Mixed use property development became popular in the late 1990s and early 2000s due to reversal of single-use city planning tendencies. US cities have relaxed their zoning regulations that separated residential and commercial buildings. This allowed developers to cater to the growing demand for mixed use properties, explains — Mr. Frydman. Large scale multi-use properties are also increasingly advertised by municipalities as prestige projects to revitalize city centers and bolster cultural identity through the mix of cultural and commercial elements.
Demographic trends are a key driver for the rise in demand for mixed use properties. Maturing millennials (who are entering the property and rental market) and downsizing baby boomers are looking for dense urban spaces with access to transportation and services. In 2017, the National Community and Transportation Preference Survey found that 62% of millennials and 45% of baby boomers preferred “walkable communities” and shorter commutes when deciding where to live. Income is another important driver of preferences, with 41% respondents earning less than $50,000 per year citing access to public transportation as a key determinant of housing choices.
Constraints on land use also incentivizes the pursuit of mixed use projects. The more efficient use of land can decrease the environmental footprint of development by integrating energy efficient design, according to Jacob Frydman. Such projects are ideal for urban areas where space is already limited, such as coastal and island cities. Municipalities can reduce infrastructure costs by almost 40%, and operating costs by 10%, when servicing multi-use, compact properties versus larger lots. Although these developments tend to be harder to build and finance due to greater project complexity, their ability to provide higher returns compared to single use properties continue to attract developers.
Finally, considerable investment benefits support the business cases for mixed use developments. For investors, the combination of commercial and residential property diversifies the tenant base, reducing financial risk of operations. According to Deloitte, commercial tenants derive economic benefits from frequent and increased exposure to pedestrian traffic in a diversified development. Walkability, along with proximity to amenities, can command a premium in the urban property market and is correlated with increases in resale value. Moreover, research by real estate advisors HR&A reveals that companies are willing to pay premiums to operate in mixed used quarters. The higher quality of life is a pull factor for talent, enabling firms to retain a competitive edge.
Jacob Frydman is a property development expert and CEO of Frydco Capital Group with over 30 years of experience in structuring, financing, and executing highly complex real estate transactions. He has developed over 5 billion square feet of real estate on the east coast, participating in projects valued at $2 billion. Frydman has shared his knowledge as a property market expert on Bloomberg and CNBC, as well as taught on real estate finance at Columbia University and the New York Law School. A noted philanthropist, he is an active supporter of several charities, including the National Committee for Furtherance of Jewish Education (NCFJE), and The Brem Foundation. Frydman holds a Bachelor’s degree in Finance from Boston University, and a Juris Doctor from Case Reserve Western University.
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