Places Magazine Online

Town Centers:
Creating Real Value

Strict Criteria Required for Investment and Development Success

By Jay Lask

I
t is easy to see the appeal of town centers—places that hearken back to earlier days when communities felt connected, local merchants dominated and commutes to work were measured in footsteps not miles.

These ideals are within reach now as mixed-use development begins evolving with the lifestyle center ethos, as suburban and exurban communities demand "smart growth" alternatives and as urban planners become emboldened by consumer demand for something new and better. Many investors and even lenders are becoming more comfortable with projects that do not fit neatly into traditional sector-specific categories.

What may be missing though is a meaningful understanding of the criteria necessary to make town center projects financially viable.

Defining a Town Center Project

There are many projects called "town centers" but very few of them meet the definition of a true town center project. True town centers are pedestrian-oriented streetscapes that fit within the fabric of an existing community and include an array of uses, including retail, service, residential, office, and municipal. They are meant to become the true focal point for the community and as such provide common areas, reflect the local culture and remain active throughout the day and night. The retail offerings must also serve the needs of the community—both on a daily basis and on weekends. However, retail alone cannot serve as a true town center.

Twenty miles from center city Philadelphia in Harrison Township, New Jersey, Madison Marquette is building Richwood Village—a development comprised of true town center components. The Township recognizes that growth will soon force development of its rural farmlands. Yet it also understands the need for ratables to support new public services. Instead of waiting for the typical office parks, strip centers and homogeneous subdivisions, community leaders are embracing a unique town center approach including a retail-oriented main street environment that includes a central village green along with a city hall, post office, farmer’s market, elementary school, churches and a medical center. The project will complement expansion plans by nearby Rowan University and will include over 600 acres of retail, residential, office and public uses.

Get It Right

True town centers face very real financial barriers and therefore precise execution is the only way to be successful. Studies have shown that successful retail can increase the value of adjoining residential by 15% or more. Evidence also suggests that retail sales improve and that residential sales velocity is higher. This increased valuation is often necessary to offset the additional costs of town center projects.

Town centers are very dense compared to traditional retail or residential developments. The higher density introduces parking as a major financial barrier. Expansive parking fields are cost effective but incompatible with the pedestrian-oriented environments and aesthetic appeal of town centers. Parking decks better reflect the principles of town centers by providing more continuity with the streetscape. Typically though, prevailing rental rates and residential housing values will not support deck parking without public subsidy. Construction costs related to plumbing and utilities are also much higher when building residential over retail. Town centers also require more expensive upscale design elements and exterior finishes that are not present in more traditional open-air centers.

These additional costs can be more than off-set by the incremental value achieved through synergy of the various uses, but precise execution is important. So too, however, is the cooperation and support of the community.

The Market Matters

Not every town is ready to embrace a new kind of development or provide the necessary financial assistance. There must be a strong desire for something special at every level of the community—from the average citizens to the civic leaders. There must be an anticipated influx of new residents, businesses and need for expanded retail services. Finally, there must also be opportunities to assemble suitable land for development.

While such opportunities are rare, it is important to ensure the right factors are in place because financial success often requires financial incentives and subsidies for infrastructure improvements, including roads, parking and utilities. Zoning and subdivision regulations often do not allow for town center-size density and mixing of uses—requiring a more accommodating overlay zoning. These challenges can result in lengthy entitlements which can strain financial projections.

In 2004, Madison Marquette opened Bay Street in Emeryville, California—an urban village project that incorporates some of the town center elements including a pedestrian streetscape with residential built atop retail, restaurant and entertainment destinations. It acts as a focal point for the community of Emeryville—located directly across the Bay Bridge from San Francisco. Town officials provided substantial support for the project because of their readiness for a different kind of project that would give residents a common place to gather and socialize.

Value Through Partnership

There are two important lessons to be learned from the flurry of mixed-use development in recent years: 1) there is a premium on the value of retail, residential and office when two or more of these use are combined effectively on a large scale; and 2) projects are most successful when developers stay within their sector of expertise and partner or retain outside expertise when creating additional uses.

The sheer size and cost of town center projects amplifies substantially the importance of both lessons. These projects must be treated as master-planned communities— not simply retail projects with some housing or office added haphazardly.

In Richwood, Madison Marquette has partnered with Southern New Jersey's most experienced and respected residential developer, Canuso Communities. The principal, John Canuso, is a visionary and early pioneer of modern town centers having built one in Voorhees, New Jersey twenty years ago. Canuso saw the potential of the site and assembled the necessary land parcels. He also generated excitement for the project within the community and worked to obtain necessary entitle-ments. This type of partnership is important for a town center project because it combines Madison Marquette's urban retail experience with a locally known developer's community connections to build trust with area residents and government officials.

Be Special

The essence of creating a successful town center is to draw people in by being unique and creating a sense of place that is different from a mall, a big box center, an office park or a residential cul-de-sac. Moreover, it must be a place where people congregate day and night, weekday and weekend, for basic services, dining, retail, entertainment and social gatherings. They must be authentically local and undeniably unique.

The inspirations for these projects are dotted all over the country. They are places like Pittsburgh's Strip District where every sense is activated—the smell of fresh baked breads, the taste of local foods, the sounds of street performers, the sight of colorful merchants and people of all walks of life who come together to create an energy and excitement that permeates the streets.

This "sense of place" can only be created by being unique. It means that retail, residential or office uses must be combined with the most local of uses—municipal buildings, libraries, churches, schools, medical centers and even cemeteries. It also means that national tenants must be mixed with local restaurants and retailers. It means throwing out the same tenant line-up from the last project and thinking more creatively about how this community is different and how the town center will reflect these differences. Moreover, the "experience" cannot be too contrived or sanitized. If it feels "Disney-esque" it will not be a reflection of the community and may turn people off.

Strong Leasing Team

The necessity of being unique requires a more nuanced and firm hand in formulating the merchandising mix. Many of the exclusivity clauses of national tenants will be difficult to honor because there is a fundamental need to create a unique environment. For instance, a traditional grocery anchor may prohibit specialty food stores and farmer's markets—key elements of creating an authentic and special atmosphere.

Ultimately, the goal is to generate enough traffic that the strong nationals will seek inclusion and forgo their traditional requirements. This goal is not to say, however, that local tenants are not critical to success. Without them, the community will not feel pride in ownership and therefore, be less able to connect emotionally with the center.

Moving Forward

The town center evolution is an unstoppable phenomenon that may prove to be a financial success for investors, developers and retailers alike if everyone understands the importance of identifying the right market, partnering with the right people, formulating the right merchandising mix and creating the right environment. These projects require a great deal of expertise and patience and no one should approach them lightly.

Jay Lask is a Managing Director in our Washington D.C. office. He can be reached at (202) 741-3800 or jay.lask@madisonmarquette.com. P

Anatomy of a Town Center

Town centers are unique environments that contain a variety of uses and act as true focal points for their communities. This site plan illustrates one way in which these uses can be integrated.