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| Discovery Green is an 12-acre urban park project pushed by the City that broke ground last year in downtown Houston, near the site of Houston Pavilions discussed in this article. |
As the availability of suitable, greenfield development sites in metropolitan areas become increasingly hard to come by, retail developers are turning to alternative sites and becoming more creative. This is perhaps best represented by urban infill developments underway across the country. In this article, CoStar explores factors that are driving (and also impeding) urban infill development with some of the leaders in the field. We also spotlight a handful of such developments across the country.
How is an urban infill development defined? Perhaps the best definition was stated in a report written by Carolyn Dekle, a director of the South Florida Regional Planning Council and Phyllis Mofson, a senior management analyst in the Office of Strategic Planning for the Florida Department of Community Affairs. "Infill development is the development of vacant or under-utilized urban sites," the report stated. Stressing the importance of such development to America's cities, the two described urban infill as "an important component of community redevelopment and revitalization efforts." The report went on to tackle the "host of impediments" infill developers face, some of which we will address later in this article.
Most sizeable urban infill developments today feature a mix of uses, are built vertically and designed to promote walkability. Such a development usually encompasses one or two floors of retail space including dining and entertainment tenants, upper floor residences and/or office spaces, and if possible, open green space for the public to enjoy.
Do these elements seem familiar? That's because it’s the same elements developers are creating in hundred-plus-acre plots of land in urban sprawl suburbs across the country, dubbed "live-work-play" communities. The main difference is obvious; urban infill developers are challenged to assemble parcels of developable land in dense urban areas and create environments that are just as, if not more dynamic, in much smaller spaces.
(Editor's Note: We hope to hear from a lot of CoStar Group newsreaders and will update the story with your comments regularly throughout the day. Tell us what you think. E-mail me at spardy@CoStar.com. Read excerpts from pertinent follow up comments at the end of the story as they are added.)
Let's not leave out the part the American consumer plays in demand for and the elements desired in urban infill development. We are increasingly busy and time-challenged. We demand convenience. We crave the new and exciting. All these factors come into play when assessing the appeal of mixed-use urban infill developments. The idea of being able to live minutes from where you work, shop and play, contained in a new, attractive and stimulating environment has become very appealing to millions of consumers.
Bill Denton, president and CEO of Los Angeles-based Entertainment Development Group, told CoStar, "Downtowns today have re-found themselves. I think baby boomers and their kids grew up in suburbia and both groups are growing tired of it. It's gotten old and its not exciting, so the dynamic has shifted downtown. It's the same reason developers in suburbia are creating 'main-street' developments."
Drew Greenwald, president of Grid properties echoed this sentiment, "I think we've seen a gradual shift over the past 20-30 years of people coming back to urban areas; they took a hit in the 70's and now are in a comeback phase. People are seeing the value of living the city."
A 2006 report by Research and Markets titled "Urban Living - Shopping and Spending Patterns in the United States" studied nearly 1,800 adults living in urban centers and compared the habits and opinions of those individuals to 1,000 adults representing the non-urban population. The report calls urban residents "a large and influential part of American society," and states that those people have a strong interest in shopping but often do it outside their cities, have disproportionately high spending on housing and apparel, and have strong ties to their communities.
The report goes on to conclude that urban areas represent a "strong opportunity for discounters and big-box retailers," but that developers and retailers are challenged by catering to a diverse population of consumers, and in addition, must not downplay the importance of being sensitive to the neighborhood and its residents' strong community ties.
Denton and Greenwald have been challenged with the job of proving to retailers there's money to be made by locating in urban infill developments. Denton said, "We have to educate retailers with what's happening now because they can't base their decisions on the past to have a viable operation." Greenwald used Harlem USA, Grid's 275,000-square-foot complex in Harlem as an example, "In Harlem it was nearly impossible (to get retailers to sign on) until we could show retailers the value in having 500,000 people in Upper Manhattan. Despite having high poverty, it still had the largest income density in the U.S. - something like $800 million per square mile; tremendous income density. That is a bigger driver of retail than anything else. You have to go a long way in the suburbs to get that kind of income." Greenwald further said that, income-wise, "suburban areas are being drained with shopping malls everywhere", so retailers and developers are recognizing the opportunity in creating retail projects in under-retailed urban neighborhoods where shoppers were before willing to drive one hour out of the area to get their shopping done.
Reza Etedali, president of Irvine, CA-based REZA Investment Group, a leading Southern California retail investment advisory firm with a multi-billion dollar transaction track record, has formed a division dedicated to urban infill retail. Called RIG Urban, the division focuses on "assets in the mixed-use, urban street retail and in-fill and ethnic marketplaces." According to RIG, the returns that can be achieved through retail regeneration, urban and mixed-use development can be greater than those of traditional retail uses.
In a recent CoStar article titled,
"Time for a Makeover: Retail Investors/Developers Pursue Redevelopment Over New Construction", Etedali told CoStar "A lot of developers rushed in during the 1990's buying at discount prices and repositioning centers. Then, cap rates started going down, which meant they couldn't make sense out of doing that anymore and focused on new development. Now they're getting to the point where new development is getting tougher and tougher; construction costs, land costs and availability, are all factors into owners and developers going back to buying what we call 'hidden jewels', diamonds in the rough."
(Editor's Note: We hope to hear from a lot of CoStar Group newsreaders and will update the story with your comments regularly throughout the day. Tell us what you think. E-mail me at spardy@CoStar.com. Read excerpts from pertinent follow up comments at the end of the story as they are added.)
What challenges do urban infill developers face that open space developers face less often? The previously mentioned Florida report clearly summarizes what Dekle and Mofson call "impediments" to infill development:
Difficulty in securing financing -- As much infill is targeted at urban areas subject to economic and building deterioration, banks and insurers often consider such developments risky.
Lacking or sub-standard infrastructure -- local governments inadequately investing in the maintenance or creation of urban infrastructure results in denial, delays, or high cost to developers wanting to build or re-build in such areas.
Regulatory / Legislative -- Dekle and Mofson state in the report, "we as a society have erected over time a myriad of structural features that subsidize "sprawl" development patterns at the expense of compact, community center-oriented development patterns." The report goes on to explain the challenges this has created for infill development including, assemblage of land for redevelopment, multiple and lengthy review and permitting processes, and undifferentiated impact fees. In addition, the report states that by requiring developers to assume the liability associated with cleaning up brownfield sites for redevelopment, developers often avoid such sites.
Attitudinal -- The report describes "widespread beliefs that infill areas are poor investments, dangerous, neglected, or, generally, 'someone else's problem," as "formidable barriers to local governments' urban redevelopment goals."
Dekle and Mofson conclude with several solutions for such impediments. In addition to the need for government to improve infrastructure and loosen restrictions, they believe that public education is necessary to show that well-executed urban infill development can lead to "building cohesive communities" by including green space and creating pedestrian friendly environments. The two believe that urban infill has the most promise for success when public and private entities join together to create master plans for redeveloping urban areas.
SPOTLIGHT ON: Houston Pavilions
Located in Downtown Houston, Texas; bounded by Dallas St. to the north, Polk St. to the south, Main St. to the west and Caroline St. to the east; an $170 million, multi-level, mixed-use development is underway. Houston Pavilions broke ground February 2007 and at its delivery in October 2008, will be comprised of 360,000 square feet of retail, dining, and entertainment space; 200,000 square feet of loft-style office space; a central courtyard; and an 1,525-space parking garage, all connected by a pedestrian skybridge on the second floor.
The project's impressive list of tenants already includes a House of Blues restaurant and concert venue, a two-level Books-A-Million, Forever 21's first urban flagship store, upscale bowling outfit Lucky Strike Lanes, Lawry's, McCormick & Schmicks, a Jazz Café, BCBG Max Azaria, and more. The retail space is 50% pre-leased and in proposals are in on 75% of the office space, which just recently were put on the market for lease.
Houston Pavilions is being brought to life by co-general partners Bill Denton, president and CEO of Los Angeles-based Entertainment Development Group (EDG), and Geoffrey Jones, president of Texas Real Estate Fund. Buchanan Street Partners of Newport Beach, CA is the project's main financial partner. The project is modeled to echo the effect Denver Pavilions, which EDG was responsible for creating in downtown Denver, has had on Denver. EDG describes Denver Pavilions (a 350,000-square-foot retail / entertainment project) as "downtown Denver's premier entertainment and retail complex, widely acclaimed for changing downtown Denver overnight. USA Today called it 'the place to see and be seen' in Denver."
Commenting on the retail portion of Houston Pavilions, Denton explained why the project isn't being delivered in phases, "We knew for the retail to be successful, we needed to create critical mass. Retail is the most difficult component to bring back to downtowns; it can't be done storefront-by-storefront and if we had done it in phases, it wouldn't be successful." Further Denton said it was a rare opportunity to acquire four contiguous blocks that didn't require assemblage or eminent domain. The group realized the site lent itself to the ability to create a project with critical mass, "large enough to mean something." He said that factor, along with bringing on exclusive, new, and special tenants to the metro area in an attractive design would create a destination for people to "see and be seen."
In discussing the intensive public-private cooperation involved in bringing Houston Pavilions to fruition, Denton told CoStar the group put the site under contract in January 2004, then three surface parking lots and a multi-level parking garage sitting on just over 4 acres, and the project has evolved ever since. "We originally planned for a hotel/condo component, but at the time, the city was just finishing off convention center hotels and hotel occupancy was only 52%; now its difficult to find a hotel room in Downtown Houston. So, we changed the plan into two residential towers, which stuck until 12 months ago. Demand on the residential was tremendous, but because of the mixed-use and density, we would have had to do subterranean parking, which blew the economics of the residences out of the water. So now its 200,000 square feet of office space, and based on demand for that so far, I wish we could do 400,000 square feet."
Denton went on to say, "if the city government doesn't share your vision, doesn't look at you as one of the most important to the city, it almost never happens. In Houston, the beauty of it is that we're the last piece of the puzzle in achieving the city's goal of downtown vibrancy." Explaining that Downtown Houston has the growing residential population critical for an urban infill project like Houston Pavilions, Denton said, "If you had told me ten years ago people would be moving to downtown Houston, I wouldn't have believed you; but now people have moved and are moving because of infrastructure improvements, the convention center, stadium, etc."
When asked about his history and commitment to urban infill, Denton said, "I headed development for Westfield for many years. They were pioneers in urban infill - while so many were looking out into suburbia to build malls, Westfield was looking at infill to expand and modernize what had become tired. Making profit is #1, but It's also very special when a developer has an opportunity to have a major impact on a downtown." When asked if EDG would keep doing urban infill projects, he said "this could be my last one, I am so tired." He doesn't rule it out, however, saying "we think outside the box and if we continue to do things, will try to be different."
(Editor's Note: We hope to hear from a lot of CoStar Group newsreaders and will update the story with your comments regularly throughout the day. Tell us what you think. E-mail me at spardy@CoStar.com. Read excerpts from pertinent follow up comments at the end of the story as they are added.)
SPOTLIGHT ON: DC USA
DC USA is a 540,000-square-foot retail complex underway in Washington, DC on the west side of 14th Street between Park Road and Irving Street in the neighborhood of Columbia Heights. In an area long-blighted by riots of the 1960's, DC USA is scheduled for its grand opening in March 2008, when an 180,000-square-foot, two-level Target will open its doors. The project also includes an 1,000-space parking garage and 360,000 square feet already 75% pre-leased to retailers including Bed Bath & Beyond, Best Buy, Marshall's, Washington Sports Club, Staples, Children's Place, Radio Shack, Payless, Lane Bryant, Mattress Discounters, Caribou Coffee, Panda Express, Quizno's, Maggie Moo's, and more.
Built on not quite five acres, the three-story building is designed with ground floor entry for specialty retailers and restaurants, a unique core element that takes shoppers off the ground and to second floor to the bigger retailers, a transparent design element to interest and ease shoppers, is pedestrian friendly, and is located adjacent to a new subway station.
The project's developers, New York City-based Grid Properties and Gotham Developers, estimate DC USA's trade area to include more than 275,000 residents living within a three-mile radius; 7,300 employees and 15,800 students at nearby Howard University, Catholic University and Trinity College; 15,000 employees and more than 1 million patients who visit the area hospitals annually; and thousands of commuters who pass by on a daily basis.
Drew Greenwald, president of Grid Properties, told Costar about the extraordinarily long development process for DC USA. Seeing it as an "under-utilized" site in an area with very little retail, Gotham and Grid acquired the land from the District as the winner of an RFP seven or eight years before DC USA broke ground in 2006. Our interest fueled interest from other developers to acquire other sites in the area. "We went through a long, long, long process of approvals, even though 95% of people were in favor of the project," said Greenwald.
An unusual and long-time challenge the developers faced on DC USA was getting old alley-ways, that were mapped in the revolution, closed by Congress. In addition, tax increment financing took three years. "There's a lot of regulations in an urban setting, likewise, Washington is heavy in its rules of bureaucracy, but we got through it," said Greenwald. He went on to say that Columbia Heights has experienced a resurgence and now looks like a nice urban neighborhood with renovated housing, new retail and better infrastructure.
Greenwald commented on his history in urban infill and what he sees for the future, "back in the mid '80s we thought urban areas were significantly underserved markets, and it wasn't until the '90s these projects panned out for us. We felt very strongly that if you look ahead 20 years, the place you're going to see development is the place there's no development. In looking ahead, and knowing urban areas well, we could see the people had to go a long way to get the things everybody else had at their fingertips. That's what started it and then we realized it's going to be much bigger than we thought. You're going to see urban infill retail development for the next 20-30 years. Just like they didn't run out of places to build shopping malls for 30 years, they won't run out of places to build urban retail."
(Editor's Note: We hope to hear from a lot of CoStar Group newsreaders and will update the story with your comments regularly throughout the day. Tell us what you think. E-mail me at spardy@CoStar.com. Read excerpts from pertinent follow up comments at the end of the story as they are added.)
COMMENTS FROM READERS:
I read your article about downtown re-urbanization with mixed use projects and found it to be an excellent read; especially for investors and lenders. Inspite of the temporary credit log jam on Wall street, Main street is demanding village style living in Downtowns, equaling less commute, strolling in your own neighborhood, make a friend, and interacting with NEIGHBORS!
In Fresno, CA, even Donald Trump is scouting for opportunities in revitalizing downtown. He has been in and out of Running Horse (PGA approvd golf course just west of downtown Fresno) and is also looking for a downtown Fresno hotel site for a Trump Hotel.
Boston Capital's Chris Cummings and Brian Glover are working on "The Legacy" mixed-use project for downtown; Forest City Development is working on a shopping and residential project, called "South Stadium"; and Penstar's Tom Richards is approved to build $100M Emergency Management Center in Chinatown.
This town is getting exciting.
Best,
Edward Chia
Partner
Tiara Investments, LLC
This is an excellent roundup with useful insights, and your conclusions align with my urban and suburban experience. I look forward to future coverage of this timely topic.
Regards,
Chris Maietta
Vice President of Business Development
Combined Properties, Inc.
I was encouraged by this article. Here in Columbus, Ohio we have a project that is exactly this: an urban infill. Called Jeffrey Place, it's actually the largest Columbus has had in a long, long time.
The former mining site is located right downtown, and is a 41.5 acre plot that has laid vacant for over a decade. Now a Columbus developer, National Community Builders, has developed a master plan including over 1100 residential units, along with 4.5 acres of dedicated public green space, 200,000 sq. ft. of retail and office space and structures dedicated for a grocery store, a 16,000 sq. ft. fitness center and ample parking.
The project has encountered some of the obstacles your article mentioned, including poor local government assistance and lack of media recognition. Which is surprising given it's innovative mission.
But politics will be politics. And the consumer response has been overwhelmingly positive!
It's always great to see other cities with similar projects. If more downtown areas could utilize their space better, our nation's cities would thrive like our European neighbors, instead of suffer under the weight of the energy crises and slow real estate markets. With the proper planning, like in these urban infills, economies all over America could flourish!
Sincerely,
Laura Recchie
Associate
Community Building Partners
Columbus, OH