Real Estate Journal — May 27 - June 9, 2016 — 15A
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M id A tlantic
M id A tlantic R eal E state J ournal By Jessica Zolotorofe, Ansell Grimm & Aaron Mixed-use developments: Seemingly the perfect fit I and the imposition and strict enforcement of rules for the development. ation. Mixed-use projects may necessitate zoning variances, and fire and building codes could vary as to each intended use.
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n the last number of years, mixed-use projects, es- pecially those having r e t a i l and res ident ial components, have gained qu i c k l y i n popularity. As is the case with all real estate invest- ments, there are certainly benefits, but also some signifi- cant challenges. In a time when efficiency and convenience are so highly valued, people seek out hous- ing options that offer ‘lifestyle’ living and time-saving ameni- ties. Mixed-use developments are seemingly the perfect fit, and are equally desir- able to commercial tenants. Especially in suburban and rural neighborhoods where people are otherwise heav- ily dependent on automobile transportation, commercial tenants in mixed-use centers have the advantage of ‘built- in’ patrons residing within the same building, or a short walking distance. Along with the advantages, residential tenants do have some concerns with their prox- imity to their commercial neighbors. Noise is a major concern, as are uses that pro- duce large amounts of garbage or emit offensive odors, traffic congestion, and commercial tenants monopolizing park- ing spaces. Developers can, however, take preemptive measures to minimize the impact of these issues, such as use of certain building materials to reduce the mi- gration of sounds and smells, designation of parking areas solely for residential tenants, Jessica Zolotorofe
Mixed-use allows owners to diversify their streams of income, spreading risk over multiple types of real estate investments within a single project. For example, retail and residential market fluc- tuations are not always con- sistent, so among the benefits of owning mixed-use, income from one use can often support the property when there are vacancies in the other. Additionally, particular to mixed-use is the ability to build horizontally, provid- ing for greater returns per square foot of real property purchased. As commercial ten- ants are most successful with street-level access, a majority of retail centers across the U.S. are single-story strip cen- ters. The mixed-use concept allows for ground floor retail with uses far more conducive to upper level placement above (such as residential or office), thus significantly increasing potential rental income. On the other hand, securing financing for mixed-use proj- ects can be relatively challeng- ing. Lenders see greater risk with complex development and may require more exten- sive due diligence and finan- cial analyses, which can prove arduous and time consuming for a developer. In larger proj- ects, financing is sometimes provided by numerous lend- ers, each experienced with one particular use. However, with horizontal building structures, providing collateral to each of the lender’s satisfaction becomes messy. Zoning approvals and per- mitting processes are another area that requires consider-
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Finally, management of mixed-use is far more complex. Some of the unique hurdles that managers will face in- clude: (i) proper allocation of common area maintenance charges (especially with some tenants (typically residential) paying gross monthly rent, and others (typically com- mercial) paying separate base rent, taxes, insurance, and common area expenses); (ii) collection, maintenance and return of security deposits, and other accounting require- ments which differ by type of tenant; (iii) enforcement of rules, and ensuring compli- ance with local code and laws that may vary by use; and (iv) balancing conflicting sched- ules; residential tenants prefer that maintenance and repairs take place during the workday when fewer are present, while commercial tenants typically prefer nighttime to eliminate interference with their busi- ness operations. It is impor- tant for a developer to retain a management company that has experience withmixed-use management. With some advance plan- ning and an understanding of their intricacies, mixed-use projects can prove very favor- able investments. Adding liveliness and a sense of com- munity to neighborhoods all over the Country, mixed-use development is not expected to slow down any time soon. Jessica Zolotorofe is an attorney at the Northern New Jersey office of the law firm of Ansell Grimm & Aaron. n
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June 10th publication Editorial Requirements Include: Half page ad with 550 word article Deadline: May 27th, 2016 Contact: Barbara Holyoke Mid Atlantic Real Estate Journal Tel: 781-871-5298 x202 E-Mail to: BHolyoke@marejournal.com
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