Furthermore, the very nature of mixed-use developments means there’s a symbiotic relationship between the different elements of the asset as the variety in amenities means that visitors stay longer and therefore spend more money, benefiting the bottom line. But how should investors and developers navigate this goldmine to ensure bumper returns on investment?

Location, location, location

The first important consideration is location, experts say, spotlighting opportunities in gateway cities across the US and globally.

Shafi Syed, global head, hotel developments & acquisitions at Equinox Hotels notes “Our markets are similar to what some of the top luxury brands are looking for and where they want to grow – so about 30 to 40 gateway cities globally and resort markets.”

Syed also notes opportunity across these geographies in conversion projects in addition to ground-up new build developments, which make up a majority of mixed-use projects.

“We’re seeing a lot more of conversion opportunities come up in markets like Boston, Dallas and Nashville. As well as Austin where there was a rush to build a lot more offices until the city stopped giving permission. And now there are developers with sites earmarked for offices who are seeking mixed-use solution, for example with retail, residential and hotel.”

Dana Jacobsohn, chief development officer at Marriott adds: “Another conversion opportunity is that there are a lot of multi-family buildings and office buildings in urban environments. And vacancies are very high in these office buildings so we're seeing some opportunities for our new brand called “Apartments by Marriott Bonvoy” which is a long stay hotel brand, along with some office and multifamily.”

Brand

And for Virgin Hotels, the focus is on markets where it already has a presence for example where Virgin Atlantic flies into or where Virgin Voyages sails out of, Tim Wyman, VP development of Virgin Hotels Collection says, adding “We try to create that synergy between all of our brands.”

And attention has to be paid to brand as selecting the right brand early in the process is crucial, with Younes Hajoui, asset management & tourism investment head at Moroccan Agency for Tourism Development SMIT warning that he has seen mixed-use projects fail due to poor brand selection.

“It’s really important that brand selection is done really early in the process. We've seen examples of brand selection failing at advanced stages. I think that the brand selection needs to be done by the project owner at very early stages and be thoroughly discussed.”

The right mix

It’s also very crucial to get the right mix of amenities in any development, and to avoid trying to cram too many uses into one project as this could become overly complex and significantly impact its success.

Jacobsohn notes: “On mixed use projects, in order to get financing a developer could make it overly complicated by putting in too many uses in a project. For example, a project with a grocery store, office, hotel, whole ownership residential, and rental with affordable workforce housing in a very small footprint gets too complicated because you need separate entrances, amenities, and facilities. This could make what should have been economically feasible cost too much money.”

And securing financing can be a big challenge as experts note that there are still a lot of lenders that still don’t understand mixed use or doesn’t want to participate. And in the event that they do, there’s a disconnect between the lenders for the different uses.

“They're all siloed - so you're talking about four asset types and the hotel lender might be fine but then the others aren’t,” explains Syed.

And for mixed use projects which have residential as one of the uses, Jacobsohn highlights the added challenge of city authorities being very focused on affordable housing.

“And that does get complicated when you're looking at a luxury hotel with branded residences,” she says.

However, experts note that although mixed use development in the US has been restricted mainly to luxury developments, there has been a slight shift in in demographics at least in the branded residential elements.

“Branded residential is fuelling these mixed-used projects and I definitely think there's a shift in demographics and in the buyers of these branded residences. For example, we noticed families moving into a Ritz Carlton residence that we built and we had to build playgrounds and jungle gyms. While that's still luxury, it shows that there's room for other demographics,” Jacobsohn adds.

Work with authorities

Navigating city entitlement zoning can also be a significant hurdle, with experts emphasizing the importance of educating city authorities on the benefits of mixed-use projects.

Syed notes, “Cities can be very rigid in terms of understanding what a mixed-use project brings to the city and the neighbourhood. Working with the city and educating them can be a big challenge but we’ve found they always respond well to the positive message of health and wellness.”

I think the biggest impediment for us is really working with the city and educating them. Thankfully the good story that we bring to them is “we are again very connected to the community health and wellness is a big, positive message.”

Wyman agrees on the importance of community integration and adding amenities that are beneficial to the wider public. "We're doing a project in Denver that’s going to have over 2 million square feet of office space, 3,500 residences, coworking spaces and a Virgin club. It’s about creating all these amenities not only for our customers but for the neighbourhood as well."

And government buy-in can be a big helping hand when it comes to mixed-use projects. In some countries, for example Morocco, the government is very supportive of mixed-use projects, even going as far as incentivising development.

“In Morocco, if you do a pure residential project, you get zero from the government - no incentive on the land, nothing. But the moment you create a mixed-use project where you have a hotel, a retail development, entertainment etc, you're eligible to incentives that can amount to up to 30 per cent of the project.”

But this support has brought about its own challenges.

“This has created a huge demand for land and costs have gone through the roof in many urban cities – Rabat, Casablanca, Tangiers, Marrakech. Morocco is also hosting the World Cup in 2030 and the additional demand from national and international investors means that land costs are much higher.”

Striking gold

However, despite all the complexities, mixed-use development remains highly beneficial for stakeholders who create successful, profitable projects that benefit both investors and communities. What’s needed is an approach that carefully considers market demands, brand, community integration, amongst others.

Jacobsohn puts it succinctly: “These projects can be so complicated and the ones that we see work well are ones where the brands that know how to do it are involved as well as the consultants that understand how to do a mixed use project, and attorneys that understand how to make sure the legalities are aligned for everyone involved.”

By Ifeoluwa Taiwo