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What’s the Exact Calculus Behind Successful Mixed-Use Developments?

Just last Tuesday, the long-awaited revitalization of South Salt Lake City, Utah, made its ceremonious start. In between the applause and symbolic shovel-turning, Mayor Cheri Wood spoke excitedly that construction of a downtown center, known as the Downtown East Streetcar District, for the city of 27,000 residents had finally broken ground after it had first been proposed in 2016. And what’s kickstarting this new downtown? An eight-story mixed-use development known as “One Burton.” 

“We’ve always struggled from people not knowing that we’re a city. If we built a downtown, those types of developments would last 50-plus years,” said Mayor Wood at the groundbreaking. “The Downtown East Streetcar District is going to bring a lot of exciting people-centered growth to downtown South Salt Lake in the coming years and One Burton is a foundational part of putting that growth into motion.”

Clad in the ever-so-ubiquitous mid-century modern architecture, One Burton will house 180 apartments totaling 50 two-bedroom, 103 one-bedroom, and 27 studio flats. The development will also boast rooftop patios, a spa, and exercise centers, and 7,000 square feet of retail space for local eateries or stores when it opens in 2024. Developers are betting that One Burton will be the cornerstone of Downtown South Salt Lake City as an additional 12 construction projects are slated for the surrounding area.

Rendering of Salt Lake City mixed-use development One Burton. Source: The Salt Lake Tribune

But One Burton isn’t the only mixed-use development under construction, in fact they seem to be popping up everywhere. From New Braunfels, Texas to Atlanta, Georgia, mixed-use developments seem to be a hot real estate commodity for city planners looking to stimulate economic growth and revitalize their respective municipalities. Mixed-use developments are certainly experiencing a resurgence as the demand for buildings that mix residential, office, and retail space has skyrocketed. Over the last decade, mixed-use developments have made up more than nearly 50 percent of new commercial and multifamily buildings in the United States. 

In its most basic form, a mixed-use property blends two or more real estate categories, such as office and industrial space, or retail and residential space, all wrapped up in a pedestrian-friendly area. Since the pandemic accelerated the desire to live, work, and play in the same area, mixed-use developments have only become more topical. Even more so, the pandemic unequivocally showed that walkable neighborhoods are far more economically resilient than non-walkable neighborhoods. Brand-new data from JLL shows that this is especially true for office markets. However, it might be surprising to hear that mixed-use developments were once the norm, not the exception, for real estate until the early 1900s. 

At the turn of the twentieth century, mixed-use developments were functional buildings that allowed neighborhood shopkeepers, hardware store owners, and other businesspeople to run their operations while living upstairs in second-floor apartments. These structures also offer nearby inhabitants easily accessible retail items and services, then industrialization, zoning laws, and the development of superhighways showed up to ruin the party. But even with decades of change in technology and human behavior, the business case for mixed-use development still stands strong. Developers and landlords can better serve the businesses and inhabitants who occupy the space by mixing various property asset classes. Additionally, mixed-use buildings frequently perform better over the long term than single-use properties, with more stable income streams and robust overall returns…when they work. 

Mixed-use developments can be notoriously difficult to pull off thanks to the legal complexities involved. Any developer that has been involved in the planning process for a mixed-use development knows that they don’t always pan out. For all of their pros, mixed-use developments require a considerable amount of planning, capital, and legal gymnastics to sway city councils to redraw zoning regulations and allow tax rebates to defray construction costs, so the local and federal business climate needs to be just right. But even when they miraculously get the green light, there’s no guarantee that they will be as economically thriving as initially expected. Bumps in construction undoubtedly pop up, deadlines get pushed, and costs often accelerate, but that doesn’t even take into account issues that arise once the property is up and running.

Mixed-use developments come in many forms, but the most popular remains consistent with the mixed-use developments of 100 years ago: with apartments above and retail below. Higher-rise mixed-use buildings usually have office floors in the middle. It seems like a straightforward calculation, but oftentimes the math doesn’t translate, as the residents of Gainesville, the home of the University of Florida, learned the hard way.

While the residential units in the handful of mixed-use properties around UF are largely leased, the buildings continue to suffer from persistent retail vacancies. Some chalk it up as a symptom of the current economy and higher-than-normal asking rents for the area, but a report suggests that the leasing failure can be explained by design flaws that fail to engage patrons. According to Bill Hughes, a clinical professor and research director of the Kelley A. Bergstrom Real Estate Center, the Gainesville city code is not flexible enough to allow developers to build a mixed-use development with residential spaces on the ground floor and retail higher up in areas that make the most sense to do so. 

According to Hughes, the city insists on having front-facing retail along University Avenue, and while the current code permits things like a hotel lobby, office space, or retail, on the ground floor of mixed-use buildings, it doesn’t extend the same flexibility to residential dwellings. “One of the options does say that you can have outward-facing, first-floor residential units, but it turns out that you can’t do that on the main road,” Hughes explained. “The one thing we can tell is this persistent requirement to have front-facing retail under multi-family story residential is not successful. In fact, it’s creating a void and creating negative space, so I think there needs to be an alternative.”

Hughes is certainly not the only one who has a bone to pick with design structures of mixed-use developments leading to chronically empty commercial spaces. John Cumbelich, founder and CEO of the San Francisco-based commercial real estate services firm John Cumbelich and Associates, had a lot to say on the issue back in 2016 as the mixed-use craze was really taking off. “Brokerage firms like ours increasingly experience visits from exasperated multi-family developers who have realized that they have a mounting problem on their hands,” he said. “With growing concern, they see how the vacancy problem in their commercial portfolios is getting bigger and has no apparent cure.” 

Cumbelich later added that developers were scrambling to populate their empty retail spaces with makeshift leasing solutions. But Cumberlich didn’t see the flurry of mixed-use failures his clients were struggling with as a result of bad design, he saw it as a result of bad location planning. “The most important ingredient is missing—concentrated, massive, pedestrian populations.”

I reached out to Regina Myer, a master builder and President of the Downtown Brooklyn Partnership (DBP), a nonprofit development corporation that works in tandem with 3 business improvement districts in Brooklyn, New York. As of now, DBP manages a million square feet of public space across its improvement district’s partnerships and facilitates infrastructure development that makes communities thrive, and by extension, mixed-use developments tick. Myer was a pivotal figure in rezoning Downtown Brooklyn in 2004, leading to a more mixed-use-friendly neighborhood today, so she seemed like the perfect person to talk to about what makes the perfect recipe for a thriving mixed-use development. 

For starters, Myer doesn’t believe that a successful mixed-use development can be boiled down to a formula of how much of the property should be designated for a single purpose. “As far as retail-to-residential ratio, or anything along those lines,” Myer began, “There is never one right answer, and why should there be? That quotient will always be different depending on where the property is located.” For Myer, there isn’t a “typical,” universal ownership structure. Every mixed-use project has distinctive qualities, whether as a result of its design, intended use, or geographic location, just like every piece of land. 

While Myer stressed that the success of a mixed-use development wasn’t reliant on use percentages (or where those uses must always be located in the building), the real determiner of success of a mixed-use building boils down to two elements: access to mass transit, and an overall excitement for the public realm. 

For developers, what’s outside a mixed-use development is just as important as what’s inside it in order to ensure that the property lives up to its fullest economic potential. Myer told me that she and her team at DBP had managed to convince the city and the Public Design Commission to consider their ideas for rebuilding their streetscapes into more pedestrian-friendly public plazas that feature open and green spaces. Not only that, DBP’s streetscape reoriented vehicular lanes to ease standstill traffic and carve out space for bike lanes to diversify transit options.

DBP’s 2019 concept design for the renewed Downtown Brooklyn Streetscape. Source: DowntownBrooklyn.com

Myer was particularly proud to share with me that the new downtown standards that she and her team enacted were later used by Tishman Speyer for the streetscapes surrounding its residential skyscraper at 11 Hoyt. Currently, DBP is also working to incorporate their streetscapes into other developments, including the Brook, a 51-story skyscraper developed by real estate firm Witkoff and asset management firm Apollo. For Myer, energizing public spaces is the silver bullet that ensures real estate’s viability, especially for mixed-use buildings. “It’s really the increased connectivity that leads to the success of mixed-use real estate,” she said. In essence, a thriving public space makes the best business sense for a building designed to incorporate the public in some way.

Developers and potential owners can successfully design and run a mixed-use development by carefully taking into account what will take place both indoors and out. The project’s physical and functional integration with the public sphere is one of the most crucial aspects of a mixed-use development. A building’s implementation must aim to create a special synergy between the building’s location, design, neighborhood, and occupants. In reality, for the location of a building to be correctly activated, it needs to offer more room for pedestrian circulation, improve the public spaces next to the structure, and increase the connection between homes and businesses. Hopefully, South Salt Lake’s city planners have already envisioned this for One Burton, but I guess we’ll find out in 2024.

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