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This is an HTML version of anarticle that ran in the May 2014 issue of Real EstateForum. To see the story in its originalformat, click here.

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For decades, prospective homeowners wanted to escape from denseurban centers and builders responded to this demand by constructingvast, far-flung developments of single-family homes and shoppingmalls. But several US age groups have begun to rethink how theywant to live, and experts say developers who respond to their newdemands for dense, walkable, mixed-use communities will be the oneswho get ahead.

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“Developers need to study demographics the way stockbrokersstudy the market,” says Edward T. McMahon, the Charles E. Fraserchair on sustainable development and environmental policy at theUrban Land Institute in Washington, DC. And the pictures thatemerge from those studies can be complex.

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Those in the market for new homes, stores and other amenitiesare both older and younger than in years past. Generation Y, orthose born between 1979 and 1995, number nearly 80 million and haveincreasingly migrated toward dense urban cores. But the country'ssecond largest generation, the baby boomers, or those born between1946 and 1964, number 75 million, and have also joined theirchildren's generation in demanding dense communities.

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“For years, we've been building housing like every family is theWaltons,” McMahon adds. But the fastest-growing type of householdin the US is singles who live alone.

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Earlier this spring, ULI released the results of its “America in2013” housing survey, which shows that these growing demographicgroups, including Gen Y, African-Americans and Latinos, stronglydesire urban-style, mixed-use communities. For example, most Gen Ymembers prefer diverse housing choices, 62% prefer to live indevelopments that provide shopping, dining and even office space,and more than three-fourths place high value on walkability. Andperhaps most significant for real estate developers, 63% of Gen Yrespondents said they would move in the next five years.

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“The boomers have also changed,” McMahon says. “Their childrenhave left home and many are interested in downsizing. We've foundthat many want to live near their kids.” According to the ULIsurvey, the majority of boomers want better access to publictransportation, and 72% would prefer shorter commutes and smallerhomes over longer commutes and larger homes. Furthermore, nearlyhalf want to join the younger generation and live near a diversemix of shopping, dining and office space.

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“All of these things coming together are basically changing thereal estate world,” says McMahon. “It's why we are seeing so muchmulti-use development. One-size-fits-all won't work for buyinggroups that are so different from one another.”

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The signs of that transformation are becoming more visible everyyear and have even begun correcting past mistakes. The city ofRockville, in Maryland's Montgomery County, for example, tore downits historic downtown back in the early 1970s in a fit of urbanrenewal, and replaced it with a mall, McMahon says. “Today, ofcourse, they took the mall down and put the downtown back.” Thecurrent Rockville Town Square has a more appealing mix ofboutiques, restaurants, condos, rental apartments and the RockvilleLibrary.

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And in 2011, Fairfax County in Virginia won the Daniel BurnhamAward from the American Planning Association for its plan totransform Tysons Corner, a huge suburban office park and shoppingdistrict in McLean, into a 24-hour urban center connected to publictransportation where people will live, work and shop.

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“Market analysis in the past was always backward looking,”McMahon adds. “Today you have to really look forward and analyzethe demographic make-up and ask, 'what do these people want?'”

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The downtown of West Palm Beach, FL, for example, recently wastransformed by CityPlace, a New Urbanist mixed-use development bythe Palladium Co. First opened in 2000, it eventually includedabout 600,000 square feet of retail, anchored by tenants such asMacy's and Publix, the first downtown office tower in many yearsand about 1,000 private residences, McMahon says.

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“A traditional market analysis would have told you that there isno market for housing in Downtown West Palm Beach,” simply becausethere was none there at the time, McMahon says. But once it wasbuilt, “it sold or leased up overnight. You have to hold yourfinger to the wind and figure out the inevitable; that's the secretto real estate today.”

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“There have always been people who have done smart,sophisticated analysis,” he adds. However, most of the housing inthe US was constructed by small builders who didn't have thatcapacity. But McMahon hopes that all developers can takeinspiration from the growing number of intelligent mixed-usedesigns.

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“When Disney decided to build the town of Celebration,” thecompany's Florida showpiece of New Urbanist thinking not far fromits Disney World complex, “it probably did more market analysisthan anybody ever did in the US,” McMahon says. One of the mostimportant things it discovered was that “prospective residentswanted an active community, not a bland one.” The developersresponded by building the retail component first. “They wanted tocreate an active place and generate buzz.”

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“Demographics are certainly important in our analysis,” saysBeau Arnason, executive vice president of Steiner + Associates, aColumbus, OH-based developer, “and retail outlets are the driversof our centers.”

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Last year, Steiner and Chicago-based Bucksbaum Retail Propertiesbroke ground on Liberty Center, a 64-acre, 1.1-million-square-footmixed-use project north of Cincinnati. The partners say they hopethe center will grow into a regional development hub. When theycomplete this first phase in 2015, it will have 600,000 square feetof retail space including a department store, specialty retail andrestaurants. The center will also include 100,000 square feet ofclass A office space, a 135-key hotel and 220 luxury multifamilyunits.

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And with its partners the Georgetown Co. and Limited Brands,Steiner also recently broke ground on Easton Gateway, a 54-acreaddition to its Easton Town Center in Columbus, which will havemore than 500,000 square feet of retail and about40,000-square-feet of office-above-retail space. The originalcenter opened in 1999.

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“We have to determine if a site has a regional draw,” Arnasonsays. This involves more than looking at the average income of atargeted area. “We drill down deep into a region's demographicprofile to find the amount of discretionary dollars.” For example,single women earning $75,000 will be far more likely to spend moneyat the Easton or Liberty Centers than households with two childrenalso earning $75,000.

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“The demographics are not as important when layering on otheruses, such as offices, as they are in retail,” Arnason adds,because the company does not look to draw these users from anentire region. “The key for us when we layer in these other uses isto make sure our product is the best in the local market.”

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However, he believes that combining several uses into onedevelopment results in a more dynamic environment. And thatdynamism helps bring in empty-nesters and other groups thatincreasingly reject the old single-family home lifestyle. “Thesebaby boomers now have wealth, and they can afford a higher rent,but they want to be in a place with more energy.” These forms ofdevelopment “cater to what is inherent in people; and that's theneed to interact with others.”

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Other developers agree that this need is not exclusive to youngpeople. “We think there has been a dramatic demographic shift tothe cities,” says David Schwartz, principal and co-founder of SlateProperty Group. “And what's great about this is we have several agegroups that are making this change.”

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The company, in a partnership with Adam America Real Estate andAEW Capital Management LP, recently entered into a ground lease at535 Fourth Ave. in the Park Slope neighborhood of Brooklyn. It wasthe team's third neighborhood acquisition, and they plan to develop325 residential units and about 25,000 square feet of retail.

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“A lot of people are moving to areas like Park Slope that arethe perfect mixture of suburban and urban,” Schwartz says. Inaddition to the young, “there are also a lot of baby-boomers whowant to live in a place where they don't have to worry about fixingthe boiler, but they also want to be near the action. We once had awhole generation that left the city, and now we have severalgenerations that are moving back. We're seeing that in Manhattanand we're seeing it in Brooklyn.”

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And for Slate and its partners, retail is not an afterthought.“It's not just a revenue stream; it's a key amenity,” he says.Although the developers have not settled on which tenants willoccupy the retail space, “we would like it to be neighborhoodretail,” such as a coffee shop, convenience store, wine store orbakery. “Too often, projects have been geared to either singles orfamilies, but we think these are going to be attractive all groups,including young couples, singles and empty nesters.”

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Mixed-use development has even proven popular in US suburbsdesigned as classic single-family communities. The Atlanta suburbof Alpharetta, for example, saw no multifamily development foryears. But this fall, Cincinnati-based North American Propertieswill open the retail component of the Avalon, a2.4-million-square-foot project on 86 acres that will have 101for-sale units and 250 rentals, as well as 500,000 square feet ofretail, hotels and office space.

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“We have 2,600 families on our waiting list for the for-saleunits and about 1,000 for the rentals,” says Mark Toro, managingpartner of NAP. And a significant number of these people are over35 and already own a home, but have decided to rent and “abandonthe suburban culture and live in a walkable, urban environment.There will be nearly 1,000 residents on site, and that has notreally been known in the suburbs of Atlanta. It's clear that Gen Yis seeking that lifestyle, but their parents are as well.”

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“This trend is even stronger in cities already known for beingcool places,” says Matt Griffin, managing partner, Pine StreetGroup, LLC, citing San Francisco, Chicago, Boston and his hometownof Seattle. Pine Street finished Via 6, a two-tower MXD in downtownSeattle with 654 units and 16,000-square-feet of retail, a littleover a year ago. It was awarded the 2013 NAIOP Mixed-UseDevelopment of the Year and the 2013 International Interior DesignAssociation IIDA Design INhome award.

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The project is 94% leased, and even though “the bulk of ourtenants are 25 to 40, there are a fair number that are more like myage,” adds the 62-year-old Griffin.

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The Via 6 development does not make its money off the retailcomponent, but the retail does play a key role. “All of it isintended to help build a community,” says Griffin. Tenants have adog wash, bike shop, a deli and many other gathering spots. “Whatwe kept asking was, 'how do we make an environment where tenantscould meet someone not from their workplace?'”

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Steiner's Arnason also believes that in one way, this trendtoward denser, mixed-use developments is a rediscovery rather thansomething new. “There was this period between the 1950s and the1980s when we got away from building communities. We're justgetting back to that.”

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Brian J. Rogal

Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.