Developing the Small, Mixed-Use Urban Project: A Contribution to Neighborhood Revitalization Jacqueline Morrissette Olivier Bachelor of Arts, Wellesley College 1982 Wellesley, Massachusetts SUBMITTED TO THE DEPARTMENT OF ARCHITECTURE IN PARTIAL FULFILLMENT OF THE REQUIREMENTS OF THE DEGREES MASTER OF ARCHITECTURE AND MASTER OF SCIENCE IN REAL ESTATE DEVELOPMENT AT THE MASSACHUSEITS INSTITUTE OF TECHNOLOGY, June 1988 .0 Signature of the author Jacqueline Morrissette Olivier \ I Department of Architecture, 13 May 1988 U Certified b$c Lawrence S. Bacow Associate Professor Of Law and Environmental Policy Thesis Supervisor Accepted by William Hubbard Assistant Professor of Architecture Chairman, Department Committee on Graduate Students Accepted by Michael Wheeler Chairman - Interdepartmental Degree Program in Real Estate Development ()Jacqueline Morrissette Olivier 1988 The Author hereby grants to M.I.T. permission to reproduce and to distribute publicly copies of this thesis document in whole or in part JUN - 398 UBRARES FdotCh 2 3 Developing the Small, Mixed-Use Urban Project: A Contribution to Neighborhood Revitalization by Jacqueline Morrissette Olivier Submitted to the Department of Architecture on 13, May 1988 in partial fulfillment of the requirements for the Degrees of Master of Architecture and Master of Science in Real Estate Development Abstract Through out many cities in America, urban neighborhoods are characterized by the diminished vitality and extensive deterioration of their overall landscape. The consequences of modern city planning, architectural design and real estate development through out the past thirty years have abrogated much of the cohesive and diverse pattern of the historic urban fabric. Today, many urban areas suffer from the endless repetition of single use structures. Others suffer from the devastating neglect of little or no investment activity at all. The intention of this thesis is to investigate the development feasibility of the small, mixed-use project. Mixed-use is a building prototype combining various uses in one structure and is typified in the appealing character of many older American and European cities. The assertion made is quite simple; if it worked then why can't it work now? The particular focus of the inquiry concentrates on poor urban neighborhoods though the prototype is relevant in other urban areas. Requisite to the formulation of the project isthe aim to responsibly support and stimulate community revitalization. It is concluded that the feasibility for small mixed-use development exists though many problems remain. Design on small sites as small as one half acre is difficult but possible. Such locations are suitable particularly where they sit at major intersections between residential and commercial districts. Economically the prototype remains weak; the development risks are great. Substantial investigation to identify the most beneficial instruments for obtaining equity, reducing development costs and increasing the revenues is required for projects of this kind. Nevertheless, the small mixed-use holds an important role in the future development of the urban landscape. The prototype promises to offer a considerable contribution to the increased health and revitalization of many urban communities. Thesis Supervisor: Lawrence S. Bacow Title: Associate Professor of Law and Environmental Policy 4 5 Acknowledgements I'd like to express my gratitude to the numerous people who assisted me in this endeavor. Thank you Dennis Frenchman and Michael Buckley, my thesis committee. Your individual talents and perspectives were insightful. Thank you Larry Bacow, my advisor. I am grateful for the encouragement and guidance. Thank you Susan, Peter, and Ross for responding to my impromptu requests for desk crits. Most of all, thank you Mark, for your patience and endless support. It's been a long road. 6 7 TABLE OF CONTENTS Page Abstract 3 Acknowledgements 5 Preface 9 Introduction: Framing the Problem 10 Section I: The Determinants: Urban Design and Community Revitalization 18 Section II: The Design Proposal 26 Section III: The Financial Analysis 64 Section IV: A Summary 80 Bibliography 87 8 9 Preface The motivation for this thesis relates directly to my urban roots. Growing up on the southside of Chicago has instilled me with a compassion and concern for urban environments, particularly as they relate to minorities and the poor. I sincerely believe that this country has a long way to go before it recognizes that the disaffection and under utilization of a major segment of the population deprives us all. We are deprived of the benefit of our most precious commodity- human resources. The idea for this investigation started out as a campaign for the disaffected. It naturally evolved into a topic about design and development which embodied the focus of community revitalization. What I hope I have accomplished is a contribution to the argument that seemingly disparate goals can accomplish the same aim, namely that for profit development can achieve the same agenda objectives as the non-profit developer. What I know I have accomplished is a better understanding of the complex interaction and often conflicting roles between developer, designer and community resident. I have a personal stake in all three roles and to that I am proud. 10 INTRODUCTION: FRAMING THE PROBLEM 11 THE THESIS The focus of this work is to examine and formulate a prototype for the development of small, mixed-use projects within urban neighborhoods. Specifically the thesis concentrates on neighborhoods that are typically overlooked, abused or neglected by the development process in the United States. Yet the prototype is applicable to any urban context. The contention is that architectural form and the activity of real estate development can together influence both the physical framework of neighborhoods and the community's social and economic well being. This thesis investigates the potential for the small, mixed-use prototype as a vehicle for increasing the quality of life viewed from three perspectives: 1) Responding to the urbanenvironment by repairing the scarred physical fabric of the inner city, 2) Promoting community development and revitalization - for its incumbent residents by discouraging abandonment and encouraging middle class reinvestment, and; 3) Attracting investment from the private sector. Stated another way, the inquiry endeavors to discern to what extent a small mixed-use project exhibits the potential to offer financial returns while positively addressing a community's sometimes desperate need for physical upgrading and broadbased community development. Central to the achievement of these aims is the strength of the small mixed-use prototype and its financial viability. This thesis assesses the extent to which private investment from local banks, businesses, and developers, many of whom are actively working to affect positive change, can assist in the process. The Greek Agora, Zeidler, p.') 12 WHY MIXED-USE Mixed-use is the integration of multiple uses within one building or group of buildings -retail, office, and residential, in any combination. The building prototype has long historical roots and serves as a fitting model for adaptation in the inner city. Mixeduse addresses two fundamental needs of the community - housing and commercial services. In addition, integrating commercial and residential uses supports quality urban design. The diversity of commercial and residential uses and architectural forms brings to the streetscape added life and vibrancy . The natural surveillance of people coming and going at different hours (office, retail, housing) maximizes utility and provides security for the area. 11~~ Patterns of Association, Zeidler, p.17 URBAN DESIGN AND 1950'S ZONING Prior to the evolution of early zoning, the integration of diverse uses and building types was commonplace in America's developing cities. It was not unusual to find storefronts with residential apartments situated above, typically that of the store owner with one or more tenants. After the turn of the century, prompted by the dangers of the late 19th century overcrowded industrial streetscape (here in the U.S. and abroad), cities developed building codes and zoning legislation for the health and well being of its residents. Throughout the 20th century planning boards designated specific physical areas within the city and tended to restrict them to specific uses. Residential areas were largely isolated from commercial areas, which in turn were distinguished from industrial and manufacturing sites. Within the last quarter of a century however, city planning and zoning laws have come full circle and have readapted the integration of commercial and residential uses within one building or within a described area. Public agencies gave credence to the argument developers promoted, that the development of mixed-use brought the advan- 13 tages of liveliness and synergy to a location. The benefits enhanced both the aesthetic and financial success of the project and were shared between the developer and the city. Mixed-use development enhanced the quality of life in many urban areas and seemed to be at least one solution to the dark and empty downtown street which became deserted after 5pm when the office crowd left for the suburbs. The large projects of Boston's Copley Place and Chicago's Watertower Place are just two examples of today's successful mixed-use development. Both encompass large numbers ofresidential units, commercial (retail and office) and usually several hotels within one complex. Yet, despite the successes of the large mixed-use, rarely has the prototype been adapted for use at the smaller urban scale, especially in older neighborhoods. Instead, antiquated zoning laws of the 1950's remain in place and developers continue to pursue the building of single use projects. Furthermore, many developers remain convinced that building large single use projects isthe only formula for making money in the real estate business. The net effect on urban areas has been the destruction of a once multivaried fabric of building types containing a lively mix of uses. In the past, urban diversity and vitality was derived from the variety of uses within a given area. The continued pattern of developing apartment buildings and office buildings as separate uses has inadvertently destroyed the character and integrity of many urban neighborhoods. The symbiosis attained through the interaction of various functions has been lost. One of the aims of this thesis is to demonstrate that urban developments do not have to be restricted to single function structures in order to be profitable. Yesterda Living and Wor*ig in7 r/re Smoke, Livmg rn theSbturbs-working tvfn&brkn 7nteSunlat fwav i, r/ie Smoke - Poster of Garden City, Zeidler, p.14 "The isolated building prototypes developed by modern architecture - such as the apartment tower, the office tower, the shopping centre or the onefamily house - may fulfill their internal demands, however thoughtlessly pushed together, they cannot create a coherent city.... Modern city districts of such single - use buildings lack the complexity and life involvement that "old" city spaces still offer." (D 14 In addition to the community and urban design benefits that the mixed-use offers is the opportunity for the developer to offset many financial and market risks. Cross market development, provides a method of diversification and mitigates the impacts of individual market fluctuations. Often the market does not warrant the construction of an entire office building, or housing project. Small scaled mixed-use development provides a vehicle for addressing downsized housing and office demand accordingly. Furthermore, infrastructure costs can be amortized more favorably than single function buildings and when necessary cross subsidizing between uses is possible. LARGE AND SMALL SCALED MIXED-USE: A COMPARISON Though the benefits of developing mixed-use projects have proven their advantage for large projects, many of the benefits have reduced applicability to the development of the small mixed-use. Because the economies of scale are not achieved in smaller projects the advantages of economic cross support, market diversification, integrated mechanical systems, and the amortization of infrastructure costs are reduced proportionately. "Mixed-use offers the promise of synergy - where one use type contributes economically to the support of another....the market support for one project component can become the support for another....Opportunities are created for cost sharing of integrated mechanical systems, primary architectural spaces, building finishes, and property manage- ment." o Nevertheless, an inducement to build small scaled mixed-use remains. Many urban neighborhood sites cannot adequately support a density of housing as a single use comparable to combined density of a commercial and residential mix. Moreover, the demand for commercial services is expanded with the creation of housing. Small mixeduse both creates and captures that demand. 0 Another important consideration to the development of small mixed-use are the problems associated with multiple uses which are not offset by the large returns typical of larger projects. The requirements for the separation of access, service, and mechanical services not only creates a formidable task of fitting everything in, but often requires their 15 duplication for each use. Whereas in a residential building one elevator core may be required, in the mixed-use they must be provided separately for the office and residential spaces. Small mixed-use projects must juggle these design constraints efficiently within small sites and within small budgets. Inherent in the task of identifying the potential of the small mixed-use is to determine whether or not the prototype is economically feasible when lacking the benefits of the larger project context. THE ORGANIZATION The body of this thesis is divided into sections that correspond to three main components examined: the question of community development and neighborhood revitalization, how they influence the design of small mixed-use, and the financial implications thereby created. Section 1 sorts through the maze of issues related to community revitalization and relates them to the development of small mixed-use. Section 2 demonstrates a design concept and outlines the issues that influenced it. Section 3 examines and interprets the financial implications of cost and marketing constraints and Section 4 takes a critical assessment of the small mixed-use prototype's strengths and weaknesses identified in the proposed project scenario. THE RESEARCH METHODOLOGY Organized within an iterative process, the methodology for conducting the inquiry entailed formulating a test project on a site located in Boston's Roxbury/South End The site was chosen for its simulation of most of the typical locational conditions for such a project. It is an assemblage of vacant lots and abandoned buildings in a blighted urban renewal area of the city. The neighborhood is one of transition -bordered on one side by a largely gentrified historical district and by a lower and middle class black community on the other. Urban design issues were overlaid onto the site context and alternative building Ludwig Richter "The Old Multiuse building combining the workplace and living into one structure. Zeidler, p.97. 16 diagrams studied. A design concept was then developed with the aim of establishing a sense of community both within the larger neighborhood and within the project community itself. Available cost and market information maintained the direction of the design formulation and programing within a practical context. In the end, an assessment was made to understand the implications of findings and derive generalities with respect to small mixed-use development. 17 NOTES: 1. Eberhard H.Zeidler, Multi-Use Architecture in the Urban Context, Van Nostrand Reinhold Company, New York, New York, 1983 , p. 97. 2. Michael P. Buckley, "Five Principales for Mixed-Use Planning," Council on Urban Economics Development, February 1988. 3. Michael P. Buckley, "Urban Specialty Retail: Potentials and Limitations for Supporting Real Estate Values," National League of Cities. 18 SECTION I: COMMUNITY REVITALIZATION THROUGH REINVESTMENT 19 Vacant lots and abandoned buildings are a commonplace phenomenon in urban cityscapes. They are scars in a community, eyesores that fester and breed destruction, refuges for garbage, stripped automobiles, and abandoned buildings. Rebuilding in vacant lots and abandoned buildings removes the blight that plagues many inner city communities. Renovation and new construction rejuvenates and may encourage reinvestment by its current resident. THE ARGUMENT FOR INCREASED INVESTMENT Not only is the repair of the deteriorated physical streetscape an important first step to neighborhood revitalization, but increased and directed reinvestment are also critical factors to achieving that end. Outside investment is often needed to spur on the revitalization process. Problematic in many poor communities is historical disinvestment and abandonment, most frequently by absentee property owners - outside investors. Ironically, those same communities, frequent targets for gentrification, are too often the victims of the resultant displacement that follows increased investment activities. Caught between the irresponsibility of neglect by outside investment on one hand, and the over zealousness of its increased investment activity on the other, many neighborhood advocates have fought to restrict the level of outside investment in their neighborhoods altogether. GENTRIFICATION AND NEIGHBORHOOD UPGRADING Amidst the controversy and debate surrounding the issues of neighborhood revitalization and gentrification, the argument holds that substantive and desirable neighborhood revitalization is attained when sustained and ongoing reinvestment is achieved, i.e., when people buy into the future of the community by living and working there, and when the benefits of appreciation are shared by the larger community. O "The psychological health of the city is as important as Its economic health. Without a strong city selfimage, economic development rarely succeeds" ( 20 "gentritlcation is...the resettlement of professional and upper middle class home owners In city neighborhoods .... The 'gentry' create a neighborhood ambience and a style that reflect upper middle class tastes and values; their taste and values supplant those of the lower-income population that dominated the area before revitalization." (j Gentrification is often characterized as the "invasion" of outsiders into a community. Typical of the gentrification process is the total lack- of consideration for the neighborhood's current residents. Hostilities often arise as the incumbent residents attempt to thwart the effects of displacement. " (T)hose threatened with displacement have begun to develop 'countermovements'in defense of their neighborhoods....in hope of preserving their current life-styles and preventing 'elite' invasions and intrusions into 'their neighborhoods." ( Yet, invasion and conflict between classes and racial groups is not a necessary part of the revitalization process. Gentrification and upgrading may coexist and often do. Within upgrading neighborhoods it is possible for "spot gentrification" to occur. Alternatively, in some gentrification neighborhoods, the fringes may be upgraded by the incumbent residents.@ This proposal for the development of small mixed-use is predicated on a balance between the influx of new residents and upgrading by incumbents. Where revitalization occurs through increased investment in stable but aging moderate income or working poor neighborhoods, the incidence of displacement is less extensive. Home ownership is an important factor. Incumbent residents who are homeowners derive direct benefits from the increased value of their homes. "...Inspired Homeownership "... may be the only way families will have a chance to save. Also, homeowners are more by the process going on around them, they (the incumbents) decide to stay in the stable, more community-minded; the psychology of neighborhood and fix-up their own homes..." OThe promotion of individual home the homeowner would be conducive to a more attracownership opportunities plays a vital, albeit limited, role in community revitalization. tive community for all, including renters, whether Homeownership inspires loyalty, establishes a position of "turf control" for the resident, low-income or middle class...." ( and provides a mechanism for sharing the benefits of appreciation. 21 Encouraging neighborhood revitalization through home ownership and local business reinvestment is a strategy underlying the development of small mixed-use. Actively seeking a means for providing commercial space to local businesses is another positive response to mitigate the negative effects of gentrification. "' In mostcases,' 'the gentrification of housing is accompanied by a collateral gentrification of local retail areas whereby seedy or marginal stores give way to an assortment of more stylish establishments....." Furthermore, retail businesses are labor intensive. Mixed-use development offers the development of jobs and the expansion of business opportunities. ivyZ40 Lii a C-N THE BENEFITS OF MIDDLE CLASS REINVESTMENT The prospects for a combination of gentrification and neighborhood upgrading within the context of small mixed-use development are likely for several reasons. To the extent that the projects are attractive to minority upper middle class reinvestment, many of the characteristics of gentrification become less emphasized. Typically the minority investor will have personal ties to the community having either grown up there or having extended family which continues to live there. Their contribution to increased investment distills many of the negative attributes of taking over acommunity. Creating attractive alternatives for moving back to "the old neighborhood" will find its appeal in many within the minority middle-upper class. Too often life in the suburbs brings with it feelings of alienation and isolation. Reinvestment of the minority middle class in urban neighborhoods is just that - reinvestment, and is not really outside investment. Increased investment of this growing middle class benefits the larger community by vesting and realigning their interests in them directly. "Giving back to the community" takes on real meaning by being a part of it. Having a stake in its future, induces the funneling of new found resources back into the community.9 Still, like their majority upper-middle class 22 "Those who argue that the significance of gentrification has been overstated are correct in asserting that central cities and many older neighborhoods continue to be threatened by abondonment and decline." (D counterparts, considerations of the quality of investment, design, and amenities are important locational factors for both living and business. As a practical matter, the influence of a single small scaled development on a community's revitalization is limited at best. Though the project can act as a catalyst for further development efforts, realistically, the first hurdle that it must cross over is convincing its market of the mixed-use concept. Expanding the notion of measuring appreciation beyond the narrow concept of financial return will aid in the task of marketing the project to residents, tenants, and investors. The strength of the proposed small mixed-use lies more in the benefits of living and working within it, than in opportunism and quick financial return. LOCATIONAL CONSIDERATIONS The locational considerations of developing in inner city neighborhoods bear directly on the success of the project, both to the strength of attracting a market and to the extent that the development contributes to the revitalization of the larger community. Utilizing "gateways" to a neighborhood as targeted locations for revitalizing development efforts is advantageous in two respects. Gateways offer "opportunities to reclaim, reinforce, and enhance (a) neighborhood's image and that of the entire community" 0 Gateways, as neighborhood edges located along major transportation routes, are transition areas between neighborhoods and relatively speaking, provide strong locations for both commercial and residential uses. Gateways attract or discourage both community residents and outsiders by determining its image. Pioneering development in underutilized neighborhoods creates a more positive image for the community from the outside'identifying gateway locations increases the likelihood for market attraction and enhances overall character of the community. 23 The following section explores the design strategies for reclaiming a specific site, repairing the physical landscape and creating a fuctional and attractive integration of commercial and residential uses. The aspects of urban design responsiveness and the change to promote responsible and well intentioned community revitalization are assimilated into the design process. NOTES: 1. Michael P. Buckley, "Urban Specialty Retail: Potentials and Limitations for Supporting Real Estate Values," National League of Cities. 2. Leo A. Lekai, "An Examination of Gentrification," Real Estate Finance Journal, Spring 1988. 3. Michael H. Lang, Gentrification and Urban Decline: Strategies for America's Older Cities. "Those low-income residents who are adversely affected simply do not matter in the face of the overwhelming majority of the population that can be said to benefit." 4. Phillip L. Clay, Neighborhood Renewal, Lexington Books - D.C. Heath and Company, Lexington, Ma., 1979. 5. Leon A. Lekai, "An Examination of Gentrification," Real Estate Finance Journal, Spring 1988. 6. Clay, ob.cit. p.6-7. Incumbent upgrading is the physical change of an area with little or no social change. Typically, upgrading occurs in stable middle class or working poor neigh- 24 I 7. Ibid. 8. Stewart E. Perry, Building a Model Black Community: The Roxbury Action Program, Center for Community Economic Development, Cambridge, Ma., 1978 p. 3 1 9. Jeffrey R. Henig, Gentrification in Adams Morgan: Political and Commercial Consequences of Neighborhood Change, G.W. Washington Studies, No. 9, 1982. 10. Clay, ob.cit., "Community improvements were made in virtually all gentrification areas. The improvements vary, depending on the type of community and the city. Improvements include the installation of gas lights and brick sidewalks, the planting of trees, general clean-up and street resurfacing. The city is often responsible for some of these changes, but the credit for initiating the efforts belongs to the newcomers ....Neighborhood...organizations emerged as quickly as gentrification took off and began to fulfill several functions: boosting the neighborhood, serving as a gatekeeper along with or instead of realtors, sponsoring social activities, and dealing with institutions and city governments for desired community improvements and assistance." 11. Leon A. Lekai, "An Examination of Gentrification," Real Estate Finance Journal, Spring 1988. 12 Regional/Urban Design Assistance Teams, South End/Lower Roxbury, 9-12 May 1980, p. 39 . 13. Ibid. 25 26 SECTION II: THE DESIGN PROPOSAL 27 THE PROPOSED SITE The location for the proposed project is an assemblage of several vacant lots in the Roxbury\South End section of Boston, approximately two miles from the central business district. A corner parcel located at the intersection of two major thoroughfares, Massachusetts Avenue and Washington Streets, the site area of roughly one half acre is situated between two disparate residential neighborhoods, and alongside a traditional The current zoning is B-2, local but largely abandoned commercial district. commercial and the allowable floor area ratio is two. Massachusetts Avenue is a heavily travelled thoroughfare which carries traffic across town from Dorchester to Cambridge, Mass. It also serves as a connector to Interstate 93, located three blocks away from the site in the southeasterly direction. Washington Street has historically been a major commercial corridor (in Roxbury and the South End) and an important transportation spine connecting downtown Boston to its southern suburbs. The site was chosen because it serves as a transition into the Roxbury community . It is a gateway between two highly contrasting neighborhoods. The South End is a neighborhood, that has evolved from a 1800's "fashionable place to live" for Boston's upper society until the area lost favor to the nearby Back Bay and became a rooming house district for immigrants during the turn of the century. During the 1940's, 50's and 60's, the neighborhood deteriorated into a blighted inner city slum whose poor and minority residents endured the well intentioned but destructive efforts Urban Renewal and finally fell victim to the displacement of gentrification. The South End is now a largely affluent community enjoying the benefits of its close proximity to downtown and its designation as an architectural historic district. K1~' 28 In contrast, Roxbury has remained a largely deteriorated community. Suffering from the effects of disinvestment, the devalorized community was once a healthy suburban community of Boston. In the wake of mounting community efforts to effect community revitalization and physical upgrading, the site seemed an appropriate location to test the small mixed-use prototype. THE OVERLAYS - URBAN DESIGN When considering the urban design aspects of the problem two major criteria were considered important to the success of the project's goals: 1) Repairing the Torn Urban Fabric, and 2) Creating Physical Links to the Existing Context D=C3InT 1E Examining the existing neighborhood context revealed extensive broken remnants of a formerly distinct block pattern - characterized by a grid of residential streets and commercial thoroughfares. Typical of zoning patterns formulated during the last decades commercial avenues were distinctly delineated from the residential streets. Alleys maintained a clean separation between the uses and provided access to the backyards of the residential. Several options were formulated as possible methods of mending the torn streetscape consistent with those identified in the neighborhood context. Making physical connections and relating directly to the existing fabric was the second criteria for the design of the project - a "neighborhood outreach." In so far as the project was able to weave itself into the existing fabric , it became stronger. It furthered the aim of creating neighborhood cohesion. 29 Unfortunately marketing problems are anticipated by connecting the shared green space to the yards of the neighboring residents. Issues of security and the problems of neighboring eyesores could potentially detract from the efforts to create strength and marketability for the project. The problem of sensitively addressing the neighborhood context is a problem which faces new development within an inner city context. Imaginative site design will in most cases render workable solutions that resolve the conflict. Devising such solutions is critical to the long term value of the area. Additionally, the project's tenants, desire to "fit in" to the surrounding context and not be identified as disruptive and dissimilar to their neighbors. ED - Option C was chosen for its ability to not only complete the block form but to tie the block together around the collection of backyard spaces. The design objective of the project was to test the limit to which its presence could benefit the immediate community. In their current state, the individual backyard spaces were vastly underutilized . Option C provided the impetus for not recreating them in the proposed project. Similarly, it became apparent that collectively the rear spaces could provide a much greater amenity, not only to the residences of the mixed-use, but to the block as a whole. Pleasant outdoor spaces are a premium in most urban areas. Enhancing the quality of outdoor space was linked as a parallel goal within the objective of repairing the built space. The design sought to create a visual connection between the individual yards connected along a spinal path. Special design emphasis would be placed at the culmination of the path with a large outdoor space provided within the court of the mixed-use project. "What goes on in neighborhood s affects basic dynamics and attitudes, rendering substantial changes in a neighborhood possible. This process can create new equilibrium even in areas where large, well-financed, and well-orchestrated interventions have been unable to stimulate change in the past....". D 30 Project Context z !..!. I7ik7177g i. ... ...||.... Li Cu C r. V to rm ................ . . ........ I~I ~I I 111 I NOW: .i .I . K- 0 - 0 33 Solutions for Re-Establishing the Block Pattern NMI* ... .L J L.~ Option A: Replacement Option B: Single - Use Tower Option C: Interior Court 34 The Overlay - Creating Community Much of neighborhood revitalization depends on the level of commitment to and satisfaction with the neighborhood by its incumbent residents and residents to be. Pivital to the success of the project is the marketability of the housing which is dependent upon the total concept for the project as a whole. The successful small mixed-use must neccessarily offer an appealing concept and image for living and working and meet the functional requirements of its different uses. (ED, According to Peggy Wireman, the author of Urban Neighborhoods, Networks, and Families, commitment and satisfaction to one's neighborhood are determined by several factors. G 1) The condition of the social fabric, ie., the relationships between residents in the neighborhood; 2) Neighborhood and housing conditions; 3) The perception of/sense of community which effects the levels of loyalty and emotional commitment; 4) Identity and image; 5) The incidence of home ownership which correlates to the resident's desire to improve and maintain the community's condition. In recognition of these identified factors: social fabric, housing conditions, sense of community, identity, and home ownership; the design of the mixed-use project attempts to integrate these important elements and provide a framework for their continued sustenance. The establishment of shared spaces and community facilities balanced with the provision of private territory provide the framework for a positive social fabric. The size of the project, fifteen to twenty units, strives to create a scale that relates individuals to one another as neighbors who can identify one another as belong- 35 ing to the same community. Attention to the design/articulation of the building(s) and unit sizes support the establishment of individual identity - of the home, and of the project community. Responding to two levels of community governed the design of the project. The first level of community was derived from within the project while the second extended to the level of the block. Enhancing the sense of community within the project offered obvious benefits - a sense of security and belongingness. Aligning the internal community of the project with a larger, external community would potentially further the aim of community development and neighborhood cohesion. Typically one's identity of community is limited to and is strongest within a localized area -the block on which one lives. Many examples can be found in the models of neighborhood associations which are often organized around one to two block intervals. The design of the larger outdoor space would not in and of itself guarantee the creation of a social community between the new residents and the existing. Yet, it could provide a catalyst for the clean up for the adjacent backyards as well the creation of an block organization to control and maintain the common space between them. Over time relationships based on cooperation, mutual interests and efforts can foster a united community. THE MARKETING OVERLAY: TENANT PROFILES AND THEIR NEEDS In addition to the urban design and community development objectives, pragmatic marketing considerations were significant influences to understanding the design requirements for the project. The marketplace was identified and their locational criteria outlined for each use. The "extension of the privately controlled domain of the tenants to their doorstep, window sill, or small yard gives Increased opportunities for personalization and....create pride in one's home and can be extended to a sense of belonging and community." ( 36 Residential * middle to upper income * small families, singles, empty-nesters The residential component of the small mixed-use caters to a broad cross section of the population. Principally the appeal is strongest in the young and affluent segment of the market. Between the ages of 25 to 40, they are an expanding market of the upper middle class minority population. They have the option of living in the suburbs and are attracted to the conveniences of living in the city. Typically, they desire to live close to work, may operate their own small business or professional service, or may be thinking of doing so in the near future. They are attracted to the idea of living in a "neighborhood" - like where they grew up, and where a sense of community and identity is apparent. Having available income to invest, they are attracted to the opportunities of buying their own place to live. Yet they insist on a quality and exciting environment and seek to avoid the maintenance of a single family home. Whether they are a single female living alone, or a married couple security is an important consideration particularly as it relates to travelling home from work late at night, and the safety of children playing outside.0 Another potential market base is the empty nester seeking urban living with low maintenance and high security. As life long residents of the city, this segment is wary of large apartments and condominium buildings and relocation to the suburbs. Supplementary to the desire to attract the middle income it is hoped that several below market units can be provided, particularly to the elderly or single parent family. Integrating incomes within a small residential project is often difficult but not impossible. Attaining diversity within the housing component establishes a balanced community. Further- 37 more, ages spanning the range from child to mature adult within a neighborhood offer stability, provide role models and resources for the young and inspiration for the older adult. Office * small professional service companies * shared office space for small start-up businesses * HMO Small professional offices, particularly those with local clientele, are ideal for tenants to occupy the office space within the project. Their space requirements are such that the class B space will adequately meet their functional business requirements. If possible, leasing a portion of the space through a shared office tenant is desirable method of providing incubator space to start-up companies. It is one which emphasizes the increased utility of shared amenities and services. A Health Maintenance Organization is targeted as the principal large tenant. Its presence within the project would not only add stability to the revenue generated from the building, but would make accessible quality medical service and benefit the larger community. 38 Retail convenience/drug store sit-down restaurant deli/ice cream local cleaner/shoe repair local clothing retailer furniture store music/video store copy store bookstore/office supply/card store beauty/barber shop art gallery dance studio The careful selection of neighborhood convenience retailers in the ground floor space can enhance the value of both the residential and office components of the project. Their presence not only offers convenience to the residents and tenants within the mixeduse, but to the surrounding community. Additionally, ground floor retail enlivens the streetscape environment. Community or cultural related tenants, as a local art gallery, will bring amenities into the community by providing them sought after spaces. "It is well recognized that urban retail provides an additional level of security. The 'eyes on the street' experience of many commercial areas is In fact a very old and well established phenomenon. You can count on commercial tenants to police the sidewalk in front of their shop better than anyone else."@ Market support will be derived from the nearby community and, with the given density, is sufficient to insure the profitable operation of the retail component. The design of the retail, the use of signage and lighting, will add a heightened identity for the individual retailers, as well as increased security. Packaging an appropriate selection of one or more attractive retail uses (restaurant), may create a community destination center, analogous to the concept of specialty retail. 39 DAYCARE Providing daycare within the project addresses an important need for the targeted residential and office markets as well as the community outside. Additionally, the inclusion of daycare space relates back to and reinforces the sense of community. Daycare can be run as family care by a resident living in the adjacent unit to the allocated space. Alternatively, the residential and commercial tenants may organize with other community residents and operate the daycare as a cooperative whereby parents successively spend half days with their children in school. THE PROPOSED PROGRAM The proposed program entails the new construction of 72,000 gsf on a 21,927 square foot parcel. The distribution of residential, office, retail, and daycare in the following leaseable square footages. Retail 9,400 Office 19,788 Residential Daycare 23,351 12 7 Parking 1,800 townhouse units penthouse units (28 stalls) One level of underground parking was included to preserve the quality and use of the outdoor space. It was determined that the zoning requirement for parking was impractical and outdated, with respect to both the commercial and residential uses. A Section of Parisian walk-up apartment Zeidler, p.12 40 zoning variance will be needed. For marketing and functional reasons, the program proportions a higher parking ratio (1 car/unit versus the zoned .7/unit) than presently required. Conversely, parking provided for the commercial uses is less than the mandated amount. The rationale behind the decision to alter the parking ratios was based on the notion that both the retail and office uses demand little or no actual parking because of the pedestrian nature of the localized trade area. It can be reasonably argued that the provided parking will adequately meet the needs of the commercial tenants themselves, and that the available parking on the street will meet the demand from the commercial clientele. A higher ratio of parking to residential units is more suitable and attractive to the targeted market. Additionally, a portion of the parking spaces can be shared between the commercial tenants, who require daytime use, and the residential tenants, who largely require nighttime and weekend parking. The central open space provided in the building design is the crux of the project concept. The 8,000 available square footage exceeds the required 150 square feet per unit mandated by the zoning. Supplementary to the ground plane open area is the inclusion of private decks for the residential. Provisions were made to utilized the deck created by the access to the underground garage as a terrace for commercial use (outdoor eating for a restaurant) along the Mass. Ave. edge ,and a patio area for the internal court. While the inclusion of the court area may act as a catalyst for the revitalization of the adjacent backyards in the block, the success of the quality of the space within the project is not dependent upon the fulfillment of that goal. If necessary, the property line of the site can be screened by planting in a manner that further enhances the quality of the outdoor area. 41 THE LOCATION OF USES ON THE SITE Washington Street was identified as the most appropriate retail location, in part because of the frontage it afforded (180 linear ft) and because of its tradition as a of retail corridor. West Springfield was clearly the primary residential identity and was determined as the most appropriate location for the main entrance to the residential above the commercial. Additionally, because the block along that street edge was foreshortened by the destruction of the townhouse pattern, the decision was made to locate the entrance of the parking along Massachusetts Avenue. Subsequently, Massachusetts Avenue was chosen as a suitable identity for the office component of the project, the entrance of which was located adjacent to the garage entrance. By and large the office was the least sensitive of the three uses to location on the site. Nevertheless an attractive image is required to attain market appeal to the location. The line of the opening to the garage was pulled back from the street so as not to detract from either the office entrance or the neighboring residential. Additional townhouses were continued along Massachusetts Ave.to complete the line of existing housing on the block. Similar to the traditional use of alleys separated the residential from the commercial, the garage entrance achieved the same function. Through the clear separation of entrances for each use, well established and distinct identities could be constructed. Market appeal would then be further enhanced for each use. The office component of the project would exhibit the quality of an office building for its tenants. Likewise the residential component maintained the identity of a residential building and the retail, unhindered by breaks in its facade, would read as a cohesive commercial strip. Onan roan) 42 . PFFIct WrAOFricr THE LOCATION OF USES WITHIN THE BUILDING The functional requirement of retail limited its location within the first two levels of the building. The need for easy pedestrian accessibility and visibility necessitated the designation of the ground floor area for retail. In contrast, the private and territorial nature of residential space makes higher demands for levels above the ground floor plane. Depending on the quality of views attainable, generally, residential increases its bid as its height in the building increases provided that elevator service is available. Thus housing units were place at the upper portion of the building along Washington Street, at heights exceeding the adjacent townhouses along West Springfield Street and Massachusetts Avenue. The additional height not only created added value to the housing (views were created to downtown Boston, the Christian Science Center, John Hancock building, as well as other notable buildings along the Boylston Street retail district) but also reinforced the taller street edge along Washington Street. The location of the units along the southeasterly edge of the site gave opportunities for quality light and ventilation. cNVVW Continuing the townhouse configuration for the remainder of the residential raised the first level of housing one half level, along West Springfield Street, and one full level, along Massachusetts Avenue, above grade. Daycare was placed at the ground floor at Mass Ave because of its requirement for direct outdoor access and to make it more easily identifiable to the larger community. The office component of the program was relatively insensitive to its location within the building, as compared to the other uses. Accordingly, the office space was used as served as a buffer which neutralized the potential conflict between the retail and residential uses. 43 CIRCULATION AND ACCESS Reasonable efforts were made to simplify the circulation for each use so as to maintain reasonable efficiencies within the building. Notwithstanding the requirement to maximize rentable floor area, the design remained sensitive to need for interesting circulation corridors. When possible, the circulation was moved to the outside edge of the building and related to directly to the experience of the courtyard area. Additionally, direct access from each use to the parking and service area was identified as necessary functional requirement. Direct physical access to the court area was limited to the residential components, including both the penthouse units above the commercial spaces and the townhouse units. Residential tenants were provided access directly from their units as well as from the street through the main residential entrance. Access to the court area by residents from the remainder of the block is possible along the existing path and would be secured at either end with a locked gate. The resulting design of the project illustrates that it is possible to achieve an integration of multiple uses on a small urban site. Moreover, with skilled and artful design and development, the resulting architecture can be quite startling. Each space within the design can offer the appropriate identity, functional and aesthetic space for its different functions and individual occupants to utilize and enjoy. The small mixeduse can provide well serving incubators for small communities, both within the project and for the immediate community at large. NOTES: 1. Phillip L. Clay, Neighborhood Renewal, Lexington Books - D.C. Heath and Company, Lexington, Ma., 1979, p. 6 . 44 2. Peggy Wireman, Urban Neighborhoods. Networks, and Families, Lexington Books - D.C. Heath and Company, Lexington, Ma. , 1984, p. 42. 3. Joan Goody and John Clancy, "Need for Variety and Personalization," Essays on Social Housing, Progressive Architecture, July, 1984. 4. Clay, ob.cit. "The revival of middle-class interest in the city as a place to live has been attributed to a major reversal in the attitudes and values of young people. Observers point to youth's great interest in self-actualization and their even greater desire to express their life-style in their consumer choices, including housing, sugges that young professional consumers seek the most in custom for their dollars.... four primary factors may help explain the demonstrated willingness and desire of young consumers to buy and renovate older houses in the city: 1) the diversity of the city, 2) its convenience for those working in the city, 3) its position as the center of adult-oriented activities, such as theaters, restaurants, and sports events, and 4) the opportunities it offers for good, even stylish, housing at bargain prices." 5. Michael P. Buckley, "Urban Speciality Retail: Potentials and Limitations for Supporting Real Estate Values," National League of Cities. 45 46 CHART A MIXING USES WITHIN A SINGLE BUILDING: FUNCTIONAL ISSUES 47 Concerns from the Residential Perspective How to mitigate * The existence of commercial uses below and immediately along side the housing brings up issues of smells and noise from the operations of those businesses, from people who tend to congregate/loiter outside. Noise pollution relates to the possible problem of security of entrances and open spaces (both shared ground space and decks) and parking. Disallow commercial uses that usually attract loitering teenagers or others (video arcades, pizza joints, liquor stores, record stores, fast food establishments, 24 hr convenience stores) Isolate noisy/smelly businesses away from residential as much as possible. Isolate/protect residential entrances from commercial areas as well as residential openspaces/decks and parking. * The existence of noisy neighbors, because of the close proximity of living may be a problem. Noise levels may be increased because of the central outdoor space. Adequate attention to soundproofing within the units and between them. Use sound absorbing materials in the interior court as much as possible. * The creation of a central open area (internal park) frames the design potential for residents to bring their cars to the building entrance(s) for short term drop-off and pick-up. The green space gives residents a place to let their children play outdoors under the supervision of the parent in the unit nearby, and/or the community at-large. The open space can be easily "policed" by the residents. Daycare within the building eases the parents' task of dropping off/picking up their children when going to and from work. On the other hand, the large open space allows little/no outdoor privacy for individual residents. * * 48 * Garbage maintenance is a problem, more so than in other buildings because of the establishment of the interior park (the building has two "frontyards"). Additionally, should some residents fail to adequately maintain their own open space areas as well as the public spaces, everyone suffers. * Formulate a resident run management organization (a "cooperative" between the condominium and retailers/office associations) to further the development objective of creating and fostering a sense of community within the residents and encouraging long term investment in the building (and therefore, in the larger community). 49 Concerns from the Commercial Tenant Perspective * * Office tenants may find themselves uncomfortably located above smelly retailers. On the other hand they may enjoy having quick access to lunch, as well as the serenity of looking out into the interior park and underground parking with direct elevator access, not to mention the convenience of working close to home. Provide adequate ventilation systems. * Shared office spaces lower the effective costs to the office tenants. Minimized common spaces (through efficient planning) reduces overall maintenance costs while providing for attractively designed and usable public areas (higher per square foot expenditures). Retailers are forced to service their stores from the front. Garbage disposal and maintenance may be awkward and hard to conceal from the other uses. * Shelter and isolate garbage collection areas from the open space. * * 50 CHART B DESIGN CHARACTERISTICS FOR THE SMALL MIXED-USE 51 Repairing/Mending the Tom Urban Fabric * Filling in the missing teeth - replacing abandoned buildings * Completing the block prototype - building on vacant sites Making the Sum Greater than the Parts * Aggregating small, individual outdoor spaces to provide a large green space - connected to and including the neighboring residents * Creating economies of scale - for underground parking Creating a Community Within the Project * Sharing spaces, interior and exterior, when possible * Orienting residential and commercial spaces toward them - to claim as part of their territory, to police Providing the functions of Neighborhood * Spatial and Personal Identification * Security and attractive, safe places for children to grow up. Creating a Community With the Immediate Neighborhood * Physically connecting/relating to the existing surrounding uses to enhance their value - a kind of urban outreach Connecting the shared green space to the yards of the neighboring residents * 52 CHART C SUMMARY OF QUALITATIVE AND PERFORMANCE REQUIREMENTS 53 RESIDENTIAL Quality of Construction and Design * Insulation from noise between units, and within the unit * Level of craftsmanship in the details Privacy * From neighbors - hearing and seeing them * Within the unit - from the kids and noisy activities within the apartment. Management and Upkeep * Overall appearance of the units from outside * The attentiveness of neighbors to maintain the appearance of the building and the outdoor spaces - the general belief is that renters lack the appropriate attentiveness. Sense of Open Space * What people can see from their windows - it relieves the enclosed feelings of the density of the housing The Size of the Development * It's much easier to create a good small high density project than to create a large one. One important factor affecting the resident's perception is how many and how often he/she sees the other residents at one time. Another factor is to what extent individual residents recognize the other residents in the project. 54 Security * Of the individual units from burglary, the entrance from loiterers, the parking area from vandals, the open space area from all criminal elements. Parking * Security from vandals, weather, and movement to and from the parking area. OFFICE Competitive and Reasonable Rent Levels Quality of Design and Space Flexibility * For the arrangement/rearrangement of workers' spaces and offices. * Expansion/Contraction possibilities * Pleasant and supportive environment Operating Expenses * Efficient HVAC systems * Minimize heating and cooling costs Location * Accessibility and image for and to customers, clients, patients, etc. * Proximity to public transportation and highways 55 RETAIL Demographics * Spendable dollars available within the trade area - breadth and depth of the market Location and Visibility * Traffic counts * Visibility from the street from both cars and pedestrians The store must be accessible - convenient to get to. * Stores like to be near other stores (depending on the type of retailer they are). Window Frontage and Signage * 12, 15 to 20 feet is generally adequate for the mid-sized retailer. * Signage should be highly visible and appealing Store Depth * 50 - 60 feet is typical - allows for store service area and storage. Common Area Expenses * Common areas should be minimized or utilized so as to promote increased sales for the retailers. 56 DESIGN SCHEMATIC 57 58 Basement Plan 59 Ground Floor Plan 60 Office Plan I [[ f - 0 U B a U U g g m g g L 61 Penthouse Floor Plan 62 Section Looking South 63 Section Looking North 64 SECTION III: THE FINANCIAL ANALYSIS 65 THE ASSESSMENT Pro forma analysis indicates that the proposed scenario for the small mixed-use has economic potential but that substantial examination of its components is necessary to make the prototype truly viable. Admittedly the decision to develop the project within marginal locations sets up a difficult hurdle to test the strength of the prototype. Yet, in spite of the relatively high revenues projected and one year absorption the ten year holding period for the project is forecasted to be lean. It is envisioned that the development will increase the land value in the immediate area and act as a stimulus for increased investment. Nevertheless, the extent to which the project proves viable depends almost entirely on the the anticipated long term appreciation (future capital gain) of the development. With a zoned FAR of 2, the project does not support itself. At FAR 3, the numbers begin to offer returns worth examining further, provided that the residential component is sold as market rate condominiums. Even then the project remains a "skinny deal." Up-front equity requirements are high (in excess of a half of a million dollars) and result from the limitations imposed by financing the development soft costs and land acquisition (see exhibit 2). The construction debt is limited by the amount of the permanent or takeout loan which in turn is a function of the lender's debt coverage ratio (DCR). In considering the project risks a DCR of 1.18 was used in the pro forma. The project exhibits a return on cost of ten percent during the first four years. 0 Lenders in the Boston area report that most single use properties return eighteen percent. ® Assuming a five percent inflation rate, modest cash flows are spun off through out the entire ten year holding period. (see exhibits 3 and 4) 66 Based on the market assumptions residential condominium provides the greatest return to the project. Current market value of the condo units targets the project to upper income levels exclusively. 1400 sf units selling for $190/sf require an annual household income of approximately $85,004? The attempt to provide larger units is constrained by the upper middle class market's ability to afford the unit and is reflected in the design. The project exhibits less strength as rental housing. Despite secondary financing at the project's onset, returns in the rental scenario remain below 11% (IRR) and 8%as a return on cost. (see exhibit 7). Unless the project utilizes available housing subsidies the units, if made rental, will necessarily and exclusively be marketed to upper income levels. A rental scenario is least desirable in this project not only because of the unattractive returns it offers but also because it is inconsistent with the assumption that homeownership opportunities are better for the project and the efforts toward community revitalization. THE ASSUMPTIONS AND THE RISKS Any of the given assumptions for the project are subject to error in estimation. Yet, most pose no more difficulty of prediction than in most development projects. All the assumptions made were relatively modest. (see exhibit 5) Within the given range of market and cost information obtained, the more conservative number was used. The pro forma is very sensitive to assumptions about lease-up and sales rates. Small changes in these assumptions greatly influence the financial return. Given the unusual nature of the project and the fickleness of the residential marketin this location, a strong marketing and leasing program are essential. the major risks in this deal relate to marketing and lease-up. Construction costs were based on available estimates for Boston. The numbers assumed no unusual site conditions and accounted for a sufficient budget to afford 67 innovative architectural design and quality construction given the need for attractive housing and efficient coordination of mechanical and fire safety systems. The costs of one level of underground parking were also included. (see exhibit 6) Comparables on the revenues were difficult to ascertain for assessing appropriate market rates for this project. Pioneering projects are plagued with this difficulty and as such, similar difficulties will be confronted by projects in similarly underutilized locations. Current depressed neighboring rates were inappropriate for the proposed development. On the other hand they could not be completely dismissed. To the extent that current commercial spaces were renting well below the proforma projection of $18/ sf, a substantial increase of sales revenues had to be justified by the commercial tenant to relocate into new space. A sustainable argument for commercial relocation would in most instances be easy to make, yet would be limited by the tenants' own estimation and available capital. Maintaining local businesses through relocation works as an objective consistent with the efforts toward community revitalization only in so far as doing so could be justified financially. By and large, "outside" commercial tenants would lease the commercial space in the project. Attracting new commercial tenants into the area would require rent levels less than those quoted in stronger, proven locations. Accordingly, conservative rent estimates were made while striving not to undercut the potential revenue stream. FURTHER ANALYSIS Several alternative strategies and possible adjustments to the proposed scenario were briefly examined to strengthen the viability of the project. 68 Creating Office Condominiums Creating condominiums in the office space theoretically shifts the difficulty of obtaining permanent financing on the commercial space. In reality, most businesses will be dissuaded by the financial commitment of purchasing their commercial space. Additionally, the potential sales will be limited to the financial strength of the companies, most of which will be small or start-up. The implications are that the available market will be reduced substantially (fewer tenants will qualify for financing). Even if acceptable sales levels could be achieved, long term appreciation benefits would be lost. Increasing the FAR Adding one to two more floors in the project will increase the net leasable area of either office or residential . The per square foot costs of the additional floor area will be less than the proposed area provided that the total building height remains under seventy feet. G Increasing the Density of Housing Providing additional penthouses on the fourth and fifth floors in a double loaded corridor scheme creates smaller units, more of them and a higher per square foot sales revenue. Smaller units may be more marketable if, on a per unit basis, they are less expensive. Twenty units at 990 sf will sell at $188,100/unit ($190/sf) and requires an annual household income of roughly $60,0000 The current scenario assumes seven penthouse units at 1400 sf. At the smaller unit size the projected $190/sf sales rate becomes more reliable, the assumed absorption period of one year more probable. Additionally, more units reduces the per unit cost of providing an elevator as well as reducing the owner maintenance costs. 69 Subsidizing the Land Costs Acquiring the land at nominal or no cost reduces the equity requirement and enhances the project return . Without acquisi tion costs, the rental scenario equity requirement drops 8 % from$1.9 to $1.7 million. Similarly, the condominium equity requirement falls 4% from $683,000 to $653,000. Project internal rate of returns increase from 11% and 18% to 13% and 23% respectively. Obtaining vacant properties held by local agencies is possible in many city neighborhoods. If so, the inclusion of a specific number of subsidized housing units may be required in exchange. Alternatively, obtaining land control as a partnership interest contribution in exchange for a stated return at project completion or ongoing ownership interest in the property may have its advantages. Rehabilitation Rehabilitation is a possible alternative for the project provided that subject buildings can be acquired at minimal cost -completely gutting the building is in almost every case a requirement. Design costs as well as budgeted contingencies for construction will be increased. Additionally, underground parking, unless already provided in the existing building, will be impractical. Nevertheless, some available sites will have an existing structure that may be worth preserving and incorporating into the new construction. In some cases it may be possible to preserve the exterior (front facade) of the existing building when it would be architecturally aesthetic and beneficial from a marketing standpoint to do so. Facade preservation is expensive and may be appropriate only in locations where market demand is strong. Facade preservation, of a notable church or schoolhouse, may, however, reinforce the positive images (and institutions) of a community and can be rationalized from that perspective. 70 Summary As shown, in depth analysis of the outlined alternatives as well as others is required to completely understand the full financial picture of the small mixed-use. Making the prototype viable is possible through either an increase in revenues or by reducing the cost of the development. For increasing project revenues augmenting project density is the most prudent solution. Inflating market assumptions on revenue streams only compromises the project's market attractiveness. On the other hand, increasing the density too far endangers the aim of creating a viable community within the residential component. Development cost reducing measures exist in land subsidies and property tax abatements. Mortgage interest rate subsidies, investment tax credits and other strategies are available instruments which may increase the likelihood of a successful mixed-use project. Additionally, raising capital through syndication may prove feasible. An analysis of these and the after tax benefits will be a decisive factor in the final determination of the project's true economic strength. Notes 1. In the rental scenario the return on cost is calculated a t 8%during the first stabilized year. 2. Some lenders may be willing to accept a higher risk because of the community revitalization objectives of the project. 3. Assuming 90% financing at 10% interest, 30 yr. fixed, and mortgage payments at 30% of gross income. 71 4. "Outside" is interpreted to mean new business and/or local businesses from other parts of the city. Further analysis may reveal methods fro subsidizing or "incubating" marginal businesses through coordinated support systems of business associations and the like. 5.Building heights beyond seventy feetrequire increasedconstruction expenditures for the inclusion of automatic fire suppression equipment. 6. $60,000 annual income is calculated based on 90% financing, 10% fixed rate amortized over 30 years and assumes a maximum mortgage payment at 30% of gross income. 72 Exhibits 73 THE DEVELOPMENT Site Area sf : acres: 21 , 927 0.50 2on i rig Floor Area Ratio CFAR) Structures (CGSF) Existing Total Total 8-2 2.8 6, 400 New Building GLA New Building GFA 60,139 61,320 Parking Area Provided # st alls Parking Required per zoning Comm.mercial Residential 10,800 29 39 13 THE DESIGN SCHEME CGLA) Building Footprint Open Space ALLOCATION (GFA) 13,686 8, 2-11 62% 38W-4 EF:FF IC I ENCY RATIOS OF USES Retail 9,100 Of f ice Residontial 100% 19,7 88 23,280 33%, 23, 351 26, 840 39%-. 1,1800 1 , 800 5,800 10 , 800 12 TH units ? PH units 1007 Park i ng 29 sta TOT AL BUILDING l1l:s 60, 139 72, 1.20 exhibit 1 74 FINANCIAL SUMMARiY Rental. N^s--elopmenit Cost-. s $6, a37 -49.,2 Condom i ni um $6,837K, 4192 Amount F i nanced Mortgage F irst Second MortgagQ 4 , 6.97"-, 05S1 700 , 000 2, 693. 993 0 Rof inanci AMount Year of Refirance 5, 271, 357 6 0 0 3,692,987 Ns;t Proceeds of Condo Sales (with parking) Projectr Value Cap Rate Sale 8,612, 061 10% Not.+- Proceeds C] Sal e 5, 281 ,?I1 Equity Required 1, 872, 205 NPV Cash Flow I RR Return on Project Cost Cztabi l ized yaar ) exhibit 2 243, 832 11% 8% 5,352, 342 10% 2,898, 649 683, 749 613, 359 18% 10i 75 LIST OF ASSUMPTIONS (GLA) ANNUAL INFLATION ASSUMPTIONS Retail Rents Office Rents Residential Rents Condominimum Sales Parking Rents Operating Expenses Lease Rollover Rate Retai1 Office Resident ial Cap Rate Discount Rate Absorption Rate LEASING EXPENSES 5P 5 7% 5% 5I 5% Ofmierc. L. r . Res ide'ntial / 1 g..r P OFF i c: Rol] lover/GLAH I. P OPERATING E:-'.PENSE 301% 501% Com..mffielrc i a 1 1.70 R.E. Ta:s. I nsi:5uranc:-e 1%0% 1% 50% 0.8-4 Retai1l Off i.: P.iei-s i d n t i a I 0.85 0.85 0. 00 ~. Daycare Ma inten-.ance/Repa ir !r Replacemntt Reserve i Adm i n i strat CONSTRUCTION COSTS Shell Retail Office Residential Daycare 60.00 60.00 60.00 60.00 Finish 15.00 20.00 30.00 10.00 TOTAL OPER AT I NG EXPENS.-ES REVENUES (rate) Retail (triple net) Office gross w/4.8'4 stop) Residential Rental Condominiums Other - Day/eldercare Parking/stall Rental Condominium Condo/Lease $10.00 CGLA) (total) 18.00 9,'400 169,200 17.50 19,788 3A6,290 17.00 190.00 8.00 23,351 23,351 1,800 720.00 20,000.00 720.00 29 15 114 396,9641 4, 436, 652 1.,1400 20,880 300,000 10,080 exhibit 3 0. 10 0.42 0. 14 .. 0 1 $1.91 Rsi donnt-i a l. 1..70 0.814 o. 00 0.00 0. 10 Q. 42 2. 80 0.014 $5. 90 76 I DEVELOPMENT COST ACQUISITION Land per acre Eluildinag /sf BUDGET' Percentages 0 $ 100, 000 407 0. 7?4% 256,000 3. 71~ 4-0? '1.18~ 48,000 0.70O $50, G $10. 00 TOTAL ACQUISITION COSTS $306, HARD COSTS .G FA) Demo li t ion 0 $7.50 Construc t ion Retail Office Residertial Daycare Landscaping 3 705,000 1,792,560 2,310,92-4 126,000 $10.00 Underground Parking @ $25 TOTAL HARD COSTS 10. 31%;26. 22% 33. 80% 1.04% 329.610 '1.62% 270,000 3. 95% $5,582,121 81.64 SOFT COSTS Arch and Eng 0 6% Legal and Acc't Permits Insurance R.E. Taxes 334, 927 I I I Development Fee (incl marketing/leasing) 8 TOTAL SOFT COSTS DEVELOPMENT COSTS EALL FIGURES REPRESENT exhibit 4 A. 90% I 2. 45% 1-16, 570 6. 53% $918,961 13.88% $6,837,492 1988 VALUES] 100. O0P 77 FINANCING ASSLIMPTIONS CONSTRUCT ION LOAN Annual lInteo-rst rate 11.00% Point.: Term C'.month-s) Const-ruct.ion Perriod Condo Absorption Pe.riod Amort i zat i on Avg amount outst.anding 2. 00% 15 Intrst Only 50 RENTAL L1vr 1opment x LTV 0 Cost $6, H-37, 192 80. 0 Cal.1cult~Construction Principal Calo.cula ted Construction Pe-riod Loan Cost. $5,A69,,4 ,185, 462 Calcula;ted $5,,955, 156 Actua l Act.ual CONDO - Construction Loan Amount Contruct i on Loan Amount. Construction Principal $5, 9?,051 4,,965,287 Absorption Period Inte.rest Urf i nanced Dve l opment Costs 90. 001% X $6, 15a, ?3 546, 115 $6,699, 887 )'- $6, 699,887 195,881 $683,'7-19 $1, 872., 205 x The actua1 loan is the sm 1allcr amount be'twero calculate-d permanent financing ard LTV of dv.elopment ocsts. PERMANENT FINANCING Loan Amount Debt Service Interest Rate Points Term Amortization DCR exhibit 5 - RENTAL First $4,697.0 51 $498.2 60 10. 00% 2. 00% 10 30 1 . 18 PERMANENT Second $700,000 $86,901 12.00% 2.00; 5 0 1.00 Refinanced $5,271,357 $606,336 11.00OO FINANCING - CONDOMINIUM Construction Loan Amount Net Proceeds from Condo Sales Units Parking $6,699,887 Loan Amount Debt Service Interest Rate Points Term Amortization Debt Coverage Ratio $2, 693,993 $285, 777 10. 00% (3.992,987) (300,0003) 2.OO 10 30 1.15 200% 10 30 1.18 78 10 YEAR PRO FORMA RENTAL SCENARIO YEAR 0 1 2 3 4 5 6 7 Grosz Income Retail Office Residential Daycare, 0 0 0 0 169,200 346,290 396,964 11,400 169,200 346,290 424,751 14,400 169,200 346,290 454,484 14.400 169,200 346,290 486,297 14,400 169,200 346.290 520,338 14,400 215,947 441,964 556.762 18,378 215,947 411,964 595,735 18.378 Total base Revenues Parking Revenues so 0 $926,854 20,980 $954,641 5984,374 23,020 $1,016,187 $1,050,228 $1,233,051 24,1?1 25.380 26,649 $1,272,024 21.924 GROSS REVENUES Vacancy I 50 5947.734 $976,565 50Z 52 NET REVENUES Operating Expenses hanagenent 0 62 S1,007,394 51,040.359 $1,075,609 27,981 $1,259,700 $1,300.005 0 9 10 215,947 215.947 215,947 441,964 411,961 411,964 637,437 18.378 682,05? 18,378 729,901 18,370 51,313,726 $1,358,346 $1,406,090 S1,644,022 34.011 29,380 30,949 32,392 51,343,106 $1.389.195 $1,438,482 50O $473,867 $927,737 595?,024 $988,341 0 (145,425) (282,852) (320.,220) (296.939) C304.514) (403,926) (424j122) C445,328) (467,595) (490,975) C599,052) 0 C28,432) C55,664) C57.421) (59.300) (61.310) C71.803) C?4.100) C76,557) C79,184) (81,993) C95,648) C92,799) C23,918) C1,274) (1,363) C1,459) (1,561) (22,029) (1,670) C1,797) (1.912) C2,046) C2,189) C48,828) (50,370) (52,018) (53.780) (62,985) $1.021,828 $1.196,715 (65,000) S1,235,005 (67,155) $1,275,951 C69,460) 51,319,736 (71,924) C35,983) $587.946 5578.019 S630.643 $654,443 5697.296 5734,995 S752,153 $770,910 $791,400 Debt service First hortgage Second hortgage Office Lease Rollover Exp 0 0 (498,260) (498,260) (66,901) 0 C498.260) (06.901) 0 C498,260) C6. 901) 0 C498,260) C96,901) C120,262) (606.336) 0 0 C606,336) 0 0 C606,336) 0 0 C606,336) 0 0 C606,336) 0 (153,489) CASH FLOW AFTER DEBT 0 C50,979) 90,950 128,659 145,8 1? 164,575 31,576 0 (1,972.205) 0 0 0 0 32 HPV OF CASH FLOM I RR TOTAL DEVELOPMENT COSTS RETURN ON PROJECT COST exhibit 6 0 0 (1,872,205) C66,90 1) 0 2,786 C7.141) 15.483 0 0 0 0 0 0 0 0 0 C79,94 1) 0 0 0 0 0 0 0 0 (105,427) 5,271.357 0 0 0 0 0 0 0 0 0 0 0 (1,651,350) 0 0 0 0 0 0 0 0 0 0 0 8.612,061 0 C3,103.561) 0 0 0 0 0 (401,757) 5.397,051 0 (5,397,051) 0 (481,698) 2,796 (7,141) 45,483 0 0 0 C50.979) 605.530 128,659 145,017 92 10 10 C259.362) 164,575 5,201,714 243,832 11.33X 7,269,256 82 82 92 (93,902) $1,366.558 51.594,132 5193,404 CASH FLOW BEFORE TAXES $1,678.034 (473,967) 0 s0 Initial Investment ! Unfinanced Bev Costs Mlortgage Points Proceeds fron Refinance Proceeds fron Sale Payback of Loan balance Costs of Sale I 275,609 564,070 780,88? 23,456 0 0 Leasing/Rental Expenses Conmercial Residential NET OPERATING INCOME 11 102 112 112 (2,343) S861,206 79 10 YEAR PRO FORMA RESIDENTIAL CONDOMINIUM SCENARIO YEAR 0 Gross Income Retail Office Residential Daycare - 0 0 0 0 1 2 3 4 5 6 169.200 316,290 169,200 169,200 346,290 0 11,400 169,200 346,290 0 11,400 215,947 316,290 215,947? 141.961 111,961 0 18,378 0 18,379 14,400 14,400 169,200 346,290 0 11. 100 1,136,652 0 7 9 10 11 215,947 141,964 215,917 0 18.378 0 18,378 275,609 561,070 0 23,156 9 215,917 411,961 0 19.,379 111,964 Total Base Revenues Parking Revenues $0 0 $1,966,542 310,090 $529,990 10,581 $529,890 11,113 $529,890 11,669 $529,890 12.252 $676,299 12,865 $676,29 13,508 $676,299 11,191 $676,209 14,893 $676,289 15,637 $863,135 16,419 GROSS REVENUES $0 5,276,622 540,174 $541,003 $511,559 $542,112 $689,151 $689,797 $690,172 $691,182 $691,926 $979,551 0 0 (263,278) 0 (27,021) 513,150 (27,050) -513,9 $513,953 $511,181 (27,107) -515,-35 $515,035 --5-,69$651,696 (31,490) --------655,3-7 $655,307 (31,521) -655,9-9 $655,919 $656,623 (31,596) (3,978) ------$657,330 $935.577 (145,427) (115.427) (167,929) (167,929) (167,929) (167,929) (167,929) (211,321) (39.357) (39,397) (39,110) (50,135) $535,231 Vacancy 2 52 513,-50 NET REVENUES Operating Expenses Management 0 so 5,013,311 O (76,540) (145,427) (145,127) 0 (16,602) (30,807) (30,837) 6 102 Leasing/Rental Expenses (27,078) 5------ (30,969) (30,902) (34,158) (39,292) (39,318) Condo Sale Expenses NET OPERATING INCOME Debt service Rbsorp Period Interest First Mortgage Second Mortgage Office Lease Rollover Tenant Rllowance CASH FLOW AFTER DEBT Initial Investnent Unfinanced Dev Costs Mortgage Points Proceeds fron Refinance Proceeds fron Sale Payback on Loan Balance Costs of Sale @ CASH FLOW BEFORE TAXES NPV OF CASH FLOW IRR TOTAL DEVELOPMENT COSTS RETURN ON PROJECT COST exhibit 7 (413,665) (92,788) s0 0 0 0 0 S0 (683,719) 0 0 0 0 0 ($683,719) (34,559) 65,62 (22,029) (35,883) $337,217 $337,689 $338,185 $338,706 $125,156 $118,060 $148,663 $119,296 $419,961 0 0 (285.777) 0 (285.777) 0 (295,777) 0 (295,777) 0 (285,777) 0 (285,777) 0 (285,777) 0 (285,777) 0 (285.777) 0 0 0 -51,4-$51,110 0 $51,912 $51,912 0 -52,-09 $52,409 (120,262) C$-7,333 ($67,333) 0 -139,6-$139,690 0 -1-2,23 $162,283 0 13---$162,896 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 $51,912 $52,109 (67,333) $139,680 $162,283 $162,886 $1,383,749 (195,881) $3,997,867 0 0 0 (53,880) 0 2,693,993 0 0 (3,897,867)(2,912,020) 0 0 $0 (120,167) 0 -------$163,520 (153.488) $-------$10,696 0 0 0 0 0 0 0 5,352,342 0 (2,303,819) 0 0 (160,570) $163,520 $2,898,649 $613,359 17.92P $3,495,770 107 102 102 102 12? 132 132 13% 13% 80 SECTION IV: A SUMMARY 81 An Overview A myriad of issues were raised during the process of this research. For some problems solutions were found. For others the surfaces were barely scratched. Within five categories of the development process: design, construction, marketing, leasing and finance, recurrent questions are brought up with each small mixed-use project. The following paragraphs summarize the pertinent points. Design and Construction Essential to the successful adaptation of the small, mixed-use development was the careful and full understanding of both its physical form, the relationship of uses, the extent to which they can be overlapped and the benefits/detriments that can be derived. The questions faced with the design of each project are: What drives the building concept? How well do the uses relate to one another? Are the functional requirements adequately met to insure the lease-up and successful operation of the commercial components? How well does the design distinguish the different functions and how well does the project create appealing image and identities for each? In addition, how does the project relate to its context, the larger environment - the community outside? Balancing the quality of construction and craftsmanship with economy is of particular importance to the success of the project - selling the residential units. The pertinent issues to address include: To what extent is the risk of shoddy subcontractor work mitigated through the design of the architectural detailing and selection of materials? Additionally, to what extent is the task of operation and maintenance made easier or more complicated? "A nutriment is defined as that substance whose intake and use sustains life: promoting growth, replacing loss and providing energy. As such, housing may reasonably be considered as much a nutriment to the human diet as food; consequently it may prove fruitful to evaluate the creation, use and displacement of housing through analogies from the comestible diet." (D 82 Marketing/Leasing As the design of the project related directly to marketing and leasing additional factors are folded into the process. Marketing is the key to the success of the any development project but is dependent upon the building's functionality and quality ofthe architectural design. Factors to consider in the marketing of the project include: How well has the design of small mixed-use addressed the issues of security, convenience, and service? How well does the project support the emotional needs of its occupants, both residential and commercial? Do the different uses coexist harmoniously and is there a synergy created between them? The marketing effort for the project must necessarily be aggressive and well tailored. Directed and thorough attempts will be needed to fully identify the market demographics. The concept for small mixed-use is largely untested and its target market is not entirely understood. Who exactly is this so-called minority middle and upper class market? What do they want in housing, in working, in living, in location, and in return on their investment? What specifically are their alternatives, i.e., the competition? What is being offered and at what prices? Understanding the nature of the market can be elusive and requires, in part, anticipating market demand that is currently not well researched. The creation of townhouse units allows residents the flexibility of integrating small businesses within the home or of purchasing the entire townhouse to rent out the bottom for extra income (though rental units within the project may bring additional marketing and management problems). The project as a whole supports the option of working in or near the home. Additionally, the design of duplex units allows for the creation of interior spaces which appear larger, provide privacy for bedroom and workspaces within the unit, particulary attractive and functional for families with kids or residents with the desire to work at home. 83 Financing Bankability was the stated goal and a necessary part of the definition and understanding of the small, mixed-use project. The prototype exhibits the potential for financial viability. Yet, several questions remain unanswered in this investigation. What kind of institutions will finance such a project and to what extent can "local" private monies be raised? How might the project accommodate different forms of ownership and investment -forms which promote the growth of local businesses (versus national conglomerates) and which promote ownership opportunities for community residents? CONCLUSION Numerous stipulations were made in formulating the building program and in developing the pro forma. Inherent in the concept of the small mixed-use is the requirement that no one use predominate within the project. By definition mixed-use presumes the integration and careful balance of multiple uses. Accordingly, great care was taken to restrain the prototype from evolving into a housing project with a modicum of retail and/or office attached at the bottom floors or vice versa. An additional overlay onto the investigation and central to the theme of the design was the promotion of community revitalization and the creation of community within the residential component of the project. It was presumed that the requirement would restrain the number of units within a range estimated as roughly equivalent to the size of a (low density) block or less (20 - 30). The retail component was derived from the available area within the first and possibly second floors. The need to provide parking underground determined the depth of the building facing Washington Street. 84 Finally, the office component was determined by the compromise between providing sufficient area to sustain an office building quality and identity, remaining pragmatic about the limits of market demand, and maintaining the integrity of the mixed-use concept. Locationally, the project is best suited at the intersections of residential and commercial districts. Parcels at major intersections are requirements for the commercial components. "Gateways" into the community are highly recommended for stimulating community revitalization. Sites as small as one half acre proved to be sufficient and as such, make available many locational choices. For this study an assemblage of three abandoned parcels were utilized. Small vacant parcels are commonplace in many urban areas. The project design illustrates the concept of organizing the uses around a main feature, in this case a central outdoor space. The commercial spaces were oriented outward to the major streets, while the residential focused internally to the court. The design of the landscape was constructed to add a valuable amenity for the residents and enhanced the quality of outdoor area for the adjacent housing. Adequate and well protected parking met issues of security and enhanced the market appeal. Additionally, it provided a mechanism for submerging the service and trash removal requirements out of view while increasing project revenues. In the final analysis, the concept for mixed-use holds great promise. Its prototype is suitable for a range of urban locations and exhibits the potential to be utilized as a vehicle for catalyzing community revitalization. Though seemingly limited to upper income markets, numerous financing, and development cost saving strategies are available to afford moderate for sale and rental housing and commercial space. The limitations of this research did not allow extensive examination of them. Deriving 85 workable solutions for the architectural design of the project may be an easier task than it is to create viable projects at this scale. The capability exists forprivately initiated development supported through public-private partnerships structures, business coalitions and lending consortiums for investing capital and underwriting debt. Confronting the developerof the small mixed-use, particularly in poor inner city neighborhoods is a challenging task. Yet, the potential rewards, both financial and social, indicate that profitable real estate development efforts need not conflict with or be insensitive to the desire to build vibrant and attractive urban environments which provide the sustenance for strong communities and healthy living neighborhoods. Notes: 1. John G. Mascioni, The Role of Social Needs of the Urban Poor in Determining Performance Standards for Housing, p.10. 86 87 BIBLIOGRAPHY 1. Buckley, Michael P., "Five Principles For Mixed-Use PLanning," Council on Urban Economics Development, February 1988. 2. Buckley, Michael P., "Urban Specialty Retail: Potentials and Limitations for Supporting Real Estate Values," National League of Cities. 3. Clay, Phillip L., Neighborhood Renewal. Lexington Books - D.C. Heath and Company, Lexington, Ma., 1979. 4. Goody, Joan and John Clancy, "Need for Variety and Personalization," Essays on Social Housing, Progressive Architecture, July 1984. 5. 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