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The challenges of marketing mixed-use properties.

Mixed-use developments provide overwhelming advantages for their tenants. For office tenants, convention facilities at a hotel in the same project, shopping and dining possibilities at a distance of five minutes rather than twenty, or the availability of a sports club that provides special rates to workers all are major amenities. In a development that includes both residential and retail, managers can foster the growth of a true community setting that is sensitive, livable, and convenient. Finally, the built-in markets and other benefits of mixed-use properties for retailers allow them to beat the odds in difficult situations and reap record profits in others.

In a well-managed mixed-use property, the sum of the parts is greater than the whole.

Retail synergy

The success of downtown retailers depends increasingly on reaching office workers in the central business district (CBD). In the past, department stores succeeded if they reached residents in surrounding areas. Now, these stores face foreclosure if they fail to obtain access not to residents (who live farther and farther away), but to office workers who come downtown every day.

In 1989, for example, the last two department stores in Baltimore closed; hastening their demise was a location outside the area in which most new office development was occurring. In the mid-'80s, the Sears shopping center closed in San Diego. The city purchased the site in 1986, and it was replaced with the highly successful Uptown District, a mixed-use property.

While office workers provide today's most important CBD retail market, reaching them requires overcoming the difficulties of time, distance, and convenience. A national survey by ICSC (Office Worker Retail Spending, New York: International Council of Shopping Centers, 1988) found that 80 percent of the potential downtown retail market will walk only nine minutes to reach retail space. And less than 2 percent of those surveyed use some form of transportation other than walking or driving for lunchtime travel.

A variety of factors contribute to these statistics. In a work environment that is increasingly fast-paced, workers have an extremely limited time period for shopping: in one instance, the survey found that 23 percent of downtown office workers had 30 minutes or less for lunch. Frequently, downtown pedestrian conditions are less than desirable vacant lots, graffiti-splattered walls, and traffic jams do not encourage browsing.

The propensity of office workers to spend money is greatest when it takes them less than five minutes to travel to retail facilities ("Nine Minutes to Retail: The Workplace-Marketplace Connection Downtown," by Lawrence O. Houston, Jr., Urban Land, December 1989). Thus, office workers are more likely to spend money in retail space in mixed-use developments.

Mixed-use developments counteract the frequent failure of office redevelopment to enhance retail market success. And the partnership a mixed-use property fosters between the office and retail sectors is vital to the success of each.

A case in point is Charlotte, North Carolina, where it is increasingly difficult for downtown retail operations to succeed on their own. Unlike larger cities where CBD residential communities remain strong, residents in Charlotte live far from downtown and rely heavily on suburban shopping malls. The two downtown department stores in the city, Belks and Ivey's, recently became casualties of this continuing demographic trend.

In contrast, retailers in the NCNB Plaza -- a mixed-use property containing 800,000 square feet of office, 70,000 square feet of retail, and a 368-room Radisson Hotel -- are able to access the office worker market segment with growing success.

An obvious advantage is the built-in customer base the office building provides: workers there form a captive audience for retailers at the outset. But another advantage is the landmark status of the office tower. The high visibility of the property has brought about increased pedestrian traffic both to and within the building.

Retailers in mixed-use buildings reap especially large benefits from hotel guests. While office building workers may provide the core market for a mixed-use development, the addition of a hotel automatically generates customers that have more time and more money to spend in the retail sector.

The Houston Galleria, which began with only one office tower and one department store and now includes two Westin Hotels with 1,000 guest rooms, established itself as a major tourist attraction in the city. The Galleria's management estimates that from 35 to 50 percent of its customers are tourists, according to Lois Robinson of Gerald Hines Interests, the asset managers of the Houston and Dallas Gallerias.

The hotel component has an even greater impact at the prestigious Copley Place in Boston (which includes retail, office, hotel and residential space) and at 900 N. Michigan in Chicago (also including retail, office, hotel, and residential). Says Maurice Fisher, president of JMB Retail Properties Co., "The hotel element provides the greatest possibilities to create synergy in a mixed-use development. Hotels bring in tourists and out-of-town people who provide the biggest sales possibilities for retail. At Copley Place and 900 N. Michigan, more than 50 percent of sales are form out-of towners."

Because of the overwhelming importance of image and landmark status at a mixed-use property, the choice of tenants must be carefully consistent. "Tenant mix is dictated by location," remarks Mr. Fisher. "For an upscale location, all tenants have to match."

Says Lois Robinson, "Your retailers have to match your office and other clients. You need upscale retailers for Class A office buildings."

At 900 N. Michigan, management uses a major name (Bloomingdale's) to set the tone and establish the image; the retail mix then branches off into smaller stores that include middle-to upper-range price levels.

At the NCNB Plaza, management uses the criterion of competitiveness to choose retailers. States Al Palamara of La Salle Partners, "We look for market-driven retailers who address the continuing needs of tenants and adapt to changes in their time constraints, tastes, and budgets." An optometrist who responded to customer needs by offering a two- or three-hour turnaround on glasses is just one example. Five-year leases allow management to choose and keep the best marketers for the development.

Retail for residential

Image and landmark status also can generate retail market viability for residential mixed-use properties.

The San Diego Uptown District, which includes 142,500 square feet of retail space and 310,000 square feet of residential, succeeded by creating a project with a community-oriented, village atmosphere and appeal. The goal of the project was not only to provide for neighborhood service needs, but to include merchants with a regional market draw as well.

Obvious advantages to both the retail and residential components include convenience for residents and built-in traffic for merchants. But even more important is the "little village" feel of the project.

The Uptown District includes upscale furniture, clothing and specialty retailers that market to the whole community of San Diego. While the residents do not actually constitute the main target for these retailers, they contribute the pedestrian village atmosphere that makes the development so appealing.

Likewise, residents benefit from the synergy retailers create. Says Cristina Anderson of Odmark Thelan Managers, managers of the residential side of the Uptown District: "Residents love being able to go anywhere by foot; they like the urban fell, the pedestrian orientation, and the convenience." Imagine smelling Italian food as you walk to your second-story flat, for example, and being able to choose between having it delivered and reserving a table.

Many of the residential units are located above retail units, and restaurants in the development provide delivery services to residents. Residents also benefit from needed service vendors such as dry cleaners and from the supermarket, a major component of the retail sector.

Convenience for residents

and office tenants

Office tenants also benefit heavily from the advantages provided by the retail, hotel, and entertainment sectors in a mixed use development. For office tenants, convenience is key.

In the Dallas Galleria, the office building population buys memberships in the private dining and athletic club located above shopping facilities. They hold private business meetings in the dining club. Lois Robinson remarks, "This compactness cuts down on the number of trips they have to make; everything is accomplished in one trip and on foot." Conference facilities provided by the hotel are another important convenience.

The private dining club also is a strong amenity at the NCNB Plaza. "IN a southern city like Charlotte," says Al Palamara, "entertaining clients is very important to the tenants."

Equally important is a comfortable, livable work environment. A feature at the NCNB Plaza is an outdoor amphitheater where concerts and shows are held. The amphitheater is located in exterior plaza space containing trees and surrounded by the office, hotel, and retail facilities. "People sometimes spend 10 hours a day in our building," says Palamara. "It should be as comfortable and welcoming as possible."

At the Parkway Center in Denver, containing 130,000 square feet of office space, 60,000 square feet of retail, and 1,050 apartments and townhouses, retail and entertainment amenities serve both office and a residential clients. A grocery store is a major convenience for residents; the deli in the grocery store is important for office workers. A health club and a shuttle service to the Denver CBD also are shared by both the office and residential sectors.

Finally, a major advantage in a mixed-use development is that all office space can be rented as office space. The amenities needed by office tenants do not require space in the office tower, and managers can obtain higher, office-space rents for the entire building.

Taking advantage

of the advantages

With all the built-in benefits of a mixed-use development, you might wonder, "How can you possibly lose?" It is true that a mixed-use development holds advantages for everyone involved, but managers agree that communicating well is more difficult and more important in mixed-use than in any other property type. The nature of the business is simply more complex.

In addition, separate management groups for office, retail, and residential segments often are necessary. Office and retail hours and operations are quite different. Management must be able to meet the needs of each segment while maintaining quality and consistency in the project as a whole. Finally, communication is needed between the segments of the property itself in order for tenants to reap its full benefits.

In the Uptown District, residential and retail management segments have had to work together to adjust schedules at restaurants where the maintenance crews need to get an early start. The portion of the project in which this was an inconvenience for residents now receives maintenance service last. Anderson notes that it is particularly important to be responsive to residents if the relationship between retail and residential is going to be successful. In another case, where equipment in restaurants in the development made noise, isolator dampers were inserted.

But fostering communication is important not only to solve problems but to enhance benefits. At the Uptown District, when new leases are signed, everyone is informed. The manager of the residential segment attends all meetings of the commercial sector. Restaurant owners allow managers to place fliers and cards that advertise residential properties on counters and tables. Residential management, in turn, includes restaurant fliers, menus, and retail coupons in welcome packages to tenants.

Similar techniques are highly successful in generating more marketing mileage in office/retail mixed-use. In the Houston and Dallas Gallerias, retailers provide gift and coupon offers to office tenants, especially for services such as manicures and shoe repair. A newsletter to all office building employees informs them of offers, sales, and prices at the athletic club and from retailers. And management informs retailers of any new construction progress and newly signed leases.

In addition, the lobby of the retail portion provides space for daytime concerts, food tastings, and other events that generate even more traffic and marketing opportunities.

Signage: Quality control

Because of the sometimes myriad elements in a mixed-use property, good graphics and clear signage are all-important. Management must control the signage of individual retailers through strict guidelines. The signage cannot be confusing, or traffic in the building will be impossibly confused.

Graphics in a mixed-use property should consistently uphold the image that contributes to the success of all the individual elements at the property. Says Maurice Fisher, "It's important to promote the property as a whole, to create a name that will eventually become a tourist attraction and allow you to use status as a draw."

At the Charlotte NCNB Plaza, for example a new graphics package is underway that will emphasize the identity of the project as a whole ("the NCNB Plaza") from the pedestrian entryway. This strategy is designed to maximize the project's advantage of holding the only entryway from street level to Charlotte's above-street walkway system. Within the project itself, the signage will differentiate among elements.

The graphics style also should match the architectural style of the project. Also, because the style of office tenants frequently is more private and conservative than that of retailers, retail signage often must be more subdued than at single-use retail properties. In sum, management must not only provide directional cues from retail to hotel to office to residential, but also carefully control the look of the land.

At the same time, signage should be different enough to service the needs of the mixed-use property's different segments. Hotel visitors will need more directional signage and assistance in finding services. Office workers, usually with limited shopping time, will be most attracted by larger, more targeted signs that attract their attention to retailers as they speed back to work.

A conflict of interest may arise in many mixed-use developments between office tenants who want signage to be more subdued, and retailers who still require eye-catching graphics. Says Al Palamara, "Retail has to be more colorful than office: it can't just be stuck in the back." The trick is to use tasteful colors that will still draw attention.

The new graphics package at the NCNB Plaza includes three 26-foot-tall pylons and festive, brightly lit signage that points the way to the retail sector. Because of confusion in the past about the location of retail - and its eclipsed location behind the office and hotel components - the new graphics are a needed enhancement.

Other advertising venues for retail exist in mixed-use developments. At the Houston and Dallas Gallerias, management provides retailers with merchandise vitrines that allow them to display their products throughout all areas of the development. Through use of the vitrines, management maintains the project's quality, up-scale image while at the same time providing merchants with an added marketing venue.

Maximizing use-flow

through architecture

The architectural design and placement of the elements in a mixed-use property can also go a long way toward creating the desired synergetic relationship. The architectural design must protect the integrity and special use of each individual element and at the same time promote use-flow from one element to the next.

At 900 N. Michigan, separate entrances were necessary for each different segment. The entrance to the retail portion is from a busy, prestigious boulevard (Michigan Avenue). Delaware Place, a side street with a more private, residential feel, was chosen for the residential and hotel entrances.

While the need for privacy dictated separate entrances, all portions of the project interconnect at one point to promote maximum use-flow. The parking deck adjacent to the building allows entrance to the sixth level of the shopping segment. From the sixth level, tenants enter the hotel, office, or condominium segments. A key-card system allows residents and their guests access to the residential portion and guarantees security.

In this critical, interconnecting area where residents, hotel guests, and office workers come into contact with the retail portion of the project, the architectural goal is to maximize one's ability to see the stores and to enhance the visual appeal of retail. This was accomplished by eliminating a portion of the fifth floor, thereby creating an atrium with a "double-height" effect at its top and by using a large round window that allows natural light to flood the area.

The goal of maximizing sight lines was accomplished in a similar way at Water Tower Place in Chicago, a landmark in successful mixed-use development. Vertical transportation includes three glass and stainless steel elevators. The openings in the floor vary from floor to floor so that the largest opening is in the middle, and the openings at the top and bottom are smaller. This creates a visual desire to move up, and it allows for maximum retail sight lines.

At Copley Place, a high atrium with a major skylight and a waterfall at the top creates a similar effect. In addition, all office space opens into the atrium. (There are four office towers on top of a two-level shopping area.) Visitors must pass through he retail portion to reach the offices. This configuration enhances the project's ability to draw office workers as a customer base for retail.

At the Dallas Galleria, the architectural concept is "barrier-free." Office towers have no lobbies, and the lobby of the hotel is the lobby of the shopping area - there is almost no perception of change from one segment to the next. In addition, public restrooms and elevators are shared. All restaurants are located in the retail portion. All of the elements are connected by walkways, skywalks, elevators, and escalators to maximize the freedom of movement.

Another shared element at the Dallas Galleria is parking. All parking users buy control cards from the same booth, which enhances efficiency and convenience. And because office workers arrive early (between seven and eight in the morning), retail workers arrive later (between nine and ten), and hotel guests might arrive in the afternoon, traffic flow does not become a problem.

At the NCNB Plaza, architectural enhancements are underway to "open the project up" and increase its abilities to create synergy. A new reflecting pool near the pedestrian entrance is designed to catch people's attention and draw them into the building.

A new connecting gallery is also in the works. The three-story gallery with a single-level walkway and a curved facade will tie the project together from one end to the other - from office to hotel to retail. Because it is easier to walk along a curved surface, the gallery will provide an effortless walk through the length of the project. The plan is for more unified, easier access to all project elements and maximum visibility for retail.

At the Uptown District, architecture works to maintain the retail/residential separation and, at the same time, to encourage residents to cross the retail line. Increased distance between the retail and residential segments helps differentiate between them. An entry drive into the residential portion ends automobile access and marks the beginning of the pedestrian village. This drive continues as the "pedestrian link" to retail. Comfortable, inviting landscaping, including pathways, sidewalks, and planters, tie the two elements together.

Courtyards and parks leading to the commercial zone are open to the public. Security is maintained through the use of decorative wrought-iron gates that allow residents controlled access entry to apartment blocks and garages.

In addition, soft goods stores, such as clothing stores, shoe stores, and restaurants, provide the transition to service retailers, such as dry cleaners and postal shops. This way, residents are required to walk past soft goods retailers in order to reach service providers.

In conclusion

Managing a mixed-use property requires careful attention to detail in signage, tenant mix, and marketing. It also requires a difficult balancing act to satisfy the diverse demands of distinct tenant segments. Getting people to work and live together is never easy. But when it works, everyone benefits.

Dorothy Walton is a freelance writer based in Chicago. She previously was a developmental book editor for IREM. She also has designed and taught courses in English as a Foreign Language in Madrid.
COPYRIGHT 1991 National Association of Realtors
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Author:Walton, Dorothy
Publication:Journal of Property Management
Date:Nov 1, 1991
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