5 Ways to Manage Mixed-Use Development Costs

Mixed-use development has quickly stolen the CRE spotlight. The multi-use asset class is an opportunity for real estate developers to maximize the value of land sites and create dense, urban, and walkable communities for residents. Mixed-use projects also generate higher incomes than single-use assets — JLL estimates mixed-use developments pay nearly 25% more — and have built-in downside protection with diversification at the property level. Yet, for all of the benefits of mixed-use, the asset class is also highly complicated (after all, you aren’t building one property, you are building several) and expensive, costing significantly more than a single-use project. 

Here’s a look at several key steps real estate developers can take to control development costs and streamline the construction process to ensure their project meets investment goals. 

Alternative Development Sites

In the early 2010s, local municipalities saw the advantage of mixed-use assets and created flexible zoning policies and adaptive reuse ordinances to help support the development of mixed-use properties. Through such policies, developers can utilize alternative development sites in existing dense urban landscapes with limited land availability. In addition, adaptive reuse sites are often more affordable than raw land sites and have lower construction costs and a shorter timeline, since there is an existing infrastructure to support the property. Beyond adaptive reuse, developers can look at other alternative development sites to help lower the total investment cost of a mixed-use development. This can include other obsolete or abandoned buildings, like indoor malls or warehouses, that cities have an interest in rehabilitating or underutilized public spaces.. 

The Right Mix of Uses

Mixed-use properties can be as simple as an apartment building with ground floor retail, or as complex as a sprawling campus with every commercial asset class. To ensure a property will be successful, pick the right mix of uses. The right mix of uses will be tailored to the specific locality and neighborhood, as well as for the demographic group that you want to attract to the property and the experience that you want to create at the property. As Matt Kelly, chief executive officer of JBG Smith, told ULI in a conversation about mixed-use development, “Locations that tend to succeed and thrive usually have a balance. There’s the resident who comes home in the evening and uses the amenities and retail that serve the neighborhood, [so that they] have a vibrant customer base 18 hours a day, not just nine hours a day.”

Innovative Building Materials

Building materials have dramatically increased the cost of construction. According to Construction Dive, the cost of most construction materials increased 20% since 2020. While price increases have thankfully plateaued, higher prices are here to stay. There are some ways to mitigate those costs. Developers can focus on using prefabricated materials, like precast concrete or modular construction on portions of the property. With prefabrication, construction is more efficient and there is less waste. A report from McKinsey found that prefabrication can increase construction speed by as much as 50% and save 5% to 10% on the total cost of materials. For developers looking to maintain traditional construction practices, buying materials in bulk and in advance can also help drive down construction costs.  

Automation and Technology

Using progressive technologies is one of the most effective ways to increase efficiency and reduce construction costs. While technology isn’t specific to mixed-use development, mixed-use projects stand to benefit tremendously because they are particularly complicated and expensive. Northspyre is a category creator in this area. By utilizing automation, predictive analytics, and AI-powered management tools, project managers can effectively streamline the process and optimize project performance. Predictive analytics deliver deeper insights into a project, allowing stakeholders to make proactive and informed decisions. 

The platform  also automates as much as 80% of administrative tasks, like invoicing and contracts, freeing up time to focus on integral aspects of the project, while management tools and budgets provide routine spending reports and financial forecasts to help project managers keep better track of spending. Overall, developments that use Northspyre reduce overages by 66% and increase efficiency by 80%. On an expensive mixed-use project, that amounts to significant savings that can help ensure a project pencils and meets the proforma. 

An Experienced Team

Often, developers work in a single vertical. Multifamily developers don’t do industrial; an office developer wouldn’t suddenly try a hotel project; and healthcare developers never pivot to retail. Developers stay in their lane because it’s what they know, and because development is a high-risk game. With mixed-use, that all goes out the window. Developers of a mixed-use project need to be comfortable developing any asset class. To ensure that the process goes smoothly, it’s important to hire a team experienced in the uses included in the project and experienced in mixed-use. This includes all project stakeholders, from the designers and architects to contractors. 

Mixed-use development is becoming a ubiquitous aspect of urban design—but it isn’t for the faint of heart. To master it, developers may need to adopt new practices, new technology tools, and bring on an experienced team. For those who can navigate the costs and complexities, mixed-use is a tremendous opportunity. 

Want to learn how your team can successfully navigate today’s high interest rate environment and unpredictable market dynamics? Download our guide Maximizing Returns: Operating in a New Normal for the insights you need to come out of this period with a competitive edge.