March 1, 2003 - From the March, 2003 issue

Charles Lockwood Explores The Success Behind Suburban Town Center Developments

The development of suburban Town Centers is one of the hottest real estate trends in the country today. TPR is pleased to present this interview with Charles Lockwood, a noted author on the subject of cities and architecture, in which he discusses the research on town center developments and their performance relative to traditional suburban real estate products supporting his recent article entitled "Raising the Bar" for ULI's Urban Land magazine.

Charlie, your research concludes that town center developments are outperforming traditional suburban real estate products. Can you give us a synopsis of your findings and what are the types of developments that you're comparing? In other words: define the town center developments and the ones you're comparing them to.

We're talking about true town centers, new main streets, which have the full mix of uses-residential, retail, office, hotel, entertainment, even civic-all integrated within a pedestrian-friendly environment. These are not open-air shopping malls or so-called "lifestyle centers." The town center, new main street, is a very different creature, and I think it is key to realize that. A true town center creates a 24/7 public realm.

We all read that town centers are the right thing to do-they give greater sense of community to suburban sprawl. They are more effective and slightly denser uses of land, so they are environmentally sound. They give people a place to walk around and not just drive from location to location, so they reduce gas use. So there are many reasons to have them. But, I was curious if they really made sense financially. So, I surveyed about 10 different locations around the country. What I did was compare the various uses in a town center with nearby comparables. For example, what were apartments renting for or condominiums selling for in town centers versus comparable or similar size and appointed units nearby? That's how I measured it.

What I found was that these new town centers consistently out-performed standard suburban real estate products in many ways, including office and retail lease rates, residential prices and apartment rents, retail sales and sales tax revenues, hotel room and occupancy rates, and on-site and adjacent property values.

How are the cities sharing in the success of the developments? Why aren't we seeing more of them if they're doing well for the developers? why aren't cities jumping on these developments? I assume they're sharing in the success of them?

First of all, it's a new phenomenon. You have some of the pioneers, which like Town Center Drive in Valencia, are just finishing up. They're just filling in the last piece on the new main street. Reston Town Center is not fully finished, although most components are up. So number one, it's a very new phenomenon and we don't have that much of a track record to generate the numbers.

Reason number two is that you need a large piece of land-those are not always available. Third, mixed-use is always more difficult to design, to entitle, and to finance than stand-alone standard products because the municipalities and lenders are used to a set of very formulaic routines. So the developer has to go and get changes made in a lot of codes. The traffic codes are one of the greatest enemies in creating pedestrian friendly, mixed use, and 24/7 developments because they require overly wide streets, which generate high speed traffic, and kill the creation of a pedestrian friendly development. It makes apartments above that street less desirable than if it were a narrow, low traffic roadway. And some of the developers, including Newhall Land out in Valencia, have had to make their new main streets private.

One of the surprising responses that we've seen in the downtown area here in Los Angeles, is for-sale loft developments, which appear to be responding to the same desires of people to live in urban cores. Can we draw comparisons between these suburban town center developments and the return to downtown type movements we've seen in our urban centers?

Partially, in my opinion. I think that the kind of person that's going to want to live down in the old downtown in Los Angeles in a loft is going to be very different from the person that will want to live on Town Center Drive in Valencia.

And what's driving each consumer?

We have to make that distinction. There are some overall drivers, one of which is that some people are just not happy with the standard suburban product. They want a greater sense of community and a walkable environment where they can go to a restaurant, go to a movie, even walk to work without getting in their car. Some of the town center developments are heavier in office components than others. Valencia has a fairly substantial office component on the main street, in mid-rise buildings that have ground floor retail uses. Redmond Town Center near Seattle is another genuine town center, with a real mix of uses and a fairly high office component. Ditto Reston Town Center in Virginia, outside Washington.

What is the advantage for offices in town centers?

Let's say you have to do a couple of errands at lunch. You need to buy a card for a colleague and a toy for one of your children. What would that normally entail if you worked in the suburbs? Go to the garage, get in your car, drive out, park the car, go into the store. That takes a lot of time, and other people are jamming the roads, typically doing that too at lunch hour. If you work in a town center, you take the elevator downstairs, you go to one of the shops, done. You can combine several personal errands very easily in one of these town center developments if you work in an office. If you have professional spaces on these streets, you can go to the dentist, you can walk to the health clubs on these main streets. You don't have to drive. Saves a tremendous amount of time. It allows businesses to have a lot of the traditional downtown office advantages in a suburban location. They're out of the downtown office buildings and in the suburbs close to a lot of the workers, and yet they have a lot of the traditional downtown or main street services and shops that people can use during their lunch hour or right after work.

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As many traditional suburban shopping centers continue to see declining sales, are these properties ripe opportunities for these town center developments?

The town center is an excellent way to make better use of a dying or dead shopping center location. One possibility is that you bulldoze or substantially bulldoze a mall. All the land is cleared, it's ready to go, you have parking there. The traditional mall is over-parked because they were planned 20, 30 years ago, to meet the older parking standards which called for more spaces than we do now. Many of the malls also had expansion plans for the future, so they often put the parking in for the expanded mall, but in many cases these malls never expanded. You've still got that extra parking, you've got this cleared site, you've got existing infrastructure, it's usually extremely well located in the community, so they are perfect spots for redevelopment into a new town centers. Ideally, and this is urban planning or urban design, instead of having this ring of isolated parking around the town center, you connect the town center to the surrounding fabric better so that it connects up and that strengthens the adjacent streets and properties. Another option for reviving a traditional dying or underutilized shopping center is to create the town center adjacent to or have it plugged into the shopping center.

Have we seen an example of that?

No, this is something people have just sort of figured out. In Valencia, again, from the very beginning they planned that Town Center Drive would lead directly into the main pedestrian entrance into the mall, this is back in the late ‘80s. And they specifically did not have a ring of parking around the mall in their long term plan so that Town Center Drive could eventually connect with the mall. The mall was built and the Town Center Drive was developed. That, of course, was not a case of a distressed or deteriorating mall, this was planned before construction. But there are people around the U.S. who are starting to look at less successful malls with this in mind. Things are just starting to be planned and go through the approval process. The malls and the main streets are very different products, and by connecting them as they've done in Valencia, they can reinforce each other. The traditional mall in Valencia is a terrific place for traditional anchors: Sears, that kind of large department store. Whereas the main street that connects into it has more of your specialty retail, your nice coffee houses, women's clothing stores, and the better restaurants.

Let's shift gears. Earlier you mentioned the incorporation of civic uses into these developments, and there is a growing movement to use schools and libraries and parks as centers of neighborhoods. Are there examples of projects where these uses have been incorporated, and how do the cities who finance these developments participate in the project itself?

Educational uses are extremely important to a true town enter. That would be libraries, community colleges, continuing education classes. I'm not sure elementary schools really belong in a town center. In Schaumburg, Illinois, near O'Hare Airport outside Chicago, they built a new town square near their community's main intersection. They put the main branch of the Schaumburg Public Library on one side of the square. Schaumburg is a very upper middle class, family-oriented, education-valuing community. They get over a million visits a year at that library. And, it's all day long, all weekend long. I cannot think of a better anchor than a large, well-funded and staffed public library to attract all types of people at all hours. Continued education, junior college: that's a great draw for the evening, as well as for the day. And there's something very important about civic uses outside of generating traffic, generating visits, and of course people. If they go to the library, they may stop at something nearby, which makes it sensible that you should park the car once, it's an easier series of errands that way. The civic uses reinforce the fact that this is a true mix of uses: office, hotel, residential, as well as the more familiar retail and entertainment.

What are the general lessons we take out of this and what do we expect to happen as the movement towards these town center developments builds steam? What do you expect to see in the next year, or five years?

If the town centers prove to be more profitable than traditional stand-alone products, you'll see more developers willing to go through a more difficult, somewhat longer, planning and entitlement process to do them. And hopefully communities will realize that these are valuable real estate developments and products to have within their boundaries and they will make it easier and facilitate the planning and entitlement process for the developers, and they'll recognize that the dying malls are really incredible land banks waiting to be redeveloped.

In California, we have a somewhat different situation in metropolitan long term growth patterns and real estate values than many other metropolitan areas. First of all, the coastal cities have tremendous geographic constraints on outward development. We're running out of land in greater Los Angeles, except in one direction. Second, we have very fast growing metropolitan areas, through immigration and now particularly through natural increase.

As a result of these two factors, we don't have major areas of declining suburbs. In other words, our older suburbs, in many but not all cases, are still very viable, very desirable locations and they have infrastructure and they are more convenient to jobs and services than most outlying areas. Some of the 20 and 40-year-old shopping centers in these locations are very desirable locations for this town center redevelopment.

How has a city participated or led the various town square developments you studied?

If you're going to have civic uses included in town centers, and most people agree hat they're very valuable, the private developer's not going to pay for them unless they were to receive assistance or major incentive to include those uses within the development, which is one approach. But the other approach, which is what Schaumberg did, is to have the city act as the master developer, and they assembled the site. It was a dying crossroads neighborhood shopping center and some adjacent parcels. They assembled the land and designated that one side of the square would be the new main public library, selling off the remaining parcels with development restrictions.

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