Building a Better Magnet
This is an HTML version of an article that ran in the April 2014 issue of Real Estate Forum. To see the story in its original format, click here.
The construction crane, which following the downturn seemed as close to extinction as the whooping crane, has made a comeback in select markets and sectors. However, if the misquoted maxim from Field of Dreams —if you build it, they will come—ever held true, those days are past. It’s closer to the mark to correctly cite what the disembodied voice told Kevin Costner in that 1988 movie before he began putting up a baseball stadium in an Iowa cornfield: “If you build it, he will come.” In other words, targeted development.
“End users are becoming much selective in terms of what they would like to see,” Charles Pinkham III, vice president of development at Portman Holdings in Atlanta, tells Real Estate Forum. “Good real estate is good real estate and always will be, but what’s happening inside that real estate is becoming more crucial.” In office development, for example, those end users want a space that encourages collaboration, especially since a fair amount of the individual worker’s daily responsibilities can be carried out off-site, he says.
For mixed-use projects, “You need to figure out what the magnet is—how you’re going to pull people in continuously every day,” Kurt Rosene, senior vice president of national development with the Alter Group, tells Forum . In former years, MXDs may have put some retail into the mix with office “because you had to make the pro formas work.” Today, he says, “every component has to stand on its own,” while also complementing the others. “That’s what the lenders are looking at. It’s making us, as developers, look much more at the bottom line of individual components. Hopefully, they assist each other.”
Alter Group is building an MXD on tribal-owned land in Scottsdale, AZ that illustrates this principle. Its 176-acre Riverwalk development along the Pima Freeway is approved for 1.5 million square feet of office all told, but a more recent addition is a TopGolf facility, which broke ground last July and is geared toward players of all ages and skill levels. Alter Group expects 400,000 visitors to TopGolf in the first year after its completion, half of them non-golfers. With TopGolf, an adjacent casino resort and a Major League Baseball training facility on or near the development, the project’s hotel and retail components will have a ready customer base.
The Phoenix area was among the hardest-hit markets when the housing bubble burst, but Rosene notes that the region’s well-thought-out MXDs survived the downturn better than most. They did better, for example, than much of the standalone big-box retail that accompanied the single-family building boom in the city’s suburbs before the housing market cratered.
Florida, too, took a body blow when what first surfaced as the subprime-lending crisis became a global downturn in 2008. Yet development has returned and, with it, the impetus to mount a multi-city project that was on the radar seven years ago but took an extended hiatus. Florida East Coast Industries’ All Aboard Florida, first announced in 2012, is an intercity passenger rail project that will connect Miami to Orlando with intermediate stations in Fort Lauderdale and West Palm Beach. At each stop along the way, there are development opportunities in residential, office and retail—a total of 4.5 million square feet, Michael Reininger tells Forum.
“Today, Florida is clearly growing out of the downturn, and it’s clear that infrastructure and mobility are key to the growth and the sustainability of that growth,” says Reininger, president and chief development officer for All Aboard Florida. “So the time again appears to be right.” An alternative to the highways connecting Florida’s two biggest cities has been sought for years, because “the current options for mobility in the state are challenged, due to growth and limitations of capacity.”
Along the Orlando-to-Miami corridor, “there are literally hundreds of millions of trips being taken every single year” between the four stations that AAF will serve. “The vast majority is being taken by individuals in private automobiles.” The costs of maintaining the roads, and the congestion these trips create, can’t be sustained long-term by that one mode of transportation, he adds.
On the surface, it might sound as though the project is taking a page from the examples of transit-oriented development seen elsewhere in the country. Yet in a way, Florida itself was a very early adapter of TOD: As long ago as the 1890s, Henry Flagler built the Orlando-to-Miami rail corridor that AAF will run along. The rail infrastructure has been in use ever since by FECI’s freight lines, although intercity passenger service between the two cities was discontinued in the 1960s.
“Something on the order of magnitude of 50% of the state’s population lives within proximity of that corridor” between Orlando and Miami, says Reininger. “All of that gives rise to the opportunity we have today: both to reinstitute passenger rail service in an express format for the state of Florida and also to develop and redevelop the central cores of three of the major population centers in South Florida. The big picture is that we’re connecting the biggest markets and destinations in Florida, which is soon to be or already is the third largest state and economy in the country, with a new alternative mobility option that is quick, convenient and comfortable” as well as being priced competitively with other transportation options.
In mapping out the AAF plan, “We’ve studied, and have a learned a lot, from analogous situations that have evolved elsewhere,” including Reininger’s own involvement with the Denver Union Station redevelopment project, and other examples both domestic and international. However, Reininger says, “there is no complete playbook for what we’re doing here. The thing that makes this project distinct”—and, perhaps, the first of its kind—“is that we’re simultaneously taking on the delivery of the transit infrastructure and the real estate development.”
Next: Components of Mixed-Use