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Published October 2005 By: Bryan E. Powell, Lane Powell PC
Urban Redevelopment
Mixed-use, mixed environment
Portland, Ore., has been lauded by many as a model for urban renewal and mixed-use
development. There are several challenges to developing mixed-use projects and many
preliminary questions and competing priorities that need to be addressed. The Pearl District,
Belmont Dairy, Rose Garden Arena, Museum Place, University District, North Macadam
District and Beaverton Round are a few of the many past and future redevelopment projects
that come to mind in the Portland area. Some projects have succeeded, while others have
struggled. For those undertaking urban redevelopment projects, only one thing is certain:
there is no clear-cut recipe for success.
Urban redevelopmentespecially mixed-use projects is not for the faint of heart. Indeed,
some developers avoid these projects altogether. So why go through all the brain overload
and attempt a project that might fail? In order to answer this question, we must first peel
back the layers of the project "onion to understand whats inside.
A typical mixed-use project often consists of ground- floor retail with either housing or office
space above. In some cases, such as the Rose Garden Arena or the Beaverton Round, many
uses will be mixed together in one or more buildings at the project site. Some mixed-use
projects are not limited to uses within one building and may include entire neighborhoods
where different uses are mixed together in close proximity. Many planners see mixed-use
projects that have a housing component as an important factor in reviving decaying urban
and industrial areas.
Mixed-use sometimes gets confused with development objectives such as increasing
density, reducing the number of vehicles, creating localized employment, gentrifying urban
neighborhoods and providing dynamic living environments. In this sense, mixed-use is often
associated with terms like "smart growth, "new urbanism, "transportation-oriented
development and "traditional neighborhood development. Keep in mind, however, that
mixed-use is merely one possible component found in these development concepts.
Challenges in Developing Mixed-Use Projects
Most local municipalities and agencies are now encouraging mixed-use redevelopment.
Because of increased costs of this type of development, government agencies involvement
is necessary and their participation is often quite helpful. For example, incentives from
Metros transit-oriented development program, and various partnership arrangements with
the City of Portland or the Portland Development Commission, can allow development of
mixed-use projects that otherwise wont get done because of concerns about unfavorable
economic returns. For affordable housing components of mixed-use, subsidies can help the
financial returns for the developer and make a project more economically viable. Some
developers shy away from mixed-use because of the unpredictable economic return,
especially if governmental support and subsidies are uncertain, too expensive or
time-consuming to obtain. In short, mixed-used development often requires long-term
perspective, especially when trying to do it on a large scale.
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If governmental financial incentives are not available, sometimes government agencies may
include non-monetary incentives to encourage mixed-use, such as an increase of the floor
area ratio in the downtown zone for including a residential element, or permitting
neighborhood zones that make it a lot easier to build commercial and office services in the
neighborhood.
Another challenge in mixed-use developments involves market economics, which may
govern the predominant use for the project, such as office or multi-family. Some retail use
at the ground floor is often successful, especially when the demand is high. One rule of
thumb is that when it costs more to buy land than it costs to add vertical improvements,
then you build up.
Preliminary Questions for the Mixed-Use Project
So what are some key questions to ask before the project gets underway? Consider the
following:
What is the highest and best use for the property being considered for redevelopment?
How does it function in the context of everything around the property?
How can the redevelopment respond to changes in the neighborhood?
What needs in the neighborhood and region are currently unfulfilled?
What are the long-term prospects for the area?
What are the property owners needs and objectives, and how can the project meet or
exceed those needs and objectives?
What are the financial objectives (i.e., long-term income stream, income tax credits or
short-term profit maximization)?
How can the project achieve the highest returns with the least risk?
What are the financing constraints and objectives?
What are the critical paths and timelines to getting the project done on budget and on
time? There are, of course, numerous other questions that will need to be answered and
issues to resolve as the framework for the redevelopment gets underway. Constant tension
will surface as competing priorities become apparent, and as the parties attempt to answer
these questions and resolve pressing issues.
Competing Priorities
Portlands experience with mixed-use development shows that success is often determined
through balancing various priorities, be they legal, political, economic or social. By way of
example:
Sometimes a new city zoning ordinance that allows mixed residential and commercial uses
can trigger unintended consequences. For example, the high-density development touted by
city planners and transit types may sound like an excuse to build poorly constructed
apartments to skeptical citizens. The mixed-use development concept often resonates best
in run-down neighborhoods where the community is eager to see change.
The City often has to walk a fine line between encouraging mixed-use development and
saving the citys core industries. Usually, financial incentives such as tax breaks and bond
financing are required to jump-start mixed-use development projects. In some instances,
businesses are concerned that mixed-use development will actually reduce property values,
although most critics say that concern is unfounded.
Residents of newly built apartments often complain about the activities of nearby
businesses, which were probably established in the neighborhood long before the residents
moved in. For example, noise complaints are on the rise from nearby businesses and
residents who live in the Pearl District, as there is competition between trucks going to and
from the post office.
The changing dynamics of mixed-use projects often displace some businesses whose rents
become unaffordable as the property values skyrocket. Some find that their businesses no
longer match the residential complexion of the neighborhood.
On the other hand, some new property owners, developers and businesses often
successfully move in to cater to residents of mixed-use neighborhoods. In addition, bringing
residences into business districts frequently means more money is circulating through the
neighborhoods, and more people are around who are sensitive to reducing crime and
increasing activities at street-level in an area that might otherwise become blighted.
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As you can see from the above sampling of competing priorities, any number of challenges
confront the developer and planner proposing mixed-use projects, including added
complexity because of the multiple uses, restrictive zoning codes, increased construction
costs, difficult-to-obtain financing, wary equity investors and a lack of suitable locations.
Market acceptance of unique and tough-to- locate projects is another real concern for the
developer.
I have been involved in many mixed-use projects by representing developers with regard to
site acquisition, condominium planning, leasing, construction and permanent financing. A
few of these projects are Museum Place, Hollywood Library/Bookmark Apartments, and the
Belmont Dairy.
Museum Place Project
This unique mixed-use urban redevelopment is located in the west-end district of downtown
Portland. The project occupies an entire city block, includes an innovative two-story Safeway
grocery store, 140 mixed-income loft-style apartments, and parking for residents and
shoppers. The project is financed with tax-exempt and taxable bonds, municipal financing
and private equity. The Museum Place project is considered by many to be a landmark urban
redevelopment project for Portland and has received numerous favorable reviews in the
media and redevelopment community.
Hollywood Library/Bookmark Apartments Project
This project consists of a county library, a 47-unit mixed-income apartment complex called
"The Bookmark, located above the library, ground floor retail space and parking.
The library portion of the project was financed with tax-exempt general obligation bonds.
The housing portion was financed with tax-exempt revenue bonds, a conventional
construction loan, Portland Development Commission financing, federal low-income housing
tax credits and private equity.
Belmont Dairy Project
This mixed-use project in Portlands urban core has received regional and national
recognition as a model for in-fill and mixed-use development, and won numerous awards
including two Governors Livability Awards, the BEST Innovation Award and the Ahwanee
Award. The two-phase project includes 66 apartments, 30 townhouses, 19 residential lofts
and 26,000 square feet of retail space. The project involved rehabilitation, new construction
and also environmental remediation. The Belmont Dairy project used as much of the existing
structure as possible, saving half of the original dairy facility; recycled major building
elements; and incorporated Portland General Electrics EarthSmart standards. Funding came
from bonds, municipal loans, community development block grant funds and private equity.
With the right group of partners, focused positive energy and lots of creativity, these
innovative redevelopment projects can be successful.
Bryan E. Powell is shareholder and co-chair of the Real Estate and Land Use group at Lane
Powell PC. His practice focuses on commercial and industrial mixed-use development,
affordable and multifamily housing, leasing, acquisitions, sales, property management, and
private/public redevelopment projects, including finding creative financing solutions for
difficult-to-fund projects. He can be reached at powellb@lanepowell.com or
(503) 778-2189 .