Bay Area Economics

baeBay Area Economics

Plowing New Ground:

Economics of Mixed-Use

Projects in Greenfield

Settings

SACOG Monthly Planners

Seminar SeriesApril 27, 2005

                 

             Graphic courtesy Fletcher, Farr, Ayotte

Bay Area Economics

baeBay Area Economics Economic Issues

Mixed Use Is Contrary to Business As Usual

Need more examples of successful projects

The market still rewards single-use projects

Mixed Use Can Be More Complicated

Can take longer to develop

May be incompatible with existing zoning

Investors and lenders may consider mixed use more risky

Bay Area Economics

baeBay Area Economics Economic Realities

Vertical mixed use buildings can cost more than single-use buildings.

Horizontal mixed use projects represent a “first step” in a progression towards true mixed use

Mixed use requires a developer to have skill in developing multiple land uses.

Current Sacramento economics are such that structured parking is typically not feasible, limiting density.

Current economics can favor single-use, but mixed use projects must compete with single use projects for land.

Bay Area Economics

baeBay Area Economics Encouraging Signs

The market is starting to respond

“New urbanism has definitely been mainstreamed.” – Urban Land Institute, Emerging Trends in Real Estate, 2005

Elsewhere in the U.S., advocates are starting to find that mixed-use projects command lower cap rates than single-use projects.

Local developers see mixed-use as desirable

Elliott Homes: Villages of Zinfandel

Opus West: Promenade at Natomas

Summit Commercial: Parks at Southport

Bay Area Economics

baeBay Area EconomicsThe Parks at Southport

West Sacramento

Bay Area Economics

baeBay Area Economics The Parks at SouthportWest Sacramento

graphic courtesy of Fletcher, Farr, Ayotte

Bay Area Economics

baeBay Area EconomicsThe Parks at Southport

West Sacramento

graphic courtesy of Fletcher, Farr, Ayotte

Bay Area Economics

baeBay Area Economics Promenade at Natomas

graphics courtesy of Opus West

Bay Area Economics

baeBay Area Economics What Brings the Market to Mixed-Use?

Competitive rates of return

Realization that mixed use adds value Complementary uses mean higher rents

Supportive planning policies (i.e., ease of entitlement)

“Encouragement” from local government

Consumer Demand Demographic shifts (e.g., aging of population resulting in

empty-nester households) 2004 P.P.I.C. survey of Californians found 48 percent would

prefer to live in a mixed-use neighborhood instead of a residential only neighborhood, if it meant they could walk to stores, schools and services

2004 study by Metro Atlanta Chamber of Commerce found that 1/3 of suburban Atlantans wanted to move to more dense, mixed-use neighborhoods)

Bay Area Economics

baeBay Area Economics What Do Users Want?

What Do Residents Want? Sense of community Convenience to everyday activities and services Security and privacy Willing to make trade-offs on home for community

amenities

What Do Retailers Want? Visibility and access Environment that reinforces their “brand” Synergistic co-tenants

What Do Office Tenants Want? Accessibility to employees Convenient support services Location that fits their image

Bay Area Economics

baeBay Area Economics Key Project Ingredients

Realistic mix of uses Must tailor each component to market support

Phasing and Flexibility Phasing can assist with financing and also allows

project to be built according to market demand

Understand how project fits with surrounding trade area Target unmet niches Complement; don’t compete with other development

Utilize existing community assets Existing homes, parks, schools, shopping,

employment centers build synergy and add value

Bay Area Economics

baeBay Area Economics

Contact:

Matt Kowta, M.C.P.

Principal

Bay Area Economics

Sacramento Region Office

803 Second Street, Suite A

Davis, CA 95616

Phone: 530-750-2195 phone

Fax: 530-750-2194 fax

E-mail: mkowta@bae1.com