Mixed use evolves as city centers re-emerge

RANCHO MIRAGE, CA— Participants in last months Mixed-Use Development Roundtable were in full agreement that the concept is clearly not new, but their discussion underscored the growing legitimacy of the segment and its increased presence in the world of hospitality development. Taking place during the Hotel Developers Conference at the Ranchos Las Palmas Resort here, the HOTEL BUSINESS® event addressed a number of issues that can influence the fate of these projects, such as branding, management and restaurants. The inaugural event, which was moderated by Stacy Silver, group publisher of HOTEL BUSINESS®, was sponsored by Arthur J. Gallagher Risk Management Services and Jeffer, Mangels, Butler & Marmaro, LLP. Several of the participants— starting with Jonathan Roth, principal, Beverly Hills, CA-based Canyon Capital Realty Advisors, LLC, a debt and equity capital provider— described the natural evolution of mixed use and why it has taken off in recent years. “If you look at the pure demographics of the country, our population just hit 300 million and predictions are in 20, 25 years it will be 400 million. Suburbia has pushed out as far as it can push out and city centers have now become city centers again with all the amenities that are available…To make a project work economically and to satisfy the needs of a particular community, it really makes sense to have a mixed use community with retail, hospitality and office, where people no longer need to get in their cars and commute a half hour. Its a natural evolution of how real estate is being developed and utilized,” he said. “Part of it has to do with finding compatible uses. In hospitality were really going back to our future. If you look at most of the grand hotels that were built in early 20th Century— the Plaza in New York, The Drake in Chicago— a substantial portion of all those buildings were developed as residential,” said Peter Connolly, president, hotel group, Palladian Development, a Chicago-based hotel developer. “Weve been doing it for thousands of years. If you go back to European villages and how those evolved naturally, they were mixed use,” said Doyle Graham, Jr., president of Houston-based Valencia Group, which develops and operates high-end hotels, such as the Hotel Valencia Santana Row in San Jose, CA. But clearly the focus of these projects has shifted more to the integration of the various components and making sure they all work well together. “People are much more focused on how to make uses truly complementary and to integrate and mutually reinforce one another as opposed to just being next door to each other in physical proximity,” said James Butler, Jr., chairman, global hospitality group, Jeffer, Mangels, Butler & Marmaro, LLP, a Los Angeles, CA-based law firm specializing in hospitality. “The real challenge is making all the parts fit together as a whole, and picking the right components or the right operators and really thinking through the issues on an operational side…In every city or jurisdiction things operate differently,” said Roth, who added in terms of management “you need a good quarterback, but for each discipline project you need an expert.” But striking a balance between each discipline as well as the residents and hotel guests can be challenging, particularly with some of the amenities, according to Ralph Newman, Jr., COO, WTS International, a Rockville, MD-based spa consultant and management company. “We look at how to keep the amenity that we’re putting in— that sort of anchor for the whole project— special for the resident and hotel users without making it feel like a club. So that way they still feel they are buying into a very upscale amenity that is exclusive to them,” he said. “If you can’t differentiate product enough between residential or the condo hotel side versus the hotel, you have this inherent struggle between the two,” said Rick Davis, vp, California region, S&P Destination Properties, a real estate c