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All Mixed Up

Mixed-use has come to make up a significant chunk of the retail development business, especially in urban areas, but lenders are still trying to figure out how to get their heads around financing the complicated projects.

According to Warren E. Fink, CFO and CIO of the New York — based development firm Clarett Group, one of the biggest mistakes developers make is dividing the ownership of the project between two or three separate entities according to use. This often leads to mismatched construction schedules, a concern not only to the developers and future tenants, but also to the lenders.

“Today, the project is very successful, except the residential component is still not finished,” Fink said. “So if you have a mixed-use site, control it in its entirety or, if you don't have the expertise in a particular sector, joint venture it, but don't sell parts of it.”

Fink was part of a group of panelists tackling the subject at ICSC's Capital MarketPlace held in New York in September.

Nathan M. Sterns, managing director of real estate capital markets with Chicago-based LaSalle Bank N.A., agreed that lenders are reluctant to complete loans on projects that don't have a centralized control authority. Furthermore, each part of the mixed-use development has to be self-sufficient in its own right in lenders' eyes. Being part of a mixed-use project isn't enough to get an apartment approval, for example, if broader market trends don't show a demand for new residential space.

Another challenge for developers is the sheer size of mixed-use projects. Such properties often go over 1 million square feet and require loans upward of $300 million, according to Fink.

“Mixed-use developers clearly have to have a lender that's sizeable enough and understands the latitude that its participating lenders have in helping to provide funds,” says Diane Olmstead, principal of investments and developments with the San Francisco — based CIM Group, a real estate investor that offers both development and financing services. “Mixed-use has a slimmer pool of people who will lend on it and a slimmer pool of people who will buy it whole, but they are out there.”

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