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Cities and urban planners may have visions of urban and suburban multifamily projects that activate the street level with retail stores and food services, but those creating the projects do not relish the challenges of mixing retail and multifamily.
“Planners have these dreams of 40K SF retail mixed-use and we think, ‘I can’t get credit for that,’” Provident Realty Advisors Vice President Dave Holland said. “We don’t get a lot of credit in underwriting if we have a heavy retail component. Retail complicates the deal, so we steer away from vertical mixed-use as much as we can.”
“That’s easier on us than it is on developers,” Berkadia Senior Managing Director John Koeijmans said. Berkadia and other lenders would just require more equity in such deals.
Smith said future-proofing projects and having the foresight to see what a project could be makes for more successful developments.
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Some developers have been experimenting with creating ground-floor retail space that can be easily converted into units, or vice versa.
An off-campus student housing project at the University of Texas at Dallas called Northside Phase 1 has ground-floor units that can be gutted and renovated into retail.
“We didn’t feel like we needed 35K SF of retail there, but maybe years down the road we can convert the bottom floor and make it retail,” Architecture Demarest Senior Partner and principal David Demarest said.
Demarest has been pushing for clients to set aside a contingency budget or allocated number of units for Architecture Demarest to experiment with new types of units.
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In a recent 238-unit project in Fort Worth’s Near Southside called Mag & May, Demarest and developer Hudgins Cos. designed 34 units that are 465 SF and designed to appeal to nurses and medical students.
“Many things we work on involves anticipating what the market will do,” Demarest said. “The Hudgins team is very progressive and pushed our team to create something unique, yet contextual, with the neighborhood.”
Converting space into a different use later on can come with problems.
“You’re really planning for the future because you need to know up front what kind of electricity or utilities a [retail] tenant will need,” Jordan & Skala Engineers principal Andy Smith said. Even traditional space should be designed to be multi-generational, Smith said. Otherwise, the price of repurposing can eat into profits.
Construction costs are rising, most major markets in the U.S. are experiencing a significant labor shortage and many construction materials are more expensive than ever before. Constructing a multifamily project with foresight helps alleviate pain points later on.
“We’re still seeing our [construction] costs escalate 0.5% per month. In many of the markets we’re active in, especially Denver, materials and labor are increasing at a higher rate than rent,” Argyle Residential Development Manager Chase Hill said.
Coordinating early on with developers, contractors, subcontractors, architects and engineers can alleviate some unnecessary costs.
“There’s no doubt that our industry — from design to delivery — is ripe with waste,” JE Dunn Vice President of Preconstruction Brian Haulotte said. JE Dunn has been successful in creating alignment within the development team to prevent wasted resources.
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