Multifamily in the Mix
By: Robert (Bob) H. Voelker Due to growing concerns about the cost of gasoline, traffic congestion and pollution, major US cities are revitalizing and repopulating their inner cores. High land costs and the difficulty of obtaining large land tracts make standalone apartment developments in urban areas financially impractical, resulting in denser mixed-use projects, often with multiple developers occupying intertwining horizontally or vertically integrated parcels.These mixed-use projects raise unique issues for the multifamily developer. Construction and Operational Cost Sharing — When uses are stacked in a mixed-use project, apartments are normally on the upper floors, and the garage and lower retail, office or hotel floors serve as the platform and structural support for the apartments. Parking spaces, elevator banks, loading docks, generator rooms, drive entrances, utility trunk lines and other back-of-house-type facilities will be shared by the owners to save land use and construction costs. Design, construction, operational and maintenance costs for these facilities must be allocated among the owners. Once the parties have properly determined these allocations, the obligation of each developer to make its contribution to these shared costs must be secured with letters of credit or other forms of collateral so that the developers, their lenders and equity partners can be assured that the platform and common facilities will be built. These shared facilities will frequently cross over ownership lines, such that use, ownership and maintenance responsibilities are not identical and easements must be created to allow one developer or its users to access the shared facilities located on another developer’s property. These arrangements are normally established in lengthy documents, including a cooperation agreement, escrow agreement and restrictive covenants. Plan and Construction Coordination — Particularly when the development is stacked horizontally, the construction plans for all of the mixed-use components must be highly coordinated, from architectural design to structural and systems support. The hotel, office or retail architect may not be familiar with apartment design issues, and the apartment architect will likely have limited hotel experience. The co-developers should seriously consider hiring one architect for the entire project, or at least granting one of the architects the authority and responsibility to act as lead architect in integrating all of the plans. Sharing some of the critical engineering design firms (e.g., mechanical/electrical/plumbing and structural) will also facilitate plan coordination. In mixed-use projects that are structurally integrated, the co-developers should also agree on one contractor for the entire project to avoid finger-pointing when construction issues arise, and one of the developers should be designated as the construction draw preparation agent, with approval rights granted to the other co-developers. TO READ MORE, CLICK THE PDF ICON BELOW: View as PDF |