the Investment?
Mixed-use developments can be a challenging proposition. Investors have to manage a large-scale project complete with design and construction, market to a broad range of commercial and residential tenants, and secure financing to keep the vision afloat. This doesn’t mean it’s not worthwhile, of course — a successful and community-oriented investment can drive profits for years to come.
Real estate investors should create a thorough game plan and be prepared to market the benefits of a truly vibrant, walkable community in order to gain support. Keeping location, tenants and revitalization in mind will help drive success.
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