Partnerships and financing are key to mixed-use development

In the next three to five years, market demand for mixed-use development projects will increase significantly.

Ninety-six percent of participants at "Back to the Future: Mixed-Use Development," an event sponsored in April by the Minneapolis Fed, agreed with this statement. The conference served as a forum for more than 250 lenders, developers, planners, local government staff, nonprofit and neighborhood representatives, consultants, lawyers and others to discuss issues surrounding mixed-use development. (For more information on mixed-use development, see the Winter 1998-99 Community Dividend.)

In addition to speakers and panel members sharing their insights on mixed-use, the conference offered participants the opportunity to use individual electronic keypads to generate and respond to questions on key issues.

Ted Mondale, at podium, chair of the Metropolitan Council, concluded the conference with an overview of his vision for the Twin Cities region. JoAnne Lewellen, assistant vice president, and Gary Stern, president, of the Federal Reserve Bank of Minneapolis provided introductions.

A framework for discussion

To set the stage for discussions of mixed-use development during the conference, David Fey, executive director of Seward Redesign, presented the following themes.

Keeping this framework in mind, developers, lenders and local government staff provided valuable insight into real-world issues and lessons they learned in doing mixed-use projects. Concurrent breakout sessions spotlighted four mixed-use developments from the Twin Cities metropolitan area: the Marquette Block on East Hennepin Avenue in Minneapolis, Edinborough and Centennial Lakes in Edina, the Phalen Corridor Initiative in St. Paul, and River City Centre in Shakopee. These projects illustrate vast differences in location, design, scale, ownership structure, and mixed-use orientation, yet they are all examples of mixed-use development.

Conference attendees also heard from panelists with expertise in creating public/private/nonprofit partnerships; financing mixed-use developments; and dealing with planning, zoning, property management and other legal issues affecting mixed-use projects.

Lessons learned from mixed-use projects

Throughout the day, case study presenters and panelists emphasized two important lessons they learned from completing mixed-use development projects. First, government support and involvement through public/private/nonprofit partnerships is critical to project success.

The creation of strong partnerships is a common element in most successful mixed-use projects. Presenters emphasized that local government plays an important role in providing ongoing support, zoning flexibility, and/or creative financing for mixed-use projects.

For example, the Minneapolis Community Development Agency took an active role in redevelopment of the Marquette Block by providing funding assistance and partnering with the nonprofit developer of the project. Similarly, the Phalen Corridor Initiative relies on the cooperation of more than 50 partners including local government, private corporations, business associations, foundations, schools, churches, social service agencies, and community organizations all working together to redevelop 100 acres of industrial land on St. Paul's East Side.

Second, financing mixed-use projects can be complicated and requires a working knowledge and understanding of all the project components.

To finance a mixed-use project, lenders may need to draw expertise from residential mortgage banking, commercial real estate and/or small business lending. A lender from U.S. Bank N.A., who has financed several mixed-use projects including redevelopment of the Creamette building in Minneapolis, noted that he used a combination of projected rental rates and business tenant income to analyze projected revenues for this mixed-use building. Other panelists, representing other lending institutions, indicated that the development team must help bankers and investors feel comfortable with the project and how its various components will fit together to create a successful development.

Benefits of mixed-use development

Mixed-use development is not a new concept, but it has gained popularity as a development and revitalization strategy in recent years. John Kari, senior policy planner at the Metropolitan Council, emphasized that while factors such as the scale of the project or the mix of uses may vary, mixed-use development projects can benefit a community by:

• creating a "sense of place";
• increasing economic vitality and expanding economic market opportunities;
• supporting long-term economic stability by providing tax base and jobs for communities, building and maintaining markets for businesses, and enhancing investment potential for lending institutions and investors;
• increasing transportation options such as walking, biking or busing, subsequently reducing auto-dependent travel;
• maximizing use of public investment and infrastructure, i.e., roads, sewer, water;
• maximizing use of land and supporting sustainable development;
• providing affordable and market-rate housing options; and
• encouraging historic preservation, reuse or redevelopment of existing buildings.

These benefits often provide an added incentive for developers, neighborhood and local government representatives, and lenders to pursue mixed-use projects despite the added complexity of this kind of development. Coupled with the increasing market demand anticipated by conference participants, we can expect to see much more mixed-use development in the Twin Cities metropolitan area in the coming years.