A report prepared for the National Association of Industrial and Office Properties (NAIOP) examines the challenges to and the financial feasibility of mixed-use development, from a private developer’s perspective.
Challenges to Mixed-Use Development
NAIOP’s report cited several challenges to mixed-use development. Local governments need to work collaboratively with the private sector, economic development agencies, non-profit organizations, government agencies, and other entities to address:
- Coordination of planning, management, political patience, capital resources and risk
- Assembling land parcels
- Inadequate capital planning
- In sufficient knowledge of available public/private benefits
- Land use approval, permitting, and regulatory hurdles
- Environmental issues
- Need to work collaborately with planning agencies, the community, multiple development teams, and possibly multiple owners
- Transportation and infrastructure issues
- Design of a pedestrian-friendly environment
- Financing project costs and capital improvements for a multi-phased project
The Delaware Valley Regional Planning Commission’s (DVRPC) publication, Financing Mixed-Use Development in the Delaware Valley Region, discusses financing strategies that can be used by local governments to minimize development risk and uncertainties.
Success Factors for Mixed-Use Development
NAIOP’s report notes that financial feasibility is based on several factors, which may be difficult to measure. One factor is whether the return on the investment in a mixed-use development meets or exceeds the expected or the required return of the developer and/or the investor in the project. Other factors include the anticipated “success” of the project and the risks associated with investment and development. The financial success of a mixed-use development may depend on five factors:
Economic Factors– For a project to be a success, it must attract a significant level of market demand in its own right. A market analysis is critically important to assess the supply and demand for type the proposed multiple uses on the site.
Financial Factors – Because mixed-use developments generally require longer and phased-in development periods, it may be difficult to finance compared to a single-use project of a similar size. Mixed-use development may be inherently more expensive, have higher equity requirements, may be perceived as riskier to investors, and present challenges to share costs of operating, parking, common areas.
Physical Factors – A foremost concern for mixed-use development is whether the size, shape, and topography of a site is appropriate for the proposed project. Access to and egress from the site, connectivity to other land uses, access to multiple modes of transportation, and vehicle and pedestrian circulation systems are also critical factors for project success.
Design Factors – Developing a master plan for a mixed-use development, which considers parking management, is critical to the financial success of a project. The design of the development should blend with the character of adjacent buildings, respect the area’s history, and foster placemaking by creating authentic experiences and places to gather.
Public Issues – To minimize potential public opposition to a project, community members and stakeholders need to be engaged early and often in the mixed-use development project. Development plans need to highlight infrastructure and transportation use, economic benefits of the project to the community, regulatory challenges, conformance to zoning codes, and availability of developer incentives.