What's Baffling Lenders?
Financing is one of the biggest challenges to mixed-use; the capital markets just don’t quite understand it yet. RED Development VP Jeff Moloznik says traditionally, different people (or even different branches or companies) have understood property types, so there often isn’t one person or group who gets the whole picture to underwrite mixed-use. Lending is catching up, though. When RED built the major mixed-use project CityScape in Phoenix a decade ago, it had to get different lenders for each use and seven different condo associations for the residential portions. The Union, underway in Dallas, has one lender and one equity partner for the entire project. Recapitalization at stabilization is still almost impossible though, he says.
Jeff’s far right here at Bisnow’s Future of Dallas Mixed-Use event last week with CallisonRTKL’s Dallas Branch, LB Byars, Jeff Gunning and Paul Wilmarth.
Corinth Properties founder Frank Mihalopoulos (left, with Ten-X’s Howard Fuerst) faced the same problem for a healthcare/retail mixed-use in Nashville. Even though it’s been a hugely successful development, recapitalizing was painful because retail REITs didn’t want to touch the healthcare portion and healthcare REITs weren't interested because it came with retail. He says financing will continue to be a challenge, and sometimes you’ll just have to break up by use to get the deal done.
On the other hand, Retail Properties of America VP of investments Mike Hazinski (pictured with Bisnow business manager Karen Pierre) says liquidity is improving because some groups—including Retail Properties—recognize the value of controlling a whole environment. Besides, mixed-use is typically better real estate—better located and more experience-driven—so it’s a more appealing product.