By  on June 28, 2007

Living above the store has always conjured up a variety of images, not all of them positive. Perhaps the most enduring is that of hard-working immigrants residing in tenements one story above their businesses. Mixed-use projects have changed that. Today, living above the store can mean owning a luxury condominium a few hundred yards away from Gucci or Burberry at Santana Row in San Jose, Calif., for example.

At the turn of the 20th century, the tenements of the Lower East Side of Manhattan housed waves of Eastern European Jews who sold linens and sewing notions from storefronts beneath flats they occupied. They have almost nothing in common with the residential properties of modern mixed-use developments, except that selling and living go on in the same complex.

For example, when residences in mixed-use properties are marketed and advertised, the word "luxury" often precedes the type of dwelling that is for sale, be it a condominium, town house or single-family home. There's usually a number of amenities such as restaurants, health clubs, swimming pools and spas.

Mixed-use design actually dates back further than the mid-to-late 1800s, pointed out Kenneth Himmel, president and chief executive officer of Related, which has developed mixed-use communities in Reston, Va., and West Palm Beach, Fla., and is working on projects in Phoenix and Los Angeles. For examples of mixed use, look no farther than Europe, "and that goes back thousands of years," he said. "In London, Paris and Rome, there are these extraordinary retail experiences where hotels are built over retail, or residences are built over retail, or office space is built over retail. It's a shame that so few of us practice the business with that European model. It's about combining extraordinary public spaces, art, landscaping and water features as the centerpiece for a retail street experience and restaurant street experience."

Himmel has tried to reinterpret that model with The Shops at Columbus Circle at Time Warner Center in Manhattan, where top restaurants such as Per Se, Masa and Café Gray share billing with Jazz at Lincoln Center and an Equinox health club. A fountain outside the Shops was designed by the same firm that choreographed the dancing fountains outside the Bellagio Hotel in Las Vegas.It's easy to understand the appeal mixed-use projects holds for retailers. Stores in mixed-use settings have a captive audience of consumers who literally live over the store or within walking distance. Residents are mainly wealthy, a point underscored by the fact that developers said they charge a premium for condos and town homes in mixed- use communities, sometimes as high as 60 percent above market rates.

"Living over the store has become a wonderful asset," said Himmel. "There's the cachet of the names and brands. It's more interesting to live above Polo Ralph Lauren than above a drug store."

According to Himmel, Related targets home buyers in "the top 20 to 25 percent of the demographic. Our average household income in Phoenix's City North is $135,000 to $150,000 annually," he said. "That parallels the tenant mix and restaurants we go after, which is upper-bridge to luxury. These projects are expensive and more sophisticated. Anecdotally, when we sell condos in these projects they sell quickly and at premium prices."

Stores in mixed-use projects can be more productive than those in traditional shopping centers. General Growth Properties, which owns an interest in The Woodlands Mall, located at the 27,000-acre master-planned Woodlands community north of Houston, has said that sales increased by more than 403 percent between 1995 and 2006, in part because of the mixed-use nature of the project. The mall attracts more than one million people from within a 20-mile radius. According to an SEC filing last month, General Growth's total tenant sales in its portfolio have increased 7 percent in 2007, compared with a 4.1 percent increase last year. Sales per square foot as of March 31, 2007, were $458. The company attributed some of the gains to robust sales in shopping centers in mixed-use developments.

At The Shops at Columbus Circle at Time Warner Center, a vertical mixed-use development, retailers do sales of $1,500 per square foot on average, Himmel said. That's higher than traditional malls, where sales per square foot are in the $400 range, but lower than some jewelers and leather goods stores on Madison Avenue, where sales can reach more than $2,000 per square foot. With about 40 retailers at The Shops at Columbus Circle, a Whole Foods Market and eight upscale restaurants and bars, there's plenty for residents, tourists and office workers to do.The development also includes a Mandarin Oriental Hotel, One Central Park luxury condominiums, 60 Columbus Circle offices and Time Warner world headquarters. Office workers visit the Shops an estimated six times a month, said Himmel, adding that residents go to the Shops an estimated four times a month. Eileen Fisher, Sephora and J. Crew consistently report that their Shops at Columbus Circle locations are among the top-ranking units in their portfolios.

"Any time you can incorporate mixed uses and enhance the consumer experience not only in terms of architecture and the environment, it's a good thing," said Mitchell Friedel, executive vice president of RKF Retail Property Advisors. "The more uses you can factor in, the better. Offices provide a lot of daytime traffic, residential is all day and night activity, and the hotel [means] tourists. There's no formula. [The elements] are specific to a certain market."

Friedel has been involved in the retail leasing at CityPlace in West Palm Beach, The Shops at Columbus Circle at Time Warner Center and SouthSide Works in Pittsburgh. He's also working on upcoming projects such as Bloomfield Park in Bloomfield Hills, Mich.; Mercato in Naples, Fla.; Westwood Station in Westwood, Mass.; New City in Chicago; Garden State Park in Cherry Hill, N.J., and an as-yet-unnamed venture in Miami.

Retailers including J. Crew, Gap, Banana Republic, Chico's, Ann Taylor, Talbots, Williams-Sonoma and Coldwater Creek are among those that have shown an interest in mixed use. "The tenants find them more intriguing and feel they can be more productive in them," Friedel said.

In some parts of the country, master-plan or mixed-use communities have stepped into the role of downtown. "Bloomfield Hills is a very affluent suburb of Detroit, which doesn't have a great downtown to speak of," Friedel said. "[Bloomfield Park] is almost serving as a downtown for Detroit. We have every tenant you can think of."

Demographers have estimated that about 20 million acres of development will be needed to provide housing for the 100 million additional people expected when the U.S. population reaches 400 million in 2045. (The population was 300 million in 2006.) At an International Council of Shopping Centers conference on mixed-use development, however, Ronald A. Ratner, president and chief executive of Forest City Residential Group, said that this approach would use just five million acres.As the popularity of mixed use grows, though, projects have become more difficult to execute. High construction costs, increased competition, financial hurdles and the slumping condo market are among the obstacles.

"The one thing retailers get concerned about is making sure a mixed-use development is well thought out and staged appropriately," Friedel said. "'Do the developers have the wherewithal to pull this off?' It's the really experienced developers that the retailers rely upon."

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