Adding Retail to the Mix: vibrate) all cell phones, pagers, and … · 2009. 2. 25. · 1 Adding Retail to the Mix: Developing Mixed Use Residential Projects January 20, 2009 3:30

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Adding Retail to the Mix:Developing Mixed Use Residential Projects

Adding Retail to the Mix:Developing Mixed Use Residential Projects

January 20, 20093:30 – 5:00pm

presented by

Robert W. Cogan, AIA David BossartBartonPartners Bossart Builders

Before We Begin…

Please turn off (or set to vibrate) all cell phones, pagers, and electronic devices during the presentationpresentation.

Thank you!

Don’t Be Shy…

Please feel free at any time during the seminar to ask a question.

About the Speakers…

B b C D id B tBob Cogan

PrincipalNorristown, PA

David Bossart

PrincipalFlanders, NJ

Program OverviewFrom the drawing board to the pro-forma: considerations for your next mixed-use project•Defining the terms:

– What is mixed use?– A brief history of mixed useA brief history of mixed use– Why mixed use?

•Challenges and Considerations– Nuts and bolts – design issues– “This isn’t gonna work” – partnering for success

•Financing and Building the Project

What Is Mixed Use?

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Mixed Use vs. Multi Use Mixed Use vs. Multi Use

Some Elements of Mixed Use Development

RESIDENTIALTownhomes

Apartments

Condos

FLATS

NON-RESIDENTIAL

PARKING

MIXED USEDEVELOPMENT

Retail

Office

Entertainment

RETAIL

Residential and Retail: A Good Mix• Helps create a walkable and vibrant community

Residential and Retail: A Good Mix• Establishes an immediate “home grown” customer

base

Residential and Retail: A Good Mix

• Wise use of land: can take advantage of shared parking principles

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Residential and Retail: A Good Mix

• Mixed use IS the real green

Walmart’s experimental green storein McKinney, Texas features

the latest in environmental, sustainable design including concrete parking lots

and pervious paving.

Baldwin Park, FL.Buildings may not be LEED® Certified,

but shared parking is located behind buildings and local shops are within

walking distance of the residents.

Which might be more approvable in your community? Ultimately, which might be better for the environment?

Mixed Use Isn’t New…

Mixed Use Development: History• 19th Century Zoning allowed

for a variety of uses within a city block

• Almost all communities were mixed-useRetail needed to be within• Retail needed to be within walking distance

• Jobs needed to be within walking distance

• Mass Transit (Railroad & Trolley)

Chicago, 1900s

Mixed Use Development: History• Automobile has allowed us to

spread out and specialize uses• Zoning ordinances written to

minimize conflicts between uses

• Decline of mass transit results i d din more dependence on automobile

• Specialization and nationalization of retail industry

• Specialized developers evolved• Movement to regional malls,

“Big Box” power centers, and lifestyle centers

Why Return to Mixed Use?

Why Mixed Use Development?

• Revitalization of inner cities, urban fringe areas and suburban hubs signals responsible, smart and sustainable land use practices.

Mixed Use development = good land use practice

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Average Daily Car Trips

10.0

12.0

Daily

Mixed Use development, especially at walkable nodes along a transit system reduce single-

Mixed Use communities limit auto dependence

Why Mixed Use Development?

Source: Institute of Traffic Engineers, Trip Generation, 6th Edition, vol. 1 (Washington D.C.: Author, 1997).

Single Family

Detached

10.0

Apartment

6.3

0.0

2.0

4.0

6.0

8.0

Type of Housing

Num

ber o

f Trip

s Dsystem, reduce single-

trip car travel and enable alternative modes to the automobile; they reduce congestion on local streets, roads and highways

Why Mixed Use Development?

• Traffic congestion causes:– 4.2 billion lost hours– 2.9 billion gal. wasted fuel – $78 billion in lost

Mixed Use communities limit auto dependence

$productivity

– Annual estimated cost of congestion per driver:

• 38 extra hours of travel time• 26 additional gallons of fuel

consumed• $710 per driver

Source: Texas Transportation Institute: 2007 Urban Mobility Report

Why Mixed Use Development?

Roads haven’t grown to keep pace with increased VMT

Why Mixed Use Development?

• More diverse population

I d i t t i

Households by Type: 2003(Percentage of Total)

5.6

Married coupleswith children (23.3)

Married coupleswithout children(28 2)

Mixed Use is becoming more attractive to the marketplace

Source: U.S. Bureau of the Census, Current Population Survey, March; and Annual Social and Economic Supplement: 2003.

• Increased interest in Urban Living/ Inner Ring Suburban Lifestyle

• Lifestyle/ demographic changes– Here comes Gen Y…

5.6

15.2

11.2

16.428.2

23.3(28.2)Other familyhouseholds (16.4)

Men living alone(11.2)

Women livingalone (15.2)

Other non-familyhouseholds (5.6)

Trends Influencing Mixed Use Development

• Sprawl, sprawl and more sprawl…

• Lack of affordable real estate

• Increasing distances to employment, shopping, entertainment, etc.

Trends Influencing Mixed Use Development

• Increasing automotive congestion despite recent decrease in vehicle miles traveled

• Energy and fuel costs

• Renewed interest in mass transportation

• Reduced need for auto ownership - many cities have car share programs

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Trends Influencing Mixed Use Development

• Smart growth, sustainable design and green building initiatives

• Increased public and private i t t i i itiinvestment in inner cities, urban fringe areas and older suburban hubs.

• Increased municipal efforts to redevelop and revitalize underutilized urban and inner-ring suburban areas

Challenges and ConsiderationsWhen Combining Residential and Retail

Nuts and Bolts: Design Issues• Dimensional Issues

– Depth– Height

• Acoustical Concerns• Designing for Flexibilityg g y

– Multiple tenant types– HVAC Concerns

• Construction Materials• Entrance Identification and

Security• Entitlements

Dimensional Issues: Depth Challenges

• “Perfect” depth for retail: 80’ - 100’

• “Perfect” depth for multifamily residential: 68’ – 75’

• Potential Solution?Potential Solution?

Depth Challenge: Solution - Balconies Depth Challenge: Solution – Deal With It

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Dimensional Issues: Building Height

• “Perfect” height for retail:– Approx. 16’-18’ clear for national retailer– Can be in 12’ – 14’ range for smaller, boutique

retailer at certain locations• Issues to balance are:

– Zoning restrictions– Building code restrictions (relative to wood frame

construction)• Potential Solutions?

Height Challenge: Solution - Compromise

Height Challenge: Solution – Deal With It Acoustics: Sound Mitigation

• Retail establishments attract traffic in the evenings

• Can conflict with “quiet times” for residential tenantsfor residential tenants

• Potential Solution?

Acoustics: Enhanced Sound Mitigation Designing for Flexibility• Design retail space for

varied tenants– Allow for tenant turnover

• HVAC Concerns: “Herd” retail tenants to predetermined units– Restaurants require

enhanced ventilation: design end units with outdoor seating areas to attract restaurants to those units

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Designing for Flexibility• Design retail space for

varied tenants (cont.)– Design ventilation shafts

for interior retail units into the plan

– Residential unit plans t d tmust accommodate

shaft space

Construction Materials

• Much of mid-rise residential development is wood frame construction

• Retail industry more accustomed to heavier construction methods

• “Structural Gymnastics” - retail structuralStructural Gymnastics retail structural grid must be sized to accommodate residential loads from above

• Potential Solution?

Construction Materials

• Steel at retail level with wood framed residential units above

Entrance Identification and Security

Cutting Through the Red Tape: Entitlements

• 3rd Party Expert Endorsements

• Parking Solutions

• Loading/ Garbage Zones

Potential Challenges

• Unreasonable expectations from communities

• Poor planning in the past• Conflicts between uses

Fi i l• Financial• Environmental regulations• Marketing• Fear of reducing property value

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The Power of 3rd Party Expert Endorsements

• There are many smart growth award programs

• Many mixed use communities are eligible for these awards

• Projects don’t always j yneed to be built to be eligible

• Smart growth awards can help with public perception and also with entitlements

2006 DVSGA

Smart Growth Award

Meeting Parking Needs

• Ordinances often require 2 spaces per unit• Shared parking principles allow a reduction

to 1.5 – 1.8 spaces per unit• Need to balance shared parking while also

meeting resident needsmeeting resident needs• Potential Solution?

Meeting Parking Needs: Reserved Resident Parking Meeting Parking Needs: Reserved Resident Parking

Loading/ Garbage Zones

• Necessary “evils”• Want to minimize impact, but don’t overdo

screening• Potential Solution?

Loading/ Garbage Zones

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“This Isn’t Gonna Work”: Working Together

• There are real challenges to mixed use development, however…

• It is a trend that’s here to stay

• You need to consider…– Working with the Retail

Developer– Perfect Partnerships:

Business Issues

Working with the Retail Developer

• Despite challenges, the best way to ensure the success of your project is to partner with a retail developer (especially if this is your first mixed useif this is your first mixed-use project)

• For the best results, you must have an open partnership – no secrets

Perfect Partnerships: Business Issues

Handling the issues of…• Construction Costs – who

pays for what?• Utilities• Insurance• Financing• Condominium Issues

• Key terms are…Negotiation and Fairness!!!

Construction CostsVoorhees Town Center - Case Study• Steel – retail developer accepted larger burden due

to height requirement at retail level• Fireproofing costs split between both• Higher sound mitigation costs borne by retail

developer to retain flexibility of tenant spaces

Utilities

• You may not be guaranteed different service for retail and residential portions.

• Negotiation and fairness isNegotiation and fairness is the key!

Some Additional Thoughts…• Mixed use may make more sense for the retail

developer, but is still worth it for the residential developer as well

• Due to sound, noise, and smell issues, rental may be more preferable than for-sale units located over

ilretail– Vertical NIMBYism– Management of issues between retail and

residential tenants• Condominium issues

– Condo within a condo?

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Financing and Building the Project

MIX USEMIX USE--FINANCING & FINANCING & BUILDING THE PROJECTBUILDING THE PROJECT

by by DAVE BOSSARTDAVE BOSSARTSCGREA, CCRA, CTA, appraiser, builder & developer in SCGREA, CCRA, CTA, appraiser, builder & developer in

the New Jersey Market the New Jersey Market Bossart Builders IncBossart Builders IncBossart Builders, Inc.Bossart Builders, Inc.

Property Research AssociatesProperty Research AssociatesIndependent Dealer of Barden Commercial DivisionIndependent Dealer of Barden Commercial Division

JAN. 20, 2009JAN. 20, 2009973973--584584--6855 6855

www.bossartbuilders.comwww.bossartbuilders.com

TYPES OF PROPERTIESTYPES OF PROPERTIESRESIDENTIAL OVER OFFICE RESIDENTIAL OVER OFFICE

RESIDENTIAL OVER RETAILRESIDENTIAL OVER RETAIL

OFFICE OVER RETAILOFFICE OVER RETAIL

OFFICE MIX WITH LIGHT OFFICE MIX WITH LIGHT INDUSTRIAL/WAREHOUSEINDUSTRIAL/WAREHOUSE

CONDOMINIUM SALE VS. RENTAL INCOMECONDOMINIUM SALE VS. RENTAL INCOME

REQUEST FOR FINANCINGREQUEST FOR FINANCINGArea and market trendsArea and market trends--absorptionabsorptionOverall Concept & unique features that set Overall Concept & unique features that set project apart project apart

BackBack--up news articles with local & regional up news articles with local & regional data from Viewpoint, Black’s Guide, Costardata from Viewpoint, Black’s Guide, Costar

Color rendering or scale modelColor rendering or scale model

Resume and credibility of the developerResume and credibility of the developer

MIX USEMIX USE-- RESIDENTIAL TOWNHOUSES & COMMERCIALRESIDENTIAL TOWNHOUSES & COMMERCIALProject:Project: physical descriptionphysical description--type of construction, size, unitstype of construction, size, unitsArea:Area: area amenities, location, convenience, activityarea amenities, location, convenience, activityDeveloper:Developer: who you are, background and experiencewho you are, background and experience

Financing:Financing: Land Acquisition Land Acquisition $ 1,175,000$ 1,175,000Site Improvement Loan Site Improvement Loan $ 275,000$ 275,000Construction Loan Construction Loan $ 1,200,000$ 1,200,000Rate Requested Prime (plus 1% 1 point, 18 months Rate Requested Prime (plus 1% 1 point, 18 months

Bank Loan Total Bank Loan Total $ 2,650,000$ 2,650,000

Costs:Costs: Land & EngineeringLand & Engineering $ 1,300,000$ 1,300,000g gg g $ , ,$ , ,Site ImprovementsSite Improvements $ 250,000$ 250,000New Building Const. New Building Const. (@ $110./s.f.)(@ $110./s.f.) $ 1,700,000$ 1,700,000Includes Construction Management,Includes Construction Management,Interest, Fees, LegalInterest, Fees, Legal $ 100,000$ 100,000

Total Project CostsTotal Project Costs $ 3,350,000$ 3,350,000

Market ValueMarket Value $ 4,150,000$ 4,150,0008 residential townhouse @8 residential townhouse @ $ 425,000$ 425,0001 residential townhouse COAH @ $ 275,0001 residential townhouse COAH @ $ 275,0001 commercial unit of 1600 s.f. @ $ 475,0001 commercial unit of 1600 s.f. @ $ 475,000

Projected ProfitProjected Profit $ 800,000$ 800,000

Market:Market: Who will buy & why Who will buy & why Demographics of typical buyerDemographics of typical buyer

Loan to Value Ratio:Loan to Value Ratio: 67%67%

Sales Price:Sales Price: Final anticipated sales price is based on Final anticipated sales price is based on additional custom work providedadditional custom work provided

Disbursement:Disbursement: 1. Land Acquisition 1. Land Acquisition –– June 2007June 2007

2. Site Improvements 2. Site Improvements –– July 2007July 2007(excavation, driveway water line, septic)(excavation, driveway water line, septic)

3. Construction 3. Construction –– Aug. 2007Aug. 2007-- Nov. 2008Nov. 2008(foundation, frame & sheath, roofing, windows (foundation, frame & sheath, roofing, windows doors, rough plumbing, heating & electric, doors, rough plumbing, heating & electric, sheetrock, trim and interior finishing)sheetrock, trim and interior finishing)

Improvements:Improvements: complete spec and plan details, upgrades complete spec and plan details, upgrades from typical construction from typical construction

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LENDER PARAMETERSLENDER PARAMETERSquestions to askquestions to ask

Rate, term, points, Rate, term, points, Fees Fees ––legal, appraisal, budget & plan legal, appraisal, budget & plan

reviewsreviewsAdvance schedule Advance schedule

(inspections, % complete, cost to complete, retainage)(inspections, % complete, cost to complete, retainage)

Prepayment penalty/release payments per Prepayment penalty/release payments per unitunitConversion to a permanent mortgageConversion to a permanent mortgage

3 APPROACHES TO VALUE3 APPROACHES TO VALUE

1. Income approach 1. Income approach

2. Cost approach 2. Cost approach

3. Sales comparison approach3. Sales comparison approach

INCOME APPROACH TO VALUEINCOME APPROACH TO VALUE

Calculate potential gross incomeCalculate potential gross income

Consider:Consider:Vacancies & rent lossVacancies & rent lossVacancies & rent lossVacancies & rent lossLease up time Lease up time –– absorption absorption Credit of tenant & term of lease, renewals, Credit of tenant & term of lease, renewals, rent increases rent increases

Other income sources Other income sources (billboards, concessions)(billboards, concessions)

MARKET RENTSMARKET RENTS

Class of building A, B, CClass of building A, B, C

Adjust for age, quality, amenities, Adjust for age, quality, amenities, locationlocation

ConcessionsConcessions

Tenant fitTenant fit--up allowanceup allowance

EXPENSESEXPENSESHistory of propertyHistory of property

If new construction, compare expense data If new construction, compare expense data of existing properties of existing properties

Lease specifics Lease specifics (term, renewals, tax & other (term, renewals, tax & other reimbursements)reimbursements)

Common areaCommon area--lighting, landscaping lighting, landscaping

Needed capital improvementsNeeded capital improvements

Valuation AnalysisPrepared By: Dave Bossart

Analysis Date: 7/13/06

Property Address: 1044 Stuyvesant Ave. Irvington

Square Foot Area:Retail5,500 Retail

MethodSF Size

Pharmacy $2,271.00 $/Mo. 1 $27,252 20.20%

Restaurant $1,250.00 $/Mo. 1 $15,000 11.10%

Fish Market $1,900.00 $/Mo. 1 $22,800 16.90%

Chicken&Pizza $1,819.00 $/Mo. 1 $21,828 16.20%

Liquor Store $4,000.00 $/Mo. 1 $48,000 35.60%

Potential Gross Income (PGI): $134,880 100.00%

Vacancy and Collection Loss: 7.00% $9,442

Other Income:

Effective Gross Income (EGI): $125,438 93.00%

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Amount Calculation

Expenses $ or % Method Annual $/SFInsurance $4,000 Lump Sum $4,000 $0.73

Structural Repairs $2,000.00 Lump Sum $2,000 $0.36

R.E. Taxes $13,000.00 $13,000 $2.36

Maintenance $1,500.00 $1,500 $0.27

Utilities by tenant by tenant #VALUE!y y

Total Expenses: $20,500 #VALUE

!

Expense Ratio (Expenses/EGI): 16.30%

Reimbursable Expenses:

Net Operating Income (NOI): $104,938 $19.08

Capitalization Rate: 11.00%

Value: $953,985 $173.45

Rounded: $950,000 $172.73

COST APPROACH TO VALUECOST APPROACH TO VALUELand value Land value –– similar zoning similar zoning

Approval & permit cost Approval & permit cost

Site improvement costSite improvement costpp

Cost of building improvements Cost of building improvements (build new vs. existing)(build new vs. existing)

If existing, consider remaining useful lifeIf existing, consider remaining useful life

Consider physical depreciation, functional, & Consider physical depreciation, functional, & locational obsolescencelocational obsolescence

CONSTRUCTION BUDGETCONSTRUCTION BUDGETApplications Build. Permits/Fees 17,500 Legal Fees 4,500 Site EngineeringMechanical Engineering 9,450 Engineering-other 1,500 Special Insp Conc Samples Steel welds 3 500Special Insp. Conc. Samples. Steel welds. 3,500 Site Work (Water main & Hydrant) 212,000 Contingency for Blasting 10,000 Contingency for Dressing parking and Entrance Areas 6,000

Curbing 10,000 Sidewalks 5,157

Parking lot Paving 38,000 Parking lot Stripping & Signs 4,500 Retaining Wall 5,000 Foundation, Pre-Cast 28,892 MaterialsLandings & StairsWaterproofing sys.Landscaping 6,500 Irragation System 0 Construction Toilet / Trailer 1,344 Clean-up Garbage Cont. 4,125 Construction Mgt. 100,000 Misc Labor Clean-up 0 Building Structure 280,000

Erection/Framing 53,000 Steeple 450 Install Front/Side doors 0 Roof/Shingles Labor only 2,100 Re-roof existing Build. Labor & Mat. 2,800 Siding-Hardi plank & Siding Labor 2,430 Materials 3,400 Stone Face 6,900 Soffit & Facia L only 900 Gutters/Leaders 1,395 HVAC System 84,000 Plumbing System Includes Fixtures 52,000 Sprinkler System 62,000 Electrical System (Light Fixtures) 58,000

Fire Alarm Sys. 10,985 Fire Alarm Sys. Existing Bldg. 3,120 Insulation L & M 6,145 Drywall L & M 47,000 Elevator 35,000 Install Interior Doors & Trim Carpentry 3,950 Painting/interior 8,100 Vinyl Flooring 1,500 Carpeting 10,980 Bath Partitions 2,400 Railings L only 750 Phone System 2,500 Contingency 25,000 Total 1,234,773

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Sales Comparison ApproachSales Comparison Approach

Check actual similar building salesCheck actual similar building salesCostarCostarTax assessor recordsTax assessor recordsMLSMLS

Adjust for location, size, age, physical Adjust for location, size, age, physical condition, functional usecondition, functional use

LAND RESIDUAL TESTLAND RESIDUAL TEST

How much can you afford to pay for the land How much can you afford to pay for the land & still make a reasonable profit / equity for & still make a reasonable profit / equity for your risk?your risk?

LAND VALUATION157 Mt. Bethel Rd. Warren Twp., N.J.

1.51 acres

Final Income Approach to Value $ 2,090,000

minusLess Cost to Build (include profit & overhead)

minus -$1,400,000

Net Value Attributable to Vacant Land $ 690000

rounded to $700,000

PRINCIPAL OF SUBSTITUTIONPRINCIPAL OF SUBSTITUTIONInvestors will NOT commit to buy new if Investors will NOT commit to buy new if an existing property can be purchased an existing property can be purchased for considerably less in the marketplacefor considerably less in the marketplace

FINAL TESTFINAL TEST

Compare values indicated by the Compare values indicated by the income & sales comparison approach to income & sales comparison approach to the cost approachthe cost approach

Is the project feasible, profitable, Is the project feasible, profitable, sensible to build?sensible to build?

DATA SOURCESDATA SOURCESBlacks GuideBlacks Guide--office & industrial asking rents, rules of thumb for office & industrial asking rents, rules of thumb for leasing and marketing leasing and marketing www.blacksguide.comwww.blacksguide.com

Institute of Real Estate Management Institute of Real Estate Management –– Income & Expense Income & Expense Analysis ReportsAnalysis Reports--office, shopping centers, apartments office, shopping centers, apartments www.irembooks.comwww.irembooks.com

Costar groupCostar group for commercial sale comps for commercial sale comps www.costargroup.comwww.costargroup.com

Integra Realty for capitalization rates Viewpoint Report Integra Realty for capitalization rates Viewpoint Report www.irr.comwww.irr.com

R.S. Means Guide for construction costs R.S. Means Guide for construction costs www.rsmeans.comwww.rsmeans.com

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DATA SOURCESDATA SOURCESReal estate trends, cap, interest rates, Real estate trends, cap, interest rates, vacancy rates vacancy rates www.korpacz.comwww.korpacz.com

Urban Land Institute Urban Land Institute (planning & design trends)(planning & design trends)

International Council of Shopping Centers International Council of Shopping Centers pp gpp gwww.icsc.orgwww.icsc.org(Dollars & cents of shopping centers)(Dollars & cents of shopping centers)

Building Owners & Managers Association Building Owners & Managers Association www.boma.orgwww.boma.org (Measuring floor area)(Measuring floor area)

Market Area Profiles Market Area Profiles www.NICMAP.orgwww.NICMAP.org

DATA SOURCESDATA SOURCESOffice space market review Office space market review

www.mrofficespace.comwww.mrofficespace.com

Commercial Comparables Commercial Comparables www.loopnet.comwww.loopnet.com

Market view & research on office, industrial, Market view & research on office, industrial, retail properties retail properties

http://.mhttp://.marketview.realpoint.comarketview.realpoint.com

Appraisal Institute Appraisal Institute -- valuation coursesvaluation courses

MIX USEMIX USE--FINANCING & FINANCING & BUILDING THE PROJECTBUILDING THE PROJECT

by by DAVE BOSSARTDAVE BOSSARTSCGREA, CCRA, CTA, appraiser, builder & developer in SCGREA, CCRA, CTA, appraiser, builder & developer in

the New Jersey Market the New Jersey Market B t B ild IB t B ild IBossart Builders, Inc.Bossart Builders, Inc.

Property Research AssociatesProperty Research AssociatesIndependent Dealer of Barden Commercial DivisionIndependent Dealer of Barden Commercial Division

JAN. 20, 2009JAN. 20, 2009973973--584584--6855 6855

www.bossartbuilders.comwww.bossartbuilders.com

Questions?

Sustainable Handouts!For a copy of this presentation,

email nbenner@bartonpartners [email protected]

for instructions on how to download this seminar from the BartonPartners website