Read the section "Analyzing Market Potential for Mixed-Use Projects" on page 200. Identify and discuss some of the challenges for market analysts when preparing a mixed-use market study for a building like the First Security Center.

The First Security Center is a high-rise building in the River Market District of Little Rock, Arkansas. It has a height of 190 ft (58 m) with 14 floors.

The 168,000 sq ft (15,608 sq m) building has the 120-room Courtyard by Marriott Downtown Little Rock Hotel on floors 1-6.

Bank Retail on floor 1.

Office space of floors 7-9.

24 condominium units on floors 10-14.

The building was constructed from 2002 to late 2004.

\fAnalyzing the Market Potential of Mixed-Use Projects Mixed-use developments present challenges for the market analyst. If conditions are optimal, the project's developer and investors can capitalize on the synergy among complementary uses and create an overall cumulative market attraction that exceeds what the individual project components would generate independently. However, each element's marketability must be able to stand on its own; the analyst must then determine whether any rent or price premiums might be achievable as a result of the project's varied elements. In some ways, the task is similar to determining the premiums a condominium buyer would pay for upper-floor units with attractive views or the enhanced privacy afforded by an end unit in a townhouse building. But it is easier to test whether tenants will pay premiums for an identical unit with a better view or on a higher floor in an apartment building than to quantify how much more a business will pay to be close to interesting restaurants and lively bars. Considerable effort has been spent trying to identify whether mixed use justifies a rental premium-and to quantify its magnitude-with little success.' The theory is that potential apartment renters or office tenants will take advantage of co-located land uses to reduce the number of commuting, shopping, and entertainment trips, whether by private automobile, shared vehicle, or mass transit. Economies of scale are created from sharing the cost of infrastructure, off-site road improvements, on-site parking, and open space, as well as common services ranging from trash collection to marketing and advertising. As suggested earlier, not all uses are equally compatible. Potential upper-floor residents may be concerned about odors, noise, and nighttime activity from street-level restaurants,bars, or clubs. Condominium owners will worry about Making decisions about where to place different activities security and need assurances that office workers or hotel within a mixed-use site can be difficult. Every potential guests will not have access to residential floors in a high-rise commercial tenant wants the storefront with the most building. Hotel guests may also have security concerns in visibility and the easiest access. A site plan for a large a mixed-use building mixed-use project usually places offices on interior Developers today have much more experience with parcels and hotel, retail, and entertainment uses at the mitigating negative effects through careful site planning, edges for the best visibility and access. Hotels need to building design and materials, security systems, and be directly adjacent to or above their guest parking. This management. Office and residential components of a need is less critical for office or retail uses if the site has high-rise mixed-use building will need their own lobbies attractive pedestrian connections. Upscale restaurants with separate entryway security. Residents and office users will need space for valet parking want privacy, but retail tenants and restaurants want to be accessible to patrons who do not live or work in the building. Different project elements may appeal to distinct socioeconomic groups. Prospective buyers of luxury With sufficient scale, a mixed-use development can be condominiums might not like to see ground-floor retail a successful pioneer, generating consumer interest and investment in the surrounding neighborhood. But multiple space that caters to a less affluent demographic. Museums and cultural center patrons could be more affluent than uses are also riskier for developers: office workers. Restaurants and coffee shops will need to It is harder to time the market. Although large projects cater to both groups. Casinos can attract affluent gamblers can be built in phases, the uses included in a single or elderly day-trippers who spend little at surrounding structure are started and completed (with the exception stores or restaurants. Marketing plans need to consider of interior finishes) at the same time. Mixed-use buildings how to attract patrons who will maximize synergy are vulnerable to market shifts that occur during among land uses. construction. For example, a single multiuse building Even if interactions among uses make sense when the might be ready for leasing at a time when the housing market is strong but the office market is overbuilt- project is first planned, changing market conditions can cause tenant targeting to shift. For example, upscale or vice versa. One component may lease or sell more shops might be the preferred retail tenants initially. But quickly than others. The developer cannot postpone if they are unsuccessful, the tenant mix will change the completion of a portion of the building because over time. the prospect of finding tenants is poor. In the current retail environment, the best projects are In a project with multiple buildings, proper phasing of project components is crucial, as is the need for flexibility vulnerable to losing tenants if a store's parent company has to shutter underperforming locations or declare in planning and design. Elements of the original plan may need to be revised in response to changing market bankruptcy. Even in an attractive mixed-use development, it may take time to find new tenants and the rents they conditions. For example, an initial plan that calls for two-thirds of the apartment component to be rental pay may be lower. units and one-third condominiums might need to be Notwithstanding the presumed advantages of mixed- altered if mortgage interest rates shift dramatically; use developments, the market analyst must start with the 250,000 square feet of specialty retail space may no basics described in previous chapters: (a) the analysis of longer make sense now that e-commerce is capturing demand demographics, (b) an assessment of the subject an ever-increasing share of sales. More entertainment site's attractiveness and accessibility, (c) evaluation of the uses or restaurants might have a better chance of success. strengths and weaknesses of competitive properties, (d) a Although a shift from rentals to condominiums in an review of market supply conditions, and (e) identification of apartment building would not, in and of itself, require a "what's missing" in the area. These key steps are performed change in the development plan or zoning, condominiums for each separate use as if each were to be independently are typically larger than rental units with the same number located and built. The recommendations can then be of bedrooms and baths. Floor plans would probably need refined to reflect the attraction among co-located uses and to be reconfigured and the mix of unit types (number of to estimate any cumulative attraction that might generate bedrooms or bathrooms) could be changed. greater market penetration. Buildings in the initial phase must function independ- Analysts will then consider whether the mix of uses will ently of future activity, because a considerable lag in result in higher capture rates from patrons who live outside construction completion could occur. The project the immediate area. An attractive mixed-use development should begin with the uses that have the strongest with good road and transit access and an appealing location current market potential, thereby creating cash flow for example, near a beach, an amusement park, a harbor, that can be funneled into later phases of the project. or an area with mountain views) will likely draw more out-of-town travelers and metropolitan area residents who live beyond the local trade area