Mixed use communities: Not without challenges - by Daniel Calano

May 12, 2017 - Appraisal & Consulting
Daniel Calano, 
Prospectus, LLC

The live-work-play mixed development concept has been around for at least a decade. Some projects have done very well, and others not so lucky. The mix obviously depends upon a great number of things, including the obvious location, supply/demand issues, demographics, etc.

We have been working on a project which is a relatively large Boston metropolitan area site, suitable for residential use, but not for full mixed use of retail, office and housing. After several attempts at permitting, it became clear that the municipality preferred condominiums over apartments, owners rather than renters, or at least a balanced combination. Since our original plan was for apartments, we needed to reconsider the mix. We had to get down into the weeds of what makes a successful mixed use between homeowners and home renters.

We reviewed this issue with a well-known expert, also a CRE, and she agreed that it is a complicated issue, not without challenges. Like the larger mixed-use concept, the smaller version has similar parameters for success: community culture, demographic mix, income levels, and more detailed facets such as governance. At the outset, there is a significant difference between the owners and renters. It is not at all an issue of which one is better than the other. It is simply that the homeowner has more skin in the game, having just plunked down a significant equity and debt commitment. The home renter is obviously much freer, and thus they are two different populations. Let’s explore some of the issues and solutions.

First, in an area like Boston metropolitan area, income imbalance is typically not a factor, since apartments are already very expensive, even when compared to condominium ownership. Unlike mixed units where typically wealthier people are living with more lower or middle-income people, developments in this area house more people of similar incomes. In other words, tenants might be paying $4,000 a month for a two bedroom, while condominium owners are paying only slightly more for mortgage costs.

A more likely difficult concept is age. If for example, condominium owners are empty nesters, and apartment dwellers are students such as may happen easily in the Boston downtown area, the demographic mix could be very difficult. Age brings up issues of culture, life style, perhaps even safety. It is not hard to imagine a retired condominium owner, unhappily living nearby college student tenants on a typical Friday night. Different age, different culture. 

Governance and financial allocation are also potential areas of concern. If the project is tied together through infrastructure and amenities, then condominium boards on the ownership side may be in conflict with apartment building associations on the other side. Issues of common area maintenance, management, and capital-intensive expenses are difficult to be shared and allocated; it is never a simple matter of pro rata.

Similar to allocation of resources, complaints are more difficult to arbitrate and resolve. It is easy to have a renter versus owner problem, where each side is holding the other side responsible for a problem.

What are some the likely solutions? While it may sound extreme, complete separation may be a solution. Building entirely different buildings may be best in some situations, thereby allowing for separate condominium boards and apartment associations to manage their respective properties. Short of that, design solutions creating partial separation should be considered. For example, separate entries and/or lobbies could be appropriate. Separation of amenities such as work out areas and pools may be considered. Different parking areas, some deeded to owners and some more open for renters, are probably appropriate. 

The literature is thin on these issues, mostly dealing with larger social issues of poor versus rich in similar developments or neighborhoods. As new problems arise, in different contexts, new solutions will need to be created. For example, potential changes of apartments into condominiums or mixture thereof may be just around the corner, as young renters move towards ownership. Or, in the case of the project mentioned in the beginning example here, issues may arise early in the permitting process. Regardless of where it happens, creative solutions will need to be formed in order to create mixed communities that are socially, culturally and financially feasible.

Daniel Calano, CRE, is the managing partner and principal of Prospectus, LLC, Cambridge, Mass.