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Mixed-use Development in the

Twin Cities:
Issues and Best Practices

A guide for community developers interested in creating neighborhood based


mixed-use development projects.

Local Initiatives Support Corporation


Neighborhood Development Center

October 2003

Mixed-use Development: Issues and Best Practices Page 1


Table of Contents
EXECUTIVE SUMMARY .......................................................................................................... 1
Acknowledgements: ......................................................................................................................... 4
I. INTRODUCTION............................................................................................................. 5

II. MARKET CONSIDERATIONS FOR MIXED-USE PROJECTS.............................. 8


National trends ................................................................................................................................. 8
Local Trends..................................................................................................................................... 9
Commercial Tenants..................................................................................................................... 10
Residential Tenants....................................................................................................................... 12
Best Practices: Understanding the Market...................................................................................... 13
III. PROJECT CONCEPT & DESIGN............................................................................... 14
Assembling a Development Team.................................................................................................. 14
What Makes a Good Site? .............................................................................................................. 15
What to Build ................................................................................................................................. 16
Project Design ................................................................................................................................ 17
Design Elements to Consider for Commercial Space..................................................................... 20
Access ........................................................................................................................................... 20
Parking ......................................................................................................................................... 20
Site plan for the Marketplace Lofts in Hopkins, MN .................................................................... 21
Security ......................................................................................................................................... 22
Signage ......................................................................................................................................... 22
Site Configuration......................................................................................................................... 22
Size & Layout of Commercial Space ............................................................................................ 22
Trash............................................................................................................................................. 23
Vanilla Shell ................................................................................................................................. 23
Ventilation .................................................................................................................................... 23
Visibility........................................................................................................................................ 24
IV. PREDEVELOPMENT AND FEASIBILITY ANALYSIS.......................................... 26
Land Acquisition & Assembly ....................................................................................................... 26
Leasing to Commercial Tenants..................................................................................................... 27
Types of Commercial Leases ........................................................................................................ 28
Financial Analysis for Commercial Spaces.................................................................................... 29
V. DEVELOPMENT ........................................................................................................... 32
Phasing ........................................................................................................................................... 32
Legal Structure ............................................................................................................................... 32
Business Selection.......................................................................................................................... 33
Assessing the Strength of a Potential Business Tenant................................................................. 33
VI. FINANCING MIXED-USE PROJECTS...................................................................... 35
Conventional Debt and Equity Financing ...................................................................................... 35
Subsidy Funding............................................................................................................................. 36
Utilizing Affordable Housing Tools In Mixed-Use Projects ......................................................... 36
Subsidies for Economic Development/Commercial Real Estate Development............................. 38
Specifically Mixed-Use Subsidy Sources ...................................................................................... 39
Investment Opportunities ............................................................................................................... 40
Best Practices: Financing Mixed-use Projects................................................................................ 42
VII. PROPERTY MANAGEMENT ..................................................................................... 43

VIII. CONCLUSION .............................................................................................................. 44

Mixed-use Development: Issues and Best Practices Page 2


ATTACHMENTS ....................................................................................................................... 46
Attachment A: Mixed-use Projects in the Twin Cities.................................................................. 46
Attachment B: Resources for Business Development Assistance ................................................ 48
Attachment C: Funding Sources for Mixed Use Projects............................................................. 49
I. Housing Specific Sources:................................................................................................. 49
II. Economic Development Specific Sources: ........................................................................ 69
III. General Community Development Sources: ..................................................................... 81
IV. Brownfield Remediation Sources ...................................................................................... 93

Mixed-use Development: Issues and Best Practices Page 3


Mixed-use Development in the Twin
Cities:
Issues and Best Practices
Local Initiatives Support Corporation
Neighborhood Development Center

The Jourdain – under development by Central


Community Housing Trust and Hope Community
at the Portland Gateway in Minneapolis.
Executive Summary
Inspired by regional demand for new housing, by the hope of creating vibrant commercial centers, and by
the ethos of the “Smart Growth” movement, planners, policy makers and neighborhood residents have,
with increasing frequency, been advocating for mixed-use approaches to development opportunities
throughout the Twin Cities.

At their best, mixed-use projects create vital places that use space and public infrastructure efficiently by
promoting pedestrian and transit friendly environments. Often at the centerpiece of efforts to revitalize
underutilized property in inner city commercial districts, mixed-use projects offer the potential to
integrate the development of higher density housing with the creation of new neighborhood-scale retail
space. Mixed-use projects, however, pose several fundamental challenges that make them difficult to
develop, especially in neighborhood based applications. These challenges include:

™ Higher Costs: Mixed-use projects often have higher costs per square foot than other projects
because of costs associated with parking structures, firewalls between ground-floor commercial
and upper-floor residential units, elevators, and advanced fire suppression systems.

™ Large Financing Gaps: Mixed-use projects, particularly those that incorporate some element of
affordable housing, often face both “cost gaps” (the difference between the cost of development
and what the market is willing to finance) and “affordability gaps” (the difference between
market rates and what the project’s target market can afford to pay) associated with both the
housing and the commercial uses. The majority of mixed-use projects, both nationally and
locally, require significant public subsidies. The challenge of filling these gaps is compounded
by the fact that there are relatively few subsidy sources for commercial real estate development
and that many common housing subsidy tools are not well suited for projects that consist of
multiple uses.

™ Unproven Market Demand: Because there are relatively few mixed-use projects in the Twin
Cities and because most housing in the Twin Cities is located in distinctly residential areas, many
funders and lenders remain unconvinced of the demand for housing on busy commercial streets
and transit routes.

™ Difficulty in Implementation: Projects with multiple uses are inherently more complex and less
efficient to design, finance and manage. Because housing and commercial uses are
fundamentally different, they require different design features, different financing tools (with
different underwriting standards) and different management skills. In some cases, the demands of
housing and commercial uses conflict in ways that make it difficult to market the product.

Mixed-use Development: Issues and Best Practices Page 1


Bringing all of the divergent components together so that they complement each other is the key
to having a successful mixed-use project.

The purpose of this document is not to present a policy argument for or against mixed-use projects.
Rather, this report is intended as a resource for community developers and policy makers who are
contemplating or have decided to pursue mixed-use projects. This document identifies issues, best
practices, and opportunities associated with mixed-use development.

As part of the research for this report, the Twin Cities Local Initiatives Support Corporation (LISC) and
the Neighborhood Development Center (NDC) conducted interviews with a variety of professionals who
have been involved with recent mixed-use projects in the Twin Cities, including private lenders, public
funders, private developers, non-profit developers, tax credit syndicators, private financial consultants,
architects, commercial brokers, and attorneys. The authors also reviewed best practices from around the
country. The report finds that successful mixed-use projects share the following characteristics:

9 Specific goals for both the housing and commercial components of the project, informed by
careful market analysis that verifies the needs and assumptions underlying those goals.

9 Development teams with solid experience in mixed-use design, commercial leasing, housing &
commercial financing, and property management.

9 Sites located within existing commercial districts with good visibility & access to transit and
roads.

9 Architectural designs that accommodate specific needs for commercial uses into the project on
the front end, while incorporating unique elements that attractively integrate the projects into
their communities.

9 Careful selection of a strong and unique mix of commercial tenants.

9 Sufficient parking that will adequately serve the needs of commercial and housing tenants.

9 Partnerships with municipalities on site assembly and the financing of infrastructure


improvements.

9 The use of phasing for large, multi-block projects when resources are not sufficient to undertake
all activities at one time.

9 Creative financing opportunities for short, medium and long term investors that allow the
commercial portion of the project to establish its customer base.

9 Realistic proformas that include funds for tenant improvements, rents that are in line with the
market, a healthy vacancy rate for the commercial, and tested assumptions for operating
expenses.

9 Legal structures that separate the different uses when necessary to obtain financing.

9 Incorporation of civic uses, public or green spaces such as libraries, banks, community centers,
urban parks, and creative landscaping.

The research suggests that the continued emergence of mixed-use projects as a powerful community
development tool will ultimately require both developers and public/philanthropic funders to continue
learning about and refining their approach to these projects. Developers will need to approach location,
planning, and implementation experience in a manner that reflects and is appreciative of the complexity
of the product types. Public and philanthropic funders will need to become more clear on the context in

Mixed-use Development: Issues and Best Practices Page 2


which these projects achieve broader public goals and will need to create new tools that address the
unique financing challenges they pose.

This report is intended as a resource for community developers and policy makers contemplating mixed-
use projects. While it does not answer all questions or offer a guaranteed formula for success, it does
offer ideas and suggestions and, most importantly, is intended to inspire further thought and debate about
how mixed-use projects are approached in the Twin Cities.

If you are interested in additional copies of this report, please contact Twin Cites LISC at (651) 649-1109
or visit www.liscnet.org/twincities.

Mixed-use Development: Issues and Best Practices Page 3


About the Authors:

Mike LaFave is a Program Officer for the Twin Cities Local Initiatives Support Corporation (LISC),
a community development intermediary whose mission is to help create and sustain healthy communities
in lower income, distressed neighborhoods of Minneapolis and St. Paul. LISC works in partnership with
community development corporations (CDCs) and other community-based organizations, government
and the private sector to develop and support creative and effective strategies for neighborhood
revitalization. In addition to providing CDCs with direct operating support, LISC utilizes a variety of
project specific financing tools to support community-based real estate development projects.

JoAnna Villone Hicks is the Real Estate Development Director for the Neighborhood Development
Center (NDC), a community based non-profit organization that works in the inner cities of Saint Paul
and Minneapolis helping emerging entrepreneurs build successful businesses that serve their
communities, and helping community groups build stronger neighborhood economies. Through its
innovative place based approach, NDC attempts to harness the power of “home-grown” entrepreneurial
talent to the revitalization of low-income inner-city and ethnic communities in a process controlled by the
community itself. NDC’s purpose is to train, finance, and support local entrepreneurs, in strong, working
partnerships with community groups. NDC’s new Real Estate Development Initiative is designed to
catalyze corridor revitalization in targeted neighborhoods, encourage property ownership and business
growth among NDC’s targeted entrepreneurs, and enhance the capacity of neighborhood organizations to
carry out real estate projects.

Acknowledgements:
We would like to thank the following people for their contributions to this report:

Andriana Abariotes, Twin Cities LISC Janet Jeremiah, City of St. Louis Park
Joann Baron, Met Council Alan Joles, HUD
Peter Barté, National Equity Fund Thomas Koon, HUD
Loren Brueggeman, Sherman Associates Cynthia Lee, CPED
Colleen Carey, Cornerstone Group Shaun McElhatton, Leonard, Street & Deinard
Patrick Connoy, Hennepin County Paula Merrigan, DJR Architecture, Inc.
Carrie Cook, Twin Cities LISC Al Mueller, Western Bank
Dean Dovolis, DJR Architecture, Inc. Iric Nathanson, MCCD
Kevin Filter, Glasier Financial Services Diane Norquist , PED
David Frank, Schafer Richardson Inc. Bob Odman, MHFA
John Gelderman, CSM Corporation Mara O’Neill, NDC
Archie Gregory, Gregory Development Ed Padilla, Northmarq Capital
Stephen Gronewold, HUD Steve Peacock, Twin Cities LISC
Tim Gruenes, HUD Glenn Sansburn, Wells Fargo
Thomas Harmening, City of St. Louis Park Mike Temali, NDC
Kim Havey, Minneapolis Empowerment Zone Bill Tetzlaff, CPED
Greg Hayes, Colliers Towle Susan Thompson, NCDF
Sarah Huss, Central Community Housing Trust J. Kou Vang, JB Realty
Barb Jeanetta, Twin Cities LISC Paul Williams, Twin Cities LISC

Mixed-use Development: Issues and Best Practices Page 4


Mixed-use Development in the Twin Cities:
Issues and Best Practices

I. Introduction
Mixed-Use in the Twin Cities

Between 1990 and 2000, the population of the seven-county Twin Cities Metropolitan Area grew
by over 15% to 2.6 million.1 While most of this growth occurred in suburban communities, the
central cities of Minneapolis and Saint Paul also experienced population growth, driven by a
strong economy, by renewed interest in urban living, and by the phenomenal growth of several
recent immigrant groups. In the face of this growth, many communities -- including suburban
communities intent on creating more defined centers and inner-city neighborhoods eager to
redevelop underutilized property, capitalize on emerging immigrant markets, and build on
renewed market interest -- began to plan new redevelopments.

At the same time, national discussions about “Smart Growth”-- emphasizing compact, transit-
oriented development, the wise use of existing transportation and infrastructure, the
redevelopment of obsolete buildings and brownfields, and the creation of infill housing -- began
to influence local thinking and planning.

The concept of mixed-use development has (re)emerged amidst these trends as a tool that offers
the potential to create vibrant, walkable places that integrate the development of higher density
housing with the creation of new neighborhood scale retail space. In fact, planners, policy makers and
neighborhood residents have, with increasing frequency, been advocating for mixed-use projects for
development opportunities throughout the Twin Cities.

Though there is no universally accepted definition of mixed-use development, for the purposes of
this document, a “mixed-use project” is a development that incorporates a mixture of residential
and commercial uses within the same physical structure.2

Mixed-use developments have their roots in the historical development of urban places and tend
to evoke the classic sense of what a urban neighborhood is – small shops and entertainment
located within walking distance of established residential neighborhoods.3 The concept relies on
a compatible mix of uses to increase the intensity and diversity of land uses.4 The relatively
recent re-birth of the concept has been offered as a policy solution for urban infill opportunities,
suburban densification, and responsible greenfield development.5

Despite the persistent interest in such projects by planners, policy makers, and neighborhood
residents, mixed-use projects have proven to be costly and complicated to develop – particularly
in a contemporary context. Several factors in particular pose fundamental challenges to the
development of mixed-use projects in the Twin Cities:

1
Metropolitan Council, U.S Census data. Available at www.metrocouncil.org/Census.
2
Note: mixed-use does not necessarily have to be all in one vertical structure –some of the best projects separate
uses physically, but create a sense of place through a well planned variety of uses. However, this document is
primarily concerned with vertical mixed-use projects.
3
Jacobs, Jane. The Death and Life of Great American Cities.
4
Grant, Jill. APA Journal. Winter 2002: V 68, No. 1, p 73.
5
Sheridan, Mike. “Architectural Views: Sustainability, mixed-use and security are some of the trends that
architects say will affect building design.” Urban Land. November/December 2002: 19.
Mixed-use Development: Issues and Best Practices Page 5
™ Higher Costs: Mixed-use projects often have higher costs per square foot than other
projects because of costs associated with parking structures, firewalls between ground-
floor commercial and upper-floor residential units, elevators, and advanced fire
suppression systems.

™ Large Financing Gaps: Mixed-use projects, particularly those that incorporate some
element of affordable housing, often face both “cost gaps” (the difference between the
cost of development and what the market is willing to finance) and “affordability gaps”
(the difference between market rates and what the project’s target market can afford to
pay) associated with both the housing and the commercial uses. The challenge of filling
these gaps is compounded by the fact that there are relatively few subsidy sources for
commercial real estate development and that many common housing subsidy tools are not
well suited for projects that consist of multiple uses.

™ Unproven Market Demand: Although mixed-use development is commonplace in


many larger cities, it has been utilized far less frequently in the Twin Cities Metropolitan
Area. Few mixed-use projects were developed in the Twin Cities during the 1990s, and
many of the higher profile mixed-use projects developed in the 1970s and 1980s have
struggled. Moreover, because there are relatively few mixed-use projects in the Twin
Cities and because most housing in the Twin Cities is located in distinctly residential
areas, many funders and lenders remain unconvinced there is strong demand for housing
on busy commercial streets and transit routes.

™ Difficult to Implement Successfully: Projects with multiple uses are inherently less
efficient to design, finance and manage. Because housing and commercial uses are
fundamentally different, they require different design features, different financing tools
(with different underwriting standards) and different management skills. In some cases,
the demands of housing and commercial uses conflict in ways that make it difficult to
market the product. Bringing all of the divergent components together so that they
complement each other is the key to having a successful mixed-use project.

Nonetheless, the appetite for such projects, at least in


neighborhood discourse, seemingly continues to grow.
Proponents of mixed-use projects in the Twin Cities
tend to argue for their application on a variety of
levels. In an immediate sense, they contend that
mixed-use projects address multiple policy goals by
creating needed housing units and adding pedestrian
vitality to particular locations, while at the same time
preserving, or even enhancing, the location's
West River Commons (Lander Group): under development
commercial identity. (In the built out core cities, where
large tracts of developable land are not easily
available, commercial corridors often represent the most viable place to locate higher density
housing). In this sense, mixed-use projects are seen as a tool for broader community
development, by providing an avenue for job creation, reuse and renovation of existing
structures, diversification of area incomes, and a strengthening of the tax base. Many local
planners and neighborhood groups have sought to add commercial and retail components as a
way to increase neighborhood amenities.

Mixed-use Development: Issues and Best Practices Page 6


The broader, planning oriented argument is that demographers project the Twin Cities
metropolitan region to gain over 450,000 households, and over 900,000 people, by 2030,6 and
that mixed-use projects along commercial corridors and transit routes represent an effective and
cost-efficient means of accommodating this future growth. The higher costs associated with
these projects in the short term, as the argument goes, will prove cost-effective over the long
term by establishing development patterns that will utilize public infrastructure efficiently and
help minimize automobile trips.

Not everyone, however, agrees that mixed-use projects represent a good solution to these issues.
A notable group of detractors, including many lenders, funders, and developers, argue that
mixed-use projects inefficiently increase the need for subsidy and are inherently less stable than
either commercial or residential projects on their own. They argue that design and layout
constrictions limit the ability of the commercial component to succeed in all but the ripest
markets, and that vacant or the wrong kind of commercial space can negatively impact a housing
development that would have otherwise succeeded. Moreover, many, including some private
developers, have serious questions about the breadth of the market for housing units located
directly above commercial space in the Twin Cities market place, because this product does not
have a well established history here locally.

Purpose of this Report

The purpose of this document is not to present a policy argument for or against mixed-use
projects. Rather, this report is intended as a resource for community developers and policy
makers who are contemplating or have decided to pursue mixed-use projects. This document
identifies issues, best practices, and opportunities associated with mixed-use development.

Because it tends to be housing developers – often housing developers who lack commercial
development experience – who undertake mixed-use projects, and because the success of mixed-
use projects depend to a large degree on the success of the commercial component of the project,
the specific focus of this document is on how to make commercial retail space work within the
context of a housing development.

Findings within this report are structured around the various phases of the development cycle,
offering specific recommendations for developers as they move from concept development, to
predevelopment, to development, and finally to management. The report also addresses
challenges associated with financing mixed-use projects and identifies several niche
opportunities for funders or investors interested in this product type.

The Twin Cities Local Initiatives Support Corporation (LISC) and the Neighborhood
Development Center (NDC) gathered research and information from industry practitioners that
have been involved with recent mixed-use projects in an attempt to identify key issues and best
practices. As part of this research, the authors reviewed best practices from around the country
and conducted interviews locally with private lenders, public funders, private developers, non-
profit developers, tax credit syndicators, private financial consultants, commercial brokers, and
attorneys. This report is not an exhaustive analysis of mixed-use development. However, we
hope it provides a useful backdrop to current conversations and potential project undertakings in
the future.

6
Minnesota State Demographic Center, Minnesota Population Projections: 2000 - 2030. 2002.
Mixed-use Development: Issues and Best Practices Page 7
II. Market Considerations for Mixed-use projects

All real estate development begins with a basic conception of market demand. The interest in,
and perceived demand for, mixed-use projects in the Twin Cities is a function of both national
and local trends. This section discusses national and local trends and discusses the importance of
careful market research and planning. This section also highlights key findings with respect to
demand – both for the commercial space and the housing units -- and identifies best practices
around understanding the market and creating a marketable mixed-use product.

National trends

Mixed-use developments are commonplace in densely populated, “24-hour” cities such as New
York, Chicago, and Boston. Such developments are less common in mid-sized cities with less
population density, but have been utilized with increasing frequency as a revitalization tool in
such markets. Mixed-use projects are frequently the centerpiece of large scale development
initiatives with broad goals -- such as revitalizing blighted inner-city areas or creating a central
“place” in suburban communities.7 The most common mixture of uses is residential/retail, with
office/retail as another common form.8 The emerging trend is to incorporate large entertainment
venues or cultural institutions as anchors for mixed-use projects in urban settings to attract
residential residents who want to live in close proximity to dining, entertainment and culture.9 In
many cases, these projects have been able to capitalize on distinct qualities – such as historic
renovations, unique designs with new construction, mix of uses -- to attract high-income tenants
to the rental units.10

The design for a recent mixed use project in California

As traffic congestion and commuting times have dramatically increased in past years, there has
been a renewed interest in urban living across the country. A buoyant economy in the late 1990s
and years of public investments in downtowns and neighborhood projects have also made many
urban areas much more attractive places in which to live and work. This shift in public
perception has led to resurgence in the development of urban infill housing in many of the
nation’s largest cities.11

7
Corso, Stacey. “Creating the Perfect Blend: Mixed-use projects present challenges, especially in tough economic
times.” Real Estate Forum. June 2001, p 38 – 45.
8
Bell, John. “E Pluribus Unum: The synergies of Mixed-use.” Midwest Real Estate News. April 2000, p 35.
9
Egan, Nancy. “Mixing it Up: A look at the forces that shape mixed-use today.” Urban Land. April 1999, p 66-71.
10
Ibid.
11
Suchman, Diane R. Developing Successful Infill Housing. Urban Land Institute. Washington, DC: 2002.
Mixed-use Development: Issues and Best Practices Page 8
National trends point to an increasing number of younger adults entering into the housing
marketplace, as well as retirees who are seeking a simpler apartment lifestyle.12 Both market
segments are seen as being very attractive candidates for urban, mixed-use projects nationally. A
recent study found that homebuyers over age 45 show particular interest in more densely
configured homes in central locations, and that group will account for 31% of total homeowner
growth in the 2001-2010 period.13

Local Trends
The Metropolitan Council estimates that shifts in population in the Twin Cities metropolitan area
over the next 30 years will result in a decreasing demand for single family detached housing, and
a simultaneous increase in demand for housing alternatives.14 In 2003, the market has seen a
shift among condo developers to include more modest sized units priced in the $150,000 -
$300,000 range, which has met with substantial market support. Broad commercial market
analysis for the region predicts that developers will seek urban redevelopments to facilitate
retailers desire to serve densely populated and under-retailed cities.15 Analysts also predict
growth in new retail occurring in transit-oriented and mixed-use developments because of cities’
desires to promote such projects.16

The extent to which national or even regional studies on housing or commercial trends translate
into demand for mixed-use projects in the Twin Cities market is not clear. What is clear is that
assessing this market is more complicated than assessing the market for either a housing or
commercial project in isolation. Mixed-use market analysis requires assessing the demand for
both commercial and residential components of the proposed project, and understanding the
context in which they can both succeed together. Doing this accurately in the Twin Cities
market is difficult because of the lack of comparable product. Nonetheless, Minneapolis, St.
Paul, Burnsville, Hopkins, St. Louis Park, and Richfield all have mixed-use projects that have
either recently come on line or are currently under construction.17 These projects, and the
developers tackling them, are helping to inform market information on the mixed-use product in
the Twin Cities and are helping to more clearly identify the factors that impact market demand.

Understanding the Market

Many mixed-use projects are designed to create live-work neighborhoods, where the addition of
higher density housing allows the introduction of neighborhood-based retail and services. For
housing developers well versed in building housing within existing neighborhoods, successfully
identifying the market for mixed-use projects requires a sophisticated understanding of the
function and nature of retail in an urban setting.

12
Lend Lease Real Estate Investments. Emerging Trends in Real Estate 2003. October 2002.
13
Myers, Dowell and Elizabeth Gearin. “Current Preferences and Future Demand for Denser Residential
Environments.” Housing Policy Debate. Volume 12, Issue 4.
14
Metropolitan Council. Blueprint 2030. P 13.
15
CB Richard Ellis. Market Outlook 2003: An Annual Report Providing Analysis and Insight into Twin Cities
Real Estate Trends. P 13.
16
Ibid, p 15.
17
See Attachment B for brief descriptions of several recent mixed-use projects recently completed or currently
underway in the Twin Cites Metropolitan Area.
19
Gosling, John. “Patterns of Association.” Urban Land. October 1998, p 45.
Mixed-use Development: Issues and Best Practices Page 9
Commercial Tenants

Retail uses are typically divided into three categories, depending on the size of the store and the
market share: Neighborhood Store, Commercial District, or Town Center Shops. Assessing the
type of commercial user is an essential step in the market analysis for a mixed-use project.

Many developers of mixed-use developments find that neighborhood retail works better in
neighborhood-based projects because “it can fit within residential building footprints, it can often
function with only storefront access for delivery and trash pickup, and requires smaller-scale
mechanical systems and less parking.”19

Service Service
Retail Type Definition Typical Size Area Area
(Sq. Ft.) (Min) (Max)
Neighborhood Store A retail business that provides a convenient 800–5,000 ¼ mile 1 mile
location for quick purchases from a wide array
of products (predominantly food). Typically
less than 5,000 sq.ft. with convenient
pedestrian access, parking and extended hours
of operation.
Commercial District A collection of shops that provide personal 15,000–25,000 1 mile 2 miles
services (dry cleaning, barber shop, shoe
repair) and convenience goods (food, drugs,
and sundries). Typically anchored by personal
or convenience retail such as a mini-market.
Town Center Shops Provides for the day-to-day needs of the 30,000–50,000 2 miles 5 miles
immediate neighborhood. Typically, a
supermarket is a principal tenant.

Source: Real Estate Development: Principles and Process. Urban Land Institute (ULI): 2002.

The types of businesses that are often envisioned for neighborhood mixed-use projects are retail
stores, coffee shops, convenience stores, and restaurants. As with any commercial development,
it is important to strike a balance between established anchor tenants (i.e. independent businesses
with an established business history, or, chain stores that have strong financial backing and an
established reputation) and smaller businesses (i.e. start ups or small “mom & pop” shops) that
are inherently more risky.

Although mixed-use developments are often found around transit corridors, transit alone will
generally not drive mixed-use development. A study on transit-oriented development found that
new projects on transit lines often struggle in low-income areas where the real estate market is
weak: “Real or perceived problems such as crime, social problems, and deteriorated physical
conditions deter investment…as a result new development in transit-rich, low-income
neighborhoods is very difficult to achieve and often lacks the full set of features such as
appropriate site design and pedestrian connectivity.”20 The study found that while well-planned
transit investments can help to catalyze economic development projects, supporting policies,
incentives and investments are likely to be necessary.

20
Center for New Urbanism. Challenges for Transit-Oriented Development. 2001.
Mixed-use Development: Issues and Best Practices Page 10
Commercial Market Analysis

The first step in assessing the market for commercial uses is to identify the people who live and shop in
the area of the project, including what they buy, how much they spend, what stores exist in the
neighborhood already, what stores are missing, and what the competition is. There are varying levels of
detailed market research that can be done as part of a demand analysis, ranging from “shoe-leather
research” to a professional market study.21

As part of the initial concept formulation stage, it is helpful to have “shoe leather research” which
involves personal conversations with residents, local business owners, and broader business owners and
leaders to identify what types of businesses might work in the project. This can be the most useful of all
market research because it is the most specific to the target neighborhood, and it can help to identify
barriers to success such as perceptions of crime, access, and price. Steps involved in conducting “shoe-
leather research” include:

9 Creating a map of neighborhood businesses including all of the area stores, their size in square feet,
what they sell, and who they sell to (by income, age and ethnicity);
9 Talking to neighborhood business owners and residents;
9 Placing a survey in the neighborhood newspaper or community gathering places to get information
about shopping patterns and preferences of local residents;
9 Conducting an intercept survey by stopping people on the sidewalk and asking them a few interview
questions.22

While testing the feasibility of a project idea, gathering existing geographic and demographic research
can help to better identify business trends and customers for the project. Steps to conduct in this phase of
research include:

9 Defining the boundaries of the market area either by neighborhood boundaries, or by drawing
concentric rings around the project (.25, .5, and 1 mile for neighborhood stores and 1, 3, and 5 mile
radius for more destination businesses), taking into account natural boundaries that act as barriers
(highways, water, etc.).
9 Getting initial demographic information including information on the age, sex, race, and income of
the population and households in the area, as well as future projections. Free demographic
information is available at www.census.gov by census tracts, but to get demographics on a radius
point, you will need to access fee services such as www.claritas.com or www.demographics.now.
9 Identifying the retail buying power of the community. Demographic services also provide information
on consumer expenditure details in order to identify the total purchasing power for a given item.
Once the total buying power for a particular product in the community has been identified, the data
can be translated into an analysis of how many shoe stores the area can support, based on sales per
square foot, and can identify whether or not there is demand for a particular type of business.23

While residents from the housing may comprise a “ready-made” market, this market, even in large
projects, is not sufficient to support most commercial uses by itself. Although the absence of viable
commercial districts is a common complaint of neighborhood surveys, the perceived lack of commercial
amenities does not automatically translate to a market that can sustain retail businesses.

21
This section draws heavily from the book by Mihailo Temali. The Community Economic Development
Handbook. St. Paul, MN: Amherst H. Wilder Foundation, 2002.
22
Ibid., p 63-64.
23
Ibid, p 65–67.
Mixed-use Development: Issues and Best Practices Page 11
Residential Tenants

Nationally, the market for owners and renters attracted to mixed-use projects in urban
neighborhoods is typically comprised of “time-short, single young professionals, professional
married couples looking for shorter commutes, and empty nesters downsizing and moving into
housing that is more convenient and labor saving than the typical suburban home. This market
demands – and can afford – luxury, services and security.”24

Despite the perceived shortage of housing units in the Twin Cities market, and of affordable
units in particular, the market demand for the housing side of a mixed-use project should not be
taken for granted. The design of the project, its location, and the nature of local amenities should
all impact how a developer defines its target market.

Mixed-use developments are often designed with a minimal amount of green space or play areas,
making the projects somewhat less desirable for households with children. The most common
market target market for mixed-use housing tends to be efficiencies and one bedroom units for
singles and couples with no children. Nonetheless, there are several mixed-use projects in the
development pipeline, such as “Many Rivers” in South Minneapolis, that will offer multiple
units for families and will test traditional thinking.

A recent study by the City of St. Paul found that 35% of residents in new urban rental units are
between 18-24, with only 5% older than 55. Sixty percent of new urban condo residents were
between 25-34, with an additional 14% over age 55.25 The survey also found most residents
expect to move out within five years.

Given the shortage of affordable rental housing in the Twin Cities market, affordable housing
projects with rent restrictions or project-based assistance have proven able to succeed almost
anywhere given good management. Nonetheless, interviewees noted that most mixed-use
projects have higher density and are located in greater proximity to busy commercial streets or
transit routes than other housing alternatives in the Twin Cities, which makes demand analysis
for housing in a mixed-use project more sensitive. These comments suggest that is important
for developers of mixed-use projects to understand the specific target market for the residential
component of the project and to have strong reason to believe that there is location-specific
demand within that market for a mixed-use product.

24
Gosling, John. “Patterns of Association.” Urban Land. October 1998, p 42.
25
2002 Survey of Residents of New St. Paul Housing, page 1.
Mixed-use Development: Issues and Best Practices Page 12
Best Practices: Understanding the Market

Best Practice: Analyze the commercial market prior to development to identify commercial uses that have
the potential to both serve as an amenity to the housing and fill a niche in the surrounding commercial
market.

Before concluding a location is a good mixed-use location, assess both the housing and commercial
potential of the site. Analyze the surrounding commercial market and identify potential commercial uses
that will complement the mix of nearby commercial uses or fill unmet market needs. The market analysis
should yield a sophisticated understanding of the types of businesses in the surrounding area, the range
and average of lease rates, and the buying power and profile of the surrounding customer base.

Best Practice: Identify the specific target market for the residential units. Be comfortable with both
location and product specific demand analysis.

The demand for housing in a mixed-use building located on a commercial corridor is likely to be more
narrow than other types of housing products. Developers should be confident in their assumptions about
the market demand for their proposed product, at their proposed location, at their proposed price.

Mixed-use Development: Issues and Best Practices Page 13


III. Project Concept & Design
Mixed-use projects face issues that are different from those of either a solely housing or a solely
commercial development. This section identifies some of the issues that are central to designing
a successful mixed-use project.

Assembling a Development Team


Frequently, mixed-use projects are undertaken by housing developers with little or no
commercial development experience. Commercial development, however, requires very
different skills than housing development. A successful development will be more easily
achieved if the development team contains members with certain skills and knowledge.

Architect

Commercial uses and housing uses each have unique design needs. The project’s architect
should have experience working on and understanding the design demands of both commercial
and housing uses and should understand the design needs of both types of uses.

Commercial uses, for example, often have specific design needs, such as venting, delivery
access, garbage and storage that must be planned for early in the design process. It is extremely
important that, in the programmatic phase, the design team be aware of and deliberate about how
the needs of commercial space will interact with the housing market.

Commercial Broker

Most successful mixed-use development teams include either a commercial real estate broker, or
someone who has experience leasing commercial real estate. Interviewees further suggested that
person needs to be part of the team in the design phase. Leasing a commercial space requires a
thorough review of the tenant’s business plan, assets, financial statements, access to working
capital, and credit scores. A skilled broker can typically assess whether the applicant will be a
good fit for the space and for the overall development.

A broker or commercial real estate expert can also provide guidance on issues such as parking,
orientation, common area, pricing, and market for commercial uses. Alternatively, some
developers have master-leased the commercial space to an organization or entity that has
experience leasing commercial space.

Property Manager

Managing commercial real estate requires different skills than managing housing. Several
developers interviewed discussed the importance of including a member partner with
commercial expertise who will be involved in property management and who can help
commercial tenants access business development and technical assistance resources. See Section
VIII.

Real Estate Attorney

Because commercial properties and residential properties have different zoning, easement, and
financing issues, most developers utilize real estate attorneys who understand and have
experience with both commercial and residential real estate development. A skilled real
Mixed-use Development: Issues and Best Practices Page 14
attorney, who understands how financing, zoning and easement restrictions interrelate, can play a
critical role in creating a sustainable ownership and financing structure for a mixed-use project.
This is particularly true for projects that need to utilize more complicated ownership and
easement structures. Most developers also recommend using an experienced commercial real
estate attorney to create and review leases for a mixed-use project’s commercial space.

What Makes a Good Site?


While location is important in all real estate development – it is critical for mixed-use projects.
Not every site is a good mixed-use site. Some sites, because of location, parking, and design
limitations, are not good commercial sites.

Retail businesses typically look for four main elements in any site:

9 Visibility
9 Parking
9 Signage
9 Access

The relative importance of each of these elements will change depending on the nature of the
business. For instance, since most coffee shops are convenience businesses rather than a
destination location, business owners will search for sites that are along the morning side of a
major commuting route with good street parking, proximity to other retail businesses that will
draw additional customers, an attractive building, and the opportunity for good signage.26 The
average coffee shop customer might come in 2-3 times per week, so convenience of the site is
critical. As more of a destination location, a restaurant might value parking over access because
the average customer might visit only once or twice a month.27 The more unique the cuisine of
the restaurant, the more flexible the restaurant will be with regards to access.

Successful mixed-income housing projects typically


require several conditions of a site: good proximity
to roads and transit to provide access to jobs, suitable
site conditions, and proximity to schools, shops,
parks and churches.28 For urban apartment or condo
dwellers, proximity to work was the most frequently
cited neighborhood characteristic of importance,
followed by proximity to shopping and restaurants.29
Residents of Essex Condominiums, a mixed-use
project developed by Sherman Associates in
The Excelsior at Grand project created retail spaces downtown Saint Paul, said proximity to restaurants,
with significant visibility from multiple angles which
is critical for retail tenants. cultural activities, and entertainment are the most
important attractions of their downtown location.

Several recent national examples have further demonstrated how projects lacking distinctive
natural amenities can achieve market appeal through the incorporation of New Urbanist design
elements and deliberate integration with a site’s intrinsic locational advantages, such as

26
Interview.
27
Interview.
28
Greater Minnesota Housing Fund & Cermak Rhoades Architect Team. 2001.
29
2002 Survey of Residents of New St. Paul Housing, p 1.
Mixed-use Development: Issues and Best Practices Page 15
proximity to light rail or bus lines, commercial districts, and employment centers.30 In its guide
to site selection, the Greater Minnesota Housing Fund cited the emphasis on location as a key
criteria, commenting that “a highly desirable neighborhood provides easy access to amenities
like schools, parks, and churches, as well as to needed services such as grocery stores, doctor
offices, and restaurants.”31

What to Build
Both local and national best practices illustrate the importance of designing a project to integrate
with the unique nature of the development site and the surrounding market. Before embarking
on a project, commercial brokers and commercial developers emphasized the importance of
being clear about what the commercial space in a mixed-use project is expected to accomplish,
whether it is seen as an amenity to the housing, a source of revenue, or as a neighborhood asset.

Commercial brokers interviewed also noted that the marketability of the commercial uses, and
the project as a whole, will depend largely on achieving the right mix of commercial tenants, and
that it is important that the project be deliberate about the commercial uses. Developers of
successful mixed-use projects almost always have a strong vision about the primary tenant
and/or tenant mix for the project from the initial conception stage.32 The developer of a large
mixed-use project in Bethesda, Maryland claims that the key to success is tenant diversity; on a
street where local specialty tenants outnumber national chains, shoppers can accomplish most of
their errands in one shopping trip, including groceries, dry cleaning, hair salons, bagels, coffee,
bakery, books, and apparel.33

Other developers spoke of the importance of creating good chemistry among commercial uses –
paying careful attention to the selection of strong local restaurants, neighborhood services, and
retailers.34 Some developers even spoke of turning down several tenants in the quest to find a
restaurant that would draw visitors to the area.35 Of course, this strategy may require the
developer to cover the operating expenses for the vacant space until an acceptable tenant comes
along.

The commercial brokers interviewed suggested that developers interested in identifying stable
commercial tenants should pay careful attention to a
prospective tenant’s compatibility with the surrounding
commercial market and neighborhood. For instance,
restaurants or small sandwich shops will have a better
chance of success if there are workplaces in the
surrounding area that can support a lunch business. A
good example of this is Gregory Real Estate Company’s
recently completed project, “Village at St. Anthony,” at
the corner of University Avenue and Hennepin in
northeast Minneapolis, which built upon consumer
Village at St. Anthony on Hennepin Avenue in recognition of two established businesses (a liquor store
NE Minneapolis.

30
Bohl, Charles. 2002
31
Greater Minnesota Housing Fund & Cermak Rhoades Architect Team. Building Better Neighborhoods: Creating
Affordable Homes and Livable Communities. Greater Minnesota Housing Fund. St. Paul, MN: 2001, p 5.
32
Interviews.
33
Lassar, Terry. “Hitting the Streets.” Urban Land. July 1999: p 34-37.
34
Bohl, Charles. 2002.
35
Ibid. and interviews.
Mixed-use Development: Issues and Best Practices Page 16
and a butcher shop) and added additional restaurants and retail to create a district within an area
with a growing residential and office population.

Apparel stores tend to want to locate in an area with a significant amount of foot traffic and a
cluster of other trend setting stores, such as other stores selling apparel, home furnishings, books,
or music. Apparel stores are generally not strong candidates for stand-alone commercial
spaces.36

The following questions from The Community Economic Development Handbook are a good
guide to start developing a “targeted business list”:

™ What types of businesses are needed by the residents of your community and would be
viable in your market?

™ What types of businesses would complement some of your existing businesses by


bringing in customers who would also shop at these stores?

™ What types of businesses would fit into the vacant storefronts and office space, as
identified in your property inventory?

™ What types of businesses would add the most to your community well-being by serving
as community gathering places, by adding entrepreneurs who can act as role models, or
by providing goods and services your neighborhood needs the most?37

Identifying the types of businesses that the project wishes to attract in the beginning phase of the
development is also critical to the ongoing financial success of the project. Because businesses
have very specific needs relative to their operation, a project that provides an unfinished “vanilla
shell” space will likely require substantial amounts of “tenant improvements”, which could make
the space prohibitively expensive. In addition, it is exceedingly difficult to reposition vents,
grease traps, and trash rooms in multi-story residential buildings. Consequently, decisions about
which spaces should be utilized by restaurants need to be made early in the planning process.38

On the other hand, both brokers and developers noted that committing to a specific type of user
can turn into an opportunity cost if the developer cannot find a tenant to occupy the space as
designed – further emphasizing the importance of informing the project concept with solid
market research.

Project Design
The design of a mixed-use project will have tremendous impact on the extent to which the
project proves to be a valuable community and/or economic asset. New Urbanism design
elements, which echo historical urban styles while effectively accommodating multiple uses,
have proven extremely popular, and have demonstrated appreciating values over time.

Although mixed-use development is usually high density, site plans should not ignore the need
for public or green spaces.

36
ULI Case Studies.
37
Temali, 69.
38
Gosling, 47.
Mixed-use Development: Issues and Best Practices Page 17
In a recent study of what makes a strong sense of place, the Urban Land Institute listed several
elements that contribute to this success: a variety of attractive public spaces, scale and variety of
pathways (ample sidewalks and appropriate street trees, buildings with frontages oriented to the
sidewalk), and a ratio of building height to street of approximately 1:1 to create a sense of spatial
enclosure (compared to typical suburban ratios of 1:6).39

Park Commons, a redevelopment project recently


completed by TOLD Development in St. Louis Park, has
used an interior courtyard to connect its new residential
units and commercial spaces to an adjacent park &
recreation area. The courtyard has proven a popular
amenity, drawing lunchtime and weekend crowds.

The courtyard at Park Commons in St.


Louis Park

Grand Market Plaza, a mixed-use project currently under development by Sherman Associates
in Burnsville, MN is a good example of a project that has preserved green space within the
interior of a project that will bring density and commercial vitality to a centralized commercial
hub.

The site plan for Grand Market Plaza at Nicollet and 125th street in Burnsville, MN.

39
Bohl, Charles. 2002.
Mixed-use Development: Issues and Best Practices Page 18
Similarly, Central Community Housing Trust’s East
Village project on 11th Avenue in the Elliot Park
neighborhood of Minneapolis, added significant density to
the site but enhanced its “walkability” by utilizing a design
that featured public space which, in effect, created a
walkway connecting the higher density housing behind the
project to the park in front of it.

Several national projects also provide examples of designs


that have successfully incorporated public and green
space. A project in Orenco Station, Oregon that is located
CCHT’s East Village. next to a light rail station included several pocket parks
interspersed within the development to provide a sense of
40
intimate public spaces. Residential units with balconies that faced an urban style park with
mature trees, benches, and foliage appreciated significantly in a Florida development.41 In
Reston, Virginia the centrally located ice-skating rink (which doubles in the summer as a concert
pavilion) draws both residents and customers to the development.42 Many successful mixed-use
developments provide wider sidewalks (at least 20’) to facilitate outdoor dining and sidewalk
cafes.

Many of the best projects create density while maintaining or fostering neighborhood character
by varying the styles and sizes of buildings.

Techniques such as incorporating a variety of


visual colors and styles or recessing parts of the
building can create the illusion of smaller
buildings. The recently completed “Village at St.
Anthony” on the corner of University and
Hennepin Avenues in Northeast Minneapolis used
a combination of new construction and renovation
to add density into a neighborhood in a manner that
is compatible with existing commercial and
residential uses.

The importance of carefully integrating mixed-use


The Village at St. Anthony project utilizes varying
projects into the surrounding neighborhood is
designs along its façade to echo the historic illustrated by the Orenco Station project near
character of the surrounding neighborhood. Portland, Oregon, where the parts of the
development that are considered the weakest are
those that were sold to multifamily developers who developed dense residential buildings that
many felt were awkwardly out character with neighborhood.43

40
Ibid.
41
“Case Study: Boca Raton, Mizner Park”. Bohl, Charles. 2002.
42
“Case Study: Reston Town Center, Virginia.” Bohl, Charles. 2002.
43
“Case Study: Orenco Station Town Center, Portland Oregon.” Bohl, Charles. 2002.
Mixed-use Development: Issues and Best Practices Page 19
Design Elements to Consider for Commercial Space
Access

Most retail or food businesses will require deliveries at least once a week, and if delivery access
is not provided off-street there can be serious difficulties with traffic and neighbors. A design
that has commercial units facing the street and residential units facing the back with a common
corridor separating the two uses can create major operational issues for the commercial tenants.
Limiting entrance deliveries to one entrance that is accessed by a common corridor will limit the
development to smaller commercial tenants (e.g. sub shop, flowershop or dry cleaner).
Commercial brokers also noted that space for after hours postal deliveries (either through mail
slots or a mail room) is often critical for some commercial businesses.

Parking

Interviewees emphasized that developing parking that is adequate and


appropriate for both housing and commercial uses is critical to a
mixed-use project’s success. New multi-family housing
developments, particularly projects in built out urban areas, tend to
require either underground parking or adjacent structured parking in
order both to be marketable and to minimize the disruption to the
surrounding neighborhood. Similarly, for commercial tenants, few
issues are as important as how much parking is available and how
close it is to the building.44 The first question any business owner will
ask is whether their customers can park near the front door of the
The Park Commons project
includes street parking for
business. In most inner-city locations, customers will be unwilling to
commercial users. pay to park, and if the mixed-use components of a project require a
parking ramp, the lack of revenue can kill the deal.

Moreover, some interviewees noted that obtaining a


zoning variance that allows for minimal off-street parking
can be detrimental to obtaining or retaining commercial
tenants.45 For small retail or professional offices to
flourish, short-term parking needs must be served by at
least some on-street parking spaces. Larger retail and
restaurant users that generate significant volumes of
visitor traffic often need cross-sharing parking
arrangements.46 The local zoning authority, in some
instances, may be willing to allow shared parking
to count for both residential and commercial parking
The Park Commons project also
incorporates structured parking for both
requirements.
commercial and residential users.

Negotiating how the parking relates to the rest of the building can be tricky, especially if the
main retail entrances are oriented towards the street but the parking is behind the business.
Retail businesses will be wary of projects that have two entrances to the business because of
security concerns. Connecting the parking to the street by way of a central corridor can also be
44
Miles, Mike, Gayle Berens and Marc Weiss. Real Estate Development: Principles and Process (Third Edition).
Urban Land Institute. Washington, DC: 2001.
45
Interviews.
46
Gosling, p 46.
Mixed-use Development: Issues and Best Practices Page 20
problematic because it adds non-leaseable common space
that needs to be maintained, driving up the Common Area
Maintenance (CAM) charges that are typically added to a
commercial lease. Many developers of mixed-use projects
hire a transportation consultant to plan circulation for
parking garages or to develop shared parking plans
between the different users on the site.

Though expensive, most mixed-use projects build in both


underground parking to serve the housing and a number of
Grand Place, at Grand Avenue and specifically designated, at-grade, off-street parking spaces
Victoria in St. Paul, created a façade for appropriate to the size of the commercial space.
its parking ramp that was consistent with
project’s storefronts.

The Marketplace Lofts, a mixed-use project currently


under development by the Cornerstone Group in Hopkins,
MN, is an example of a project that utilizes underground
parking for the residential component of the project and
significant at-grade parking behind the project which is
specifically designated for the commercial tenants.

The Village at St. Anthony project includes


both structured parking (with a walkway to
the housing) and a number of at-grade
parking spots for the project’s commercial
users.

Site plan for the Marketplace Lofts in Hopkins, MN

Mixed-use Development: Issues and Best Practices Page 21


Security

Several developers identified security as a significant challenge in mixed-use projects and noted
that there are different security concerns that must be addressed for each commercial space, the
common area, and the entrances to the residential units. Key systems, cameras and alarm
systems are often used to address these concerns and these items must be factored into the
project’s operating budget.

Signage

Signage plays an important role in shaping a building’s character. Commercial tenants will often
require a front display area, directories (for the front and from the parking), interior directional
signage, and parking signage. Signage may also be required for the residential units. In some
projects, architects and developers have spent considerable time considering how the exterior
commercial signage will be attached to the building – awnings, permanent signs or window
displays are all options. Most cities have signage restrictions as part of the zoning code.
Typically, the signage restrictions limit the size and location of all exterior signage, which
requires the developer to give some thought to how signage rights for the property will be
allocated among the tenants.

Site Configuration

A good mixed-use site will have multiple entrance points to allow for commercial deliveries to
be made off the main street, sufficient parking, distinct entrances for housing and high visibility
for retail and office locations. Interviewees stressed that the location and configuration of the
site are critical to the project’s ability attract retail tenants; office users are more flexible as long
as parking and accessibility is sufficient. Many successful mixed use projects have also carefully
planned for public spaces, including benches and tables, as a way to add value and encourage
pedestrian use of space.

There are a number of zoning codes and restrictions that have the potential to impact the design
of a mixed-use project, and the developers interviewed spoke of the importance of investigating
those codes and restriction early in the planning process. In instances where the appropriate
codes have not in place, some developers have obtained variances -- but noted this is often not an
easy process. A developer in Maryland, for example, worked for months with the local
government to allow café tables to be placed next to street parking so that pedestrians would
walk next to store windows where shopkeepers wanted them.47

Size & Layout of Commercial Space

Typically, smaller 1,000 sq.ft. spaces are much easier to lease than larger spaces.48 A smaller,
family-oriented restaurant can take up as much as 3,000 sq.ft. Commercial brokers noted that
retail spaces should not be too deep (maximum of 60’), should be at least 20’ wide to provide
adequate signage and visibility for the business, should include a private back work area and
should utilize doors and fixtures designed for heavy use.

It is also important to note that many traditional affordable housing finance tools, either
explicitly or implicitly, restrict the amount of a project of income that may be derived from non-
47
ULI Case Study. Bethesda Place, Bethesda, Maryland. 2003.
48
Interviews.
Mixed-use Development: Issues and Best Practices Page 22
housing sources or the gross square footage in a project that may be dedicated to non-housing
uses. (See Financing section).

Most lenders and funders interviewed suggested that the commercial component of a mixed-use
project should represent a relatively small portion of the project. For projects using a Minnesota
Housing Finance Agency (MHFA) first mortgage, for example, the commercial may not
represent more than 10% of the gross square footage of the project. Planning for one thousand
(1,000) square feet of commercial for every 10 units of housing is a reasonable average measure.

Trash

Trash needs will vary greatly depending on the users of


the commercial space. Restaurants will require that
there be a space for a trash compactor. All commercial
users will require a dumpster, recycling storage, and a
cardboard bailer. Most developers have attempted to
located trash where it will minimize nuisance to
residents and customers but will be accessible by truck.

Trash in the Park Commons project is behind


the project, easily accessible by truck.

Utilities

Each business should have separate meters for electric, gas, and water.

Vanilla Shell

Most retail tenants will want to move in without substantial tenant improvements and will expect
a “vanilla shell: to include as a minimum:

9 Fire-taped walls
9 Finished ceiling (either acoustical or exposed ceiling with paint)
9 Electrical panel with wall outlets
9 Switched ceiling lights
9 Handicapped accessible bathroom
9 Handicapped accessible entrance
9 Sealed concrete floor
9 Air Conditioning49

Ventilation

Without adequate ventilation systems and soundproofing, a restaurant will quickly turn from an
amenity into a liability for marketing the housing. Restaurants will require a fire hood that is
vented to the roof. Coffee and bread stores can be vented toward customers, but restaurants are
typically vented away from both customers and the housing. Developers are now creating spaces

49
www.bayarealisc.org
Mixed-use Development: Issues and Best Practices Page 23
with individual shafts for every potential restaurant space that connects to a rooftop vent as a
way to eliminate nuisances related to the operation of food businesses, but this can be very
costly. Higher ceilings in the commercial and the use of
pre-cast concrete ceilings can help separate the
commercial from the residential uses.

Visibility

Visibility of the commercial space is paramount to


business owners, and will have a large impact on a
commercial tenant’s ability to succeed. High visibility
locations on popular corners will draw higher rents.
Venting for a first floor restaurant in a Interviewees noted the importance of maximize street
mixed-use project developed by frontage for commercial retail uses because interior retail
Macalester college on Grand Avenue in often struggle because of a lack of visibility to pedestrians
St. Paul runs along the buildings and cars.
exterior

The Mojito restaurant in the Park Commons


project has great visibility from the street

Mixed-use Development: Issues and Best Practices Page 24


Best Practices: Project Concept and Design
Best Practice: Assemble a development team that includes expertise in designing, developing and managing both
commercial and housing projects. Involve the City early -- particularly if your project is of significant scale.

It is very important not only that your development team include the right mix of development skill, but also that all
of that experience be engaged in the project early in the design phase so that the result is a strong mix of variety,
vitality & visual interest.

Best Practice: Locate mixed-use projects on commercial corridors at locations that have access to public
transportation, good traffic counts and an established, pedestrian-friendly commercial market.

By building in an existing commercial district, a new mixed-use project can build upon the traffic and visibility of
the location. Projects that are located in an area with no established commercial presence will face extreme
difficulty in finding strong tenants who will be willing to take a risk at an unproven location. A thorough market
study that analyzes the effect of higher density, mass transit and traffic counts on the overall purchasing power of
urban locations can help to offset reluctant commercial tenants that are accustomed to searching for sites only in
higher income areas. Many mixed-use projects have found that success comes with a mixture of retail uses,
residential and civic uses (post office, banks, public parks or gathering spaces) that draw people for a variety of
purposes and at all times of the day.

Best Practice: Utilize urban design elements that will help make the project a community amenity including varying
facades and roof lines, high quality landscaping, pedestrian amenities, plazas or fountains.

Projects that look good and offer design amenities cost more upfront, but often prove to be more economically
viable and appreciate more quickly over time.

Best Practice: Be deliberate about the commercial use up front.

The commercial component of the project, no matter how small, should not be an after thought – or something to be
addressed after the project is constructed. The developer should understand what types of commercial uses will fit
the project, and what types of commercial uses will fit the surrounding commercial market in the concept phase, and
should verify market assumptions. A deliberate approach will help the developer build a stronger more reliable pro-
forma and structure financing that is appropriate to realistic performance expectations.

Best Practice: Understand the design needs of the commercial component of the project and incorporate them into
the design of the project up front.

Being clear about the project’s commercial use up-front will help the developer incorporate the commercial use’s
design requirements on the front end. The type and nature of a commercial use can have important ramifications on
the project’s design needs. Important commercial design considerations include ventilation, delivery access,
garbage storage, signage and parking. Developers should not leave the commercial use as an afterthought, even if it
is a relatively small proportion of the total project.

Best Practice: Include both underground parking and specially designated street level parking for the commercial
use in your project design.

The extent to which your project includes sufficient and appropriate parking for both the housing and commercial
uses will go a long way toward determining its success.

Best Practice: Limit commercial space to a relatively small proportion of the total project. Commercial space
should represent 10% or less of the total project if using public funds.

Whether a project can include a larger proportion of commercial will depend not only on the market and developer’s
access to financing, but also on the effectiveness of the design, particularly with respect to parking, in
accommodating a larger commercial component.

Mixed-use Development: Issues and Best Practices Page 25


IV. Predevelopment and Feasibility Analysis
As a project moves from planning to predevelopment, developers begin to encounter, and need to
solve, concrete problems specific to the development site. This section analyzes several typical
problems developers of mixed-use projects must address.

Land Acquisition & Assembly

Most urban infill sites involve at least two or more parcels with different owners. Working with
several owners to assemble the site parcel can increase the time involved, risk, costs, and
complexity of a project, especially if there is speculation or seller hold-outs.50 In many
neighborhoods, land that is located in areas that have potential market value may not be available
at low enough prices to make the project feasible. While successful mixed-use projects require
the coordination of many actors, local governments occupy the best position to create and sustain
the larger vision and to assist with critical aspects of the development process such as land
assembly, entitlements, investment in key infrastructure, and place-making amenities.51

With large-scale, mixed-use redevelopment projects, the municipality in which the project is
located will be an important partner and can play a central role in assembling a site.

Generally, on large scale mixed-use projects, the local government is involved in the request for
proposal process and can assist the developer in obtaining permits and clearing the regulatory
process. Through best practice research on mixed-use projects across the country, a common
element was the key involvement of the city or municipal government in the redevelopment
process:

™ In the City of St. Louis Park, after a developer selected through a RFP process failed to
produce the type of development envisioned by the residents and civic leaders, the city
stepped in to assist in the site acquisition and preparation that enabled a second developer
to break ground on a its new town center.

™ In the Beer Line development project, the City of Milwaukee financed major
infrastructure improvements and took the lead on addressing the environmental issues
prior to handing over sites to private developers.52 This helped to spur private interest in
a formerly decimated part of the city.

™ The City of Boca Raton purchased a 26-acre property for a large mixed-use
redevelopment projects through bond issues and then repaid the acquisition price through
the use of tax increment financing.

™ In another project in West Palm Beach, Florida, the city borrowed $20 million and
assembled 73 acres of land through acquisition and demolition of key sites after a private
developer failed to complete a project. Through a creative arrangement, the city arranged
for the developer to repay the city for the acquisition through lease payments, with an
option to purchase the site once the project was built. In that instance, the city took
charge of all permitting work for the project to cut down time and cost to the developer

50
Suchman, Diane R. 2002.
51
Interviews.
52
Interview.
Mixed-use Development: Issues and Best Practices Page 26
and the city, allowing the developer to focus on financing, building and leasing the
project.53

™ In an award-winning project in Bethesda, Maryland, the county government built a 1,000


space garage that was essential to the financial feasibility of the project. The garage was
funded through the creation of a parking district and with a surtax on properties that don’t
provide their own parking.

Many projects require subsidy to provide adequate public


infrastructure and pedestrian amenities. To incorporate
the types of outstanding urban design features that will
create a truly unique place, interviewed developers
mentioned the importance of including pedestrian
amenities such as wide sidewalks, benches, lighting,
trash receptacles, and landscaping. On a number of
national projects that were closely connected with public
transit, local governments have assisted the developer in
A mixed-used project in Bethesda, MD.
providing public infrastructure and amenities that have
helped create a seamless transition from the
development to the transit. Tax Increment Financing (TIF) is often used to fund such public
improvements. With the recent decrease in the amount of TIF financing available in Minnesota,
many municipalities are looking at Tax Abatement as a source for funding such costs. In a Texas
development where there were no public funds available for development around a new light rail
station, a developer obtained a loan from the State of Michigan’s pension fund, which was
interested in studying transit oriented development.54

Leasing to Commercial Tenants


New construction projects have the challenge of selling a site to a tenant prior to the substantial
completion of the construction. If the market is overbuilt, the developer is inexperienced, the
project is unusual, or the location is unproven, the developer might have a difficult time pre-
leasing the space.55 Although commercial space can be seen as an amenity to the housing,
vacant commercial space can be a serious detractor. In a down market, tenants have a
significant advantage in negotiating leases and tenant improvements to obtain higher quality
space.

Most developers who need to lease larger or multiple spaces choose to work with a commercial
broker that is familiar with market and has contacts with the types of businesses the project is
targeting. For smaller projects, some housing organizations have partnered with business
community development corporations (CDCs) that offer small business training, tenant
attraction, and lending programs.

Most brokers will prepare a marketing package with information on the space that can be quickly
sent to prospective business owners, including:

9 Location;
9 Traffic count;

53
Bohl, Charles. 2002
54
ULI Case Studies, Mockingbird Station, Texas. 2003.
55
Miles, 2001.
Mixed-use Development: Issues and Best Practices Page 27
9 Highway & transit access;
9 Size of the prospective market within ½, 1, and 2 miles of your project;
9 Proximity of competitive and complimentary businesses;
9 Leading businesses in your area and their customer counts; and
9 Information on your project including floor plans, elevations, and size of commercial
spaces (adapted from The Community Economic Handbook © 2002).

Banks, investors and project funders often will require that a substantial portion of the
commercial project be pre-leased prior to final commitment of finances.

Types of Commercial Leases

Commercial leases are classified as either gross leases or net leases, which describes how much
of the operating expenses the tenant is responsible for paying. The most common types of leases
are the following:

Gross Lease: The tenant is charged a flat base rent per square foot of space and the
landlord pays the real estate taxes, maintenance of the common area, and the insurance.
The landlord or building owner will then be exposed to any increases in expenses over
this time period.

Triple Net Lease: The tenant pays for the real estate taxes, the maintenance of the
common area, and the insurance in addition to the base rent for the space. Typically,
these costs are passed on directly to the tenant limiting the risk of operating expense
increases to the owner. Variations on net leases can also include provisions where the
tenant pays only taxes or taxes & insurance or pays a base rent plus any increase in the
basic expenses over the first year of the lease.

Most retail leases include Common Area Maintenance (CAM) charges. CAM is a fee charged to
each tenant for maintenance associated with the projects common areas. This charge is based on
an estimated rate per square foot with a “true-up” at the end of each year based on actual
expenses. CAM charges may include the following:

9 Janitorial;
9 Common area utility costs;
9 Landscaping; and
9 Security.

In leases that require the tenant to pay for a prorated share of operating expenses, it is important
to communicate the total square footage of the building and the total square footage of the
tenant’s during the leasing process. The common formula used for calculating a prorated
percentage is:

Total leaseable tenant space (gross or net) = Tenant’s prorated percentage


Total leaseable building space (gross or net)

Another way to calculate the tenant’s share of the common area is to factor in a portion of the
common areas (halls, bathrooms, elevators) into a gross rentable sq.ft. number that will be larger
than the space occupied by the tenant.56

56
For more information on this, please see www.boma.org
Mixed-use Development: Issues and Best Practices Page 28
The project’s owner will also need to determine how the base rental charges will be increased on
an annual basis, by either choosing a step structure where the base rent increases annually from
the original date of the lease, or an escalation lease where the base monthly rental payment will
be increased based on increases over the base (first) lease year in the following three items:

9 Real estate taxes;


9 Operating expenses (capital expenditures, marketing, and common area maintenance); &
9 Extra services (additional services required by the tenant including excess water, trash
removal, or additional janitorial services).

An escalation lease limits the exposure of the landlord to excessive increases in operating
expenses. Another option is to tie the increase to a predetermined cost-of-living index (such as
the CPI) that is set every year. Keep in mind that there are several different types of CPI indices
for different locations (national, regional and state), and that some indices are calculated and
published monthly, and others only annually. In many cases, this index may have a floor and a
ceiling rate. A slow commercial market can reduce the ability of the developer to negotiate
leases in which future operating cost escalations are passed on to the tenants. Whichever format
of lease and escalation structure that is chosen must be reflected in the financial proforma for the
building.

The spaces on the corner of an intersection can generate the highest rents per square foot, and
generally will be the easiest to lease because of the improved visibility and access. Renting
commercial spaces along a side street, even if it is only a half a block off a major transit corridor,
can be extremely difficult and will generally result in substantially lower rents than the prime
corner spaces. Developers in challenging markets or with design constraints that may impact the
perception of accessibility, are wise to utilize conservative lease and tenant improvement
assumptions that will be consistent with the retailers ability to perform.

Financial Analysis for Commercial Spaces


Typically, newer projects require higher rents to pay for debt service because of higher land
costs, construction costs, and city-influenced architectural designs.57 In order to have an
accurate proforma, the developer must make decisions about the following general conditions in
commercial leases:

Base Rent per square foot

Base rents per square foot vary dramatically depending on location, amount of space, and quality
of space. Ideally, the base rent will, at a minimum, cover the cost of any debt service associated
with the development of the commercial component of the project. In many instances, however,
the rents required to break even exceed the market rents in the surrounding commercial area. In
such cases, the developer should, at least initially, price the commercial space at rents that are
consistent with the surrounding market and find subsidy or equity investment to make up the
resulting financing gap. Pricing above the market is a risky proposition unless the space is
clearly superior and has identifiable qualities that provide clear market advantages.

57
CB Richard Ellis. Market Outlook 2003: An Annual Report Providing Analysis and Insight into Twin Cities
Real Estate Trends.
Mixed-use Development: Issues and Best Practices Page 29
Some developers (and investors) feel it is important to price the commercial space below the
surrounding market to compensate for layout and access deficiencies (real or perceived)
associated with mixed-use projects. Such developers tend to approach the commercial
component of their mixed-use projects almost like a “loss leader” – a money loser in its own
right that has the potential, with the right tenants, to enhance the value and marketability of the
larger project.58

In any case, using sensitivity analysis techniques in the feasibility stage can help to determine
how fluctuations in the commercial market will impact the project’s finances. If the market
demands a lower base rent, make sure to reflect that through lower debt usage in the source of
funds.

Tenant share of the operating costs

Depending on the location and the amount of common space, common area maintenance charges
can run between $3 - $6 per square foot. The larger the common area, the higher the CAM
charges.

Tenant Improvements

Many developers include significant tenant improvement allowances (typically $15 - $25/SF) in
their budgets as a way of making the commercial space attractive.59 A restaurant will require
substantially more build out to cover venting, exhaust hoods, power, etc.

If the project is expecting the tenant to complete substantial tenant improvements at their own
cost, it is highly unlikely that the business will be able to succeed with market rate rents.
Typically, smaller tenants will have difficulty financing tenant improvements because they are
not permanent improvements, and if they are able to obtain additional capital to complete those
improvements, it is likely to put a severe strain on the profitability of the business.

Most developers find that in the absence of favorable lease terms, concessions, and tenant
improvement allowances, commercial uses will struggle. Structuring the proforma to delay the
first payments of rent or connecting the business with a neighborhood small business loan fund
can also help to resolve this issue.

58
Interviews.
59
Interviews.
Mixed-use Development: Issues and Best Practices Page 30
Best Practice: Predevelopment and Feasibility Analysis

Best Practice: Involve the City as a partner early, particularly in projects that will entail complicated acquisition,
or significant public improvements.

The City is an important partner on all inner city development projects. Engaging the City early can help facilitate
creative solutions to complicated problems associated with acquisition or integrating public improvements into the
project.

Best Practice: Pre-lease as much of the commercial space as possible.

Although not always possible, particularly in challenging markets, leasing commercial space prior to the start of
construction will make the project easier to finance, and will make specific risks easier to identify. Having clear
goals for the commercial space up-front and a commercial broker on board early will facilitate pre-leasing.

Best Practice: Utilize commercial lease structures that are consistent both with the surrounding commercial market
and with the tenant’s reasonable ability to pay.

The cost of developing commercial space should not push the developer to utilize lease rates that are higher than
what the market will bear. Lease rates should be based on a clear understanding of the surrounding commercial
market and, at least initially, should be at or below market rents. If a particular tenant, or type of tenant, is important
to the project, lease rates should reflect the relative business risks associated with that tenant.

Best Practice: Include a reasonable allowance for tenant improvements in the project budget.

Different types of tenants have different expectations around tenant improvements – and different abilities to pay for
them. It is important to make sure your project budget includes a tenant improvement allowance that is consistent
with the type of tenant your project hopes to attract. A tenant improvement allowance of $15-20 per square foot is a
reasonable general benchmark.

Best Practice: Operating assumptions for the commercial side of the project should: a) be consistent with the type of
lease structure (gross, triple net, step, escalation, etc.) that will be utilized with the commercial space; b) include a
healthy vacancy allowance (e.g. 15%); c) include, as a cost to the tenant, the costs associated with Common Area
Maintenance (CAM) (e.g. $3-6 per square foot); d) include the cost of managing the property effectively over time
(e.g. broker fees); and e) include a reasonable lease up allowance (e.g. at least 6 months after the housing).

Conservative underwriting assumptions are a good idea not only because most lenders and investors will require
them, but also because the actual performance of many mixed-use projects has proven to bear many of these
assumptions out.

Best practice: Structure the commercial portion of the project to expect patient returns so that local retail
businesses have time to establish a clientele.

National credit tenants such as a coffee or restaurant chain will often shy away from an unproven location in a urban
location unless the market can be demonstrated through analysis of the demographics, traffic counts, and
employment base. Locally-owned retail provides needed goods and services in those neighborhoods and are more
likely to hire from the community, but the cost for starting up a new retail operation can be quite high.

A retail entrepreneur often needs funds for leasehold improvements, equipment, inventory, and working capital to
allow the business time to establish a clientele. If locally owned retail is the project’s target use, the developer
should be prepared, through lease terms, tenant allowances or other business supports, to mitigate the risks
associated with this use.

Mixed-use Development: Issues and Best Practices Page 31


V. Development

Successfully developing a mixed-use project requires creative planning and wise decision
making throughout all phases of development. These qualities are particularly valuable,
however, in the implementation phase. This section highlights some of the practices developers
have utilized around implementing their mixed-use plans.

Phasing
Phasing can help to mitigate development risks related to market absorption and create sufficient
cash flow to cover subsequent development costs. In a Maryland project, a Real Estate
Investment Trust (REIT) sought to convert existing commercial property into a higher density
mixed-use project. The developers used long term ground leases for the first three phases and
purchased the land for the final phase of new construction. The first two phases involved façade
improvements of the existing commercial buildings and streetscape design including the
installation of a plaza with a fountain. Once the market had been established with the first two
phases, the developers initiated two additional phases of entirely new construction that included
the addition of a large bookstore. The different phases also helped to create multiple ideas and
visual interest.60 More often, an option is used, rather than a ground lease, to maintain site
control for a phased development.

Legal Structure
Separating the ownership of housing and commercial can, in some circumstances, help solve
financing and management issues.

Some mixed-use projects have created separate ownership structures for the housing and
commercial components of the project, even though the uses are incorporated into the same
physical structure. This structure is particularly appropriate in instances where a project is using
financing tools that are specific to a particular use (i.e. affordable housing) and carry restrictions
that are not consistent with the project concept. It is important to note, however, that while
structuring the commercial space as a distinct structure can resolve some of the difficulties with
using housing financing resources in mixed-use projects, it can also add legal costs to a project
and remove an element of long-term control that is an important element for making a mixed-use
project work.

One way to structure separate ownership is to condominiumize the commercial space. The
condo structure will only work well in instances in which the parties have a strong working
relationship and common understanding around issues like design, signage, and tenant mix. If
housing and commercial uses do have separate ownership, the housing owners should maintain
appropriate controls through easements or covenants to ensure that the commercial space will not
allow uses that will negatively impact the marketability of the housing. A simple subdivision,
with or without a party wall agreement, or a vertical subdivision are alternatives to a
condominium structure that may work in some situations and are generally simpler and less
expensive.

60
Ibid.
Mixed-use Development: Issues and Best Practices Page 32
Business Selection

Prospective tenants for the commercial space in a mixed-use project fall into several broad
categories, including anchor tenants, national credit tenants, and independently owned retail
businesses. There are benefits and weaknesses to all types of tenants. Again, tenant selection
should be based on market realities. Larger anchor tenants typically know their power and will
drive a hard bargain relative to the annual rent charge, tenant improvements required, and other
concessions. However, larger tenants with recognizable names will attract additional smaller
tenants and will help convince lenders and funders of the project’s viability.61

National credit tenants such as a coffee or restaurant chain will often shy away from an unproven
location in an urban location unless the market can be demonstrated through analysis of the
demographics, traffic counts, and employment base. Most of these businesses have very specific
criteria that they look for in their market analysis, and typically want to locate in an established
commercial corridor surrounded by a very stable residential neighborhood.

Locally-owned retail businesses are often the only ones willing to open in low-income
neighborhoods or unproven markets. While they provide needed goods and services in those
neighborhoods and are more likely to hire from the community, the cost for starting up a new
retail operation can be quite high. A high percentage of small businesses fail within their first
three years, and neighborhood-based retail is one of the most difficult and unstable forms of
business.

Generally, most mixed-use developers aim to lease 50% of the commercial space to credit
tenants, and the remainder of the smaller spaces to local, higher risk tenants.62

Assessing the Strength of a Potential Business Tenant

For those projects which cannot attract a national credit tenant, the developer or broker will need
to evaluate the strength of potential tenants. A developer without commercial experience can
either hire a commercial broker or partner with a community development corporation with
business and commercial real estate experience. To evaluate an existing business tenant, the
broker will typically look at three years of financial statements, balance sheet, tax returns, credit
scores, and business references (vendors, bankers, etc.). Performing several ratio tests on the
financial statements will give a sense of the business’ ability to pay. Useful financial ratios
include:

Liquidity (Current Ratio) = Current Assets Goal is at least 2:1


Current Liabilities

(Quick Ratio) = Cash + Accounts Receivables


Current Liabilities

Debt to equity = Long Term Liabilities + Current Liabilities


Retained Earnings

Goal is 3:1 for Bank, Nonprofits can lend up to 5:1

61
Miles, 2001.
62
Interviews.
Mixed-use Development: Issues and Best Practices Page 33
Aging Receivables = Accounts Receivable
Total Sales * 365

Goal is < 30 days

Accounts Payable Ratio = Accounts Payable


Cost of Goods Sold * 365

Goal is < 30 days

For retail and office uses, this level of analysis is probably sufficient. For start-up businesses, a
thorough review of the business plan including the experience of the proprietor, marketing plan,
and sales projections are required. For restaurants, prior to signing a lease, interviewees noted
that it is important to make sure that the floor plan has been approved by the City licensing
department, and that the tenant has obtained all required licenses, such as liquor and cabaret or
live music licenses. Most developers also review a prospective tenants Sources & Uses
statement which includes all start-up costs (tenant improvements, furniture, inventory,
equipment, working capital, small wares, interior design, and license fees) and proposed
financing sources (loans & equity).

There are a number of resources available to assist small businesses. Please see Appendix B for
a partial resource list for small business assistance.

Best Practices: Development

Best Practice: Phasing for a large-scale development can mitigate risks and create cash flow to cover
development costs of subsequent phases.

Creating a solid phasing plan can help to reduce site acquisition costs and enable a project to demonstrate
a market before the developer seeks additional financing.

Best Practice: Utilize a condo structure for commercial space when appropriate.

In some instances, a condominium structure -- that creates separate legal ownership of the commercial
and residential components of the project -- can facilitate financing. It is important to recognize,
however, that utilizing a condominium structure will add significant legal costs and creates the potential
for control risks that will need to be addressed.

Best Practice: Underwrite the health stability and risk associated with all commercial tenants.

Because lenders underwriting a mixed-use project will typically underwrite the strength of the project’s
commercial tenants, developers are wise to take the same approach, and where the tenants present clear
risk, utilize risk mitigating financing structures (reserves, creative leases, flexible subordinate financing,
etc.).

Best Practice: Take advantage of existing small business support programs to assist riskier commercial
tenants.

There are a number of financial and technical assistance supports available to fledgling small businesses.
Developers working with riskier commercial tenants should be aware of such programs and encourage
tenants to utilize them as a way to mitigate their own risk.

Mixed-use Development: Issues and Best Practices Page 34


VI. Financing Mixed-use Projects
Perhaps the most difficult element of implementing a successful mixed-use project is securing
adequate and appropriate financing. Different uses demand a different set development and
management skills, pose unique risks, and require distinct investment parameters – all of which
adds layers of complexity to underwriting and investing. Moreover, most mixed-use projects,
particularly those in expensive, urban infill locations, require public subsidies, which have their
own investment criteria. Consequently, mixed-use developers must assemble a mix of equity,
conventional debt, and subsidy funding that is consistent with the mission and performance
expectations of the project.

Conventional Debt and Equity Financing


Real estate investors, whether they are banks, intermediaries, Real Estate Investment Trusts
(REITs), pension funds or insurance companies, are inherently conservative. They approach all
new projects based on past experience, which generally leads them to finance what is familiar
and safe so as to guarantee the highest possible return.

Typically, conventional debt investors use discounted cash flow methodologies to project an
internal rate of return that is perceived to be appropriately matched to the level of risk.63 The
underwriting criteria emphasizes short-term investments with terms of up to seven years, that are
expected to produce their rates of return through a combination of cash flow and appreciation
upon the sale of the property. Moreover, the participation of real estate investment trusts and
securitized mortgages (commercially backed securities) in the real estate market has further
pushed investors to seek proven investments, such as grocery-anchored commercial centers in
higher income suburbs.64

The Funders’ Network for Smart Growth and Livable Communities found the following trends
as a significant obstacle to the creation of mixed-use developments:

The uniqueness and complexity of mixed-use developments, and their relatively small numbers,
make it uncomfortable for real estate professionals to finance or develop them. For example, a
downtown mixed-use development of apartments, offices, and stores requires three different
calculations of risks and returns by three different financing specialists. The risk that only one of
the three portions of the development could fail to achieve desired cash flow alone can send
investors back to look-alike, easy-to-understand, easy-to-finance, and easy-to-build
developments.65

Even when lenders or investors are comfortable with the mixed-use concept, they will approach
specific investment opportunities cautiously and will rigorously underwrite:

9 The development team;


9 The location, and surrounding commercial and housing markets;
9 The project design;
9 The housing target market;
9 The commercial tenant, or proposed commercial use;

63
Funders’ Network for Smart Growth and Livable Communities. Real Estate Finance and Smart Growth Project
Report. May 2002.
64
Ibid.
65
Ibid, p 3.
Mixed-use Development: Issues and Best Practices Page 35
9 The “fit” between the housing and contemplated commercial uses; and
9 The assumptions underlying all revenue and operating projections.

Nonetheless, mixed-use projects do get financed, and in some instances have been found to
provide higher long-term returns because they can command a premium in sale or rental prices
and tend to have higher rates of appreciation.66

The challenge, according to many developers, is to demonstrate that risks associated with the
management team, the location, the design, and the commercial tenant mix have been mitigated
to every extent possible. Some developers have successfully attracted investors by structuring
multiple investment opportunities into their projects for investors with different levels of
patience and different return expectations. A project, for example, may offer modest returns to
investors in the first few years, when the project faces its greatest uncertainty, and increasing
returns to middle and long-term investors as the property appreciates.67

To the extent mixed-use projects have been successful at attracting investors, most have done so
with local banks and funds because those investors have a better understanding of local market
potential or have specific interest in the project or neighborhood.

A recent study by Shorebank Investments found that many of the large entities that invest in real
estate are reluctant to participate in regional or national Smart Growth investment funds. The
study concluded that development seemed to work most effectively within neighborhood or
community contexts; “most success is very local, and growing from the bottom up.”68

Subsidy Funding
A list of public and charitable financing tools and funding sources that have been used to support
mixed-use projects is attached to this report. Although, theoretically, subsidy funding has less
stringent underwriting criteria and return expectations than private capital, many developers have
encountered difficulty applying subsidy funds that are specifically targeted to economic
development or affordable housing to a mixed-use project. The section that follows identifies
some of the key issues associated with utilizing different types of subsidy funds in a mixed-use
context.

Utilizing Affordable Housing Tools In Mixed-Use Projects

While there are a number of financing sources specifically designated to support the creation of
affordable housing, many have specific rules and regulations that restrict their applicability to
mixed-use projects. Appendix C lists a number of the commonly utilized funding sources.
Issues associated with incorporating some of the most common housing finance tools in mixed-
use projects are identified below:

Federal Low Income Housing Tax Credits:

Federal tax law stipulates that if more than 20% of a project’s gross income stems from a
source that is not housing, the project will be subject to 40 year commercial depreciation
(as opposed to 27.5 years), which has negative ramifications on the value of the tax

66
ULI Case Studies: Bethesda Place, Morningstar Station, Mezner Park. 2003.
67
Ibid, p 4.
68
Funders Network Meeting Summary, 10/15/02, p 8.
Mixed-use Development: Issues and Best Practices Page 36
credit, and effectively caps the amount of commercial space that can be incorporated into
a tax credit project. Also, a project’s eligible basis, which determines the amount of
credit, excludes costs related to commercial space.

Perhaps a bigger issue, however, is that tax credit investors tend to be wary of mixed-use
projects. Many do not want to invest in projects that feature more than a small fraction of
commercial space. Moreover, investor apprehension about commercial uses tends to
translate into conservative underwriting practices from syndicators, who often will not
underwrite operating projections that show income from the commercial space relieving
the project’s first mortgage debt.

Some developers have satisfied investor concern by securing long-term leases with a
strong credit tenant that has a successful retail history, or, by providing a strong financial
guaranty for the commercial operating assumptions. Alternatively, other developers have
utilized a condominium structure and financed the commercial component as a distinct
project.

Minnesota Housing Finance Agency First Mortgage:

The Minnesota Housing Finance Agency (MHFA) enabling legislation limits the
application of its resources to uses that “primarily” relate to housing. This has been
interpreted to mean that MHFA may not apply its resources to projects that contain more
than 10% commercial space (either in terms of square footage or in terms of the gross
income it contributes to the project).

These restrictions have particular relevance in the context of MHFA’s First Mortgage
product. Mixed-use projects that utilize the MHFA First Mortgage program in particular
may not contain more than 10% of commercial space. Moreover, MHFA’s underwriting
policies will not allow a project to rely on income from commercial uses to pay any
portion of its first mortgage debt unless the project has a very strong credit tenant with a
long-term lease that corresponds to the mortgage term.

HUD 221 d (3) or (4):

HUD administers a mortgage insurance program that allows housing projects to obtain 40
year fixed rate mortgages at 1% below market rate. Typically HUD will underwrite the
project at a 1.1:1 Debt Coverage Ratio (DCR) but, in the context of a mixed-use project
will limit income from commercial uses to less than 10% of gross revenue and less than
20% of the total square footage. Developers utilizing this tool, in some instances, have
utilized condo structures to avoid the restrictions on the total square footage of
commercial allowed in a particular project.

Tax Exempt Housing Bonds (and Ginnie Mae Mortgage Backed Securities):

Proceeds from the issuance of tax exempt housing bonds are restricted to housing uses
only. Mixed-use projects that seek to utilize tax exempt bonds will need to demonstrate
that the proceeds will be applied only to the housing component of the project and that
the commercial component has separate financing.

Similarly, Ginnie Mae mortgage backed securities are secured by the HUD mortgage
insurance program and are used to credit enhance tax exempt bonds to achieve a AAA
Mixed-use Development: Issues and Best Practices Page 37
rating and thereby a lower rate (typically 5 ¼% for a 40 year fixed rate). This product
may only be utilized on the housing portion of a mixed-use deal.

Subsidies for Economic Development/Commercial Real Estate Development

The reality of mixed-use development is that it tends to be more expensive and less cost efficient
than a pure housing or a pure commercial development project. In most cases, adding a
commercial component to a housing project will increase the project’s need for subsidy.
Unfortunately, identifying subsidy resources for the commercial side of a mixed-use project is
less straight forward than identifying housing resources. In part, this is because there are far
fewer subsidy sources that are specifically intended for commercial development. It is also true,
however, that while funders tend to have a clear understanding of the rationale for subsidizing
housing, they have far less clarity about the rationale for funding the commercial component of a
mixed-use project.

Some of the prominent local, state, and federal economic development sources are identified
below. (Please see the see the list of funding sources in Appendix C for a more detailed listing
of economic development sources that includes contact information.). Developers seeking
subsidy for the commercial component of a mixed-use deal should be able to demonstrate the
relative cost and financing plan for each component of the project, and should be able to explain
both the need for and the rationale for subsidy associated with the various elements of the project
(site preparation, commercial, or housing).

Local

Both St. Paul and Minneapolis reserve a portion of the CDBG funds they receive from HUD for
commercial and economic development. The Cities also have the ability to make HRA funds,
tax increment financing, and tax abatement funds available for commercial projects. The City of
St. Paul has a limited but very flexible resource in the Sales Tax Revitalization (STAR) program,
which offers loan and grant funds which may be utilized for neighborhood-based mixed-use
projects. Minneapolis has a commercial corridor initiative which targets funds for commercial,
housing and mixed-use projects for nine specific corridors throughout the City. Funding
decisions for the Minneapolis Empowerment Zone, a HUD funded program that has considerable
resources for revitalization projects within the defined target area, are also made at the local
level.

State

The Department of Trade and Economic Development (DTED) offers several programs to
support small businesses and brownfield remediation. In past years, it has operated a
“Redevelopment Fund” that had flexible funds to support commercial redevelopment projects,
but this program has not been funded for several years.

Federal

™ New Markets Tax Credits (NMTC) is a new Federal program that was designed to
provide tax credits for investors who make economic development investments in
qualified low income communities. This program, however, will offer a significantly
smaller subsidy to projects than the Low Income Housing Tax Credit program and will
only be eligible for mixed-use projects in which less than 80% of the projects gross
revenue stems from the residential use (unless a condo structure is utilized). LISC and
Mixed-use Development: Issues and Best Practices Page 38
the Community Revitalization Fund have both received allocations of New Markets Tax
Credits and plan to offer below market loans to qualified commercial projects.

™ Historic Tax Credits, administered through the National Park Service, can be applied to
mixed-use projects to generate a one-time credit against 10% of the TDC or 20% if the
property is on the National Register and the renovation complies with the Secretary of the
Interior’s standards.

™ HUD offers several products that can assist economic development projects including the
Section 108 loan program.

™ The department of Health and Human Services Office of Community Services offers
large grants for projects that generate employment opportunities in low income
neighborhoods.

Foundations

There are several local and national foundations including the McKnight, Otto Bremer, Kresge,
Calvert, Fannie Mae and Ford Foundations that have investment tools that could assist a mixed-
use project including grants, Program Related Investments (PRIs), and corpus investments. The
Trust for Public Land, a national non-profit organization that strongly supports urban parks has
recognized the role of green space in place making, and is committed to partnerships with
developers to advance community renewal efforts.69 The developer’s challenge will be to
identify investment opportunities that are consistent with the foundation’s tools and funding
priorities.

Specifically Mixed-Use Subsidy Sources

The Metropolitan Council’s Livable Communities Demonstration Account (LCDA), while not
restricted to mixed-use projects per se, is the only financing source whose purpose and criteria
are clearly very compatible with mixed-use projects on their face. The LCDA was created to
support development or redevelopment that incorporates efficient use of land, a range of housing
types and costs, commercial and community uses, walkable neighborhoods, and easy access to
transit and open space.

Funding applications for the Livable Communities Demonstration Account are extremely
competitive. Competitive projects must stand up to financial credit analysis and qualitative
criteria that pertain to the project’s design and relation to the broader community. The strongest
applications are from projects that have strong support from the municipalities in which they are
located, are connected to broader planning efforts, are strongly connected to regional
transportation systems, flow from a strong community process, and reflect a design that
promotes walk-ability and seamless integration into the surrounding community.

The Funders' Network for Smart Growth and Livable Communities (www.fundersnetwork.org)
is also a good resource for funding strategies that are specific to mixed-use projects.

69
Funders Network. Real Estate Finance and Smart Growth Project Meeting Summary. October 15, 2002.
Mixed-use Development: Issues and Best Practices Page 39
Investment Opportunities
Most funders seem to believe mixed-use development is appropriate in limited set of contexts.
In those instances when it is appropriate, there is typically need for a greater level of subsidy
than if the project was purely housing or purely commercial. As this reports notes, there are not
many existing tools that are well-suited to address the increased subsidy amounts.

Nonetheless, these projects may offer the opportunity for charitable and public investors to create
new tools or invest differently. Some potential investment opportunities that could potentially
bring great value to mixed-use projects while maximizing the efficiency of the investment are
identified below:

Low interest tax increment financing notes. Mixed-use projects along commercial
corridors typically entail significant site acquisition and preparation costs. Despite the
recent property tax reform, tax increment financing (TIF) remains a viable tool to help
address these costs. TIF is a public financing tool through which the increased tax value
that a project creates is captured over time (for up to 25 years) to pay for public costs
associated with the development. Typically, the multi-year stream of tax increment is
financed up front to pay for development costs. TIF is usually financed at a rate of 7% –
10%, depending on the project and the current market conditions. [See Appendix C]

If a funder or lender were to create a low-interest (2-3%) pool of loan funds to finance tax
increment projects, it would dramatically increase the net present value that a stream of
tax increment cash flows could bring to a project (because less of the annual payment
would go to pay interest costs), and would enable the funder to recycle its investment at
relatively low risk. For example, if a project generates $50,000 in tax increment cash
flows a year, financing that increment stream at 7% for 25 years would bring $580,000 to
a project up front. Financing the same project at 3% over the same term would bring
$870,000, a difference of nearly $300,000. Alternatively, financing the project at 3%
over 15 years would bring approximately the same amount of money to the project as a
scenario in which the project was financed at 7% over 25 – and a shorter term would
achieve the added public benefit of returning the project to the tax rolls 10 years sooner.

Flexible, subordinate debt products for the commercial loans to mixed-use projects.
Many of the urban infill sites have unproven markets for commercial use and would
require significant flexibility in establishing a customer base that is sufficient to pay for
all of the project debt. Subordinated and deferred debt that provided particular flexibility
in the first three years of a project’s life would provide developers with a tool to meet the
cost and affordability gap for the commercial space during the lease up period.

Guaranty pools for commercial loans to mixed-use projects. For projects in which the
commercial market is somewhat unproven, a guarantee pool funded by private
foundations that would guaranty a conservative set of operating assumptions could help
leverage other funding commitments and meet the underwriting standards required by
traditional lenders.

Mixed-use Development: Issues and Best Practices Page 40


Program related investments (PRI). Developers may seek PRI’s from the investment
and foundation communities as a way to provide the capital to bank land for affordable
housing in areas where the initial development is for higher-income housing. While
PRI’s can be more complicated to structure than foundation grants, they can provide a
useful tool.

Corpus investments. Some developers have approached foundations with the concept of
“doing well by doing good” and have sought to place foundation corpus investments
(what they would be placing in venture capital funds to earn a return on their money) into
opportunistic equity stakes in critical, place-making projects. While the project may be
slightly riskier in the short term, foundations can provide patient equity that can be
rewarded in the long term through higher cash-flows and appreciation. [See
www.fundersnetwork.com for further discussion of this concept]

Tranched investments. Some developers have successfully financed their projects by


allocating different returns to different lenders according to their expectations. A large,
mixed-use project in Albuquerque was financed using an innovative approach that
segmented the debt by allocating different returns to lenders according to their varying
expectations of timing and cash flow expectations. This structure reduces the amount of
the loan needed from a conventional lender who wants high short-term returns, allowing
the developer to finance the project with more patient investments that facilitate a higher
quality product.70 The Albuquerque project was structured as follows:

Short Term Lenders (Banks): Expect returns of 15-18% and want the lowest risk, so they
financed construction costs only, in return for 90% of the cash flow in the first five years,
20% in years 6-12, and 10% thereafter. Developers take only fees.

Medium Term Lenders (Foundations and Development Corporation): Receive 10% of


cash flow in the first five years, 70% for years 6-12, and 45% after that.

Long Term Lenders (City): Patient lenders. The City financed the project through the
contribution of $25 million in land, improvements, tax abatement, construction, and
parking. The city receives nothing in the first five years, 10% in years 6-12, and 45%
thereafter or until 125% of the investment is returned.

The assumption in this structure is that while the back-end loaded returns in the second
and third tier investments (tranches) would be considered significantly less valuable by
traditional internal rate of return (IRR) analysis, the higher appreciation and cash flows
experienced by a good, mixed-use project will exceed that of conventional projects.71 In
the Albuquerque example, the project had initially hoped to charge $19/sf for the liner
shops on the theater block in an area where the local rents were $10/sf. Current rents are
now $23 to $27/sf, comparable to the regional malls and much higher than any other
market in the region.72

Community-based social equity funds. Other communities have established such funds
to provide early stage money on large, catalytic deals. Genesis LA, for example, is an

70
Ibid, p 5.
71
Meeting Summary, October 15, 2002. p 3.
72
Ibid.
Mixed-use Development: Issues and Best Practices Page 41
$85 million blind pool from banks, nonprofits and foundations that invests in low-income
neighborhoods in Los Angeles county. The fund often puts 10% of a deal in early to get
the rest of investors of a project to commit. The fund is now achieving 25% returns and
is managed by a professional fund manager. 73

Loan program that provide loans to carry brownfield projects through the study
and cleanup processes until the conventional capital providers can step into their
roles. Such a program was developed by a group of brownfield practitioners in
California and capitalized with $40 million from a group of commercial banks, and has
three components: loans for initial site assessment, cleanup loans, and insurance
subsidies.74

Best Practices: Financing Mixed-use Projects

Best Practice: Be able to demonstrate the relative cost and financing plan (including need for subsidy) for both the
housing and commercial component of the project. Be able to identify what proportion of the project’s subsidy need
is attributable to housing, commercial, and site preparation, and be able to clearly articulate the public or
charitable rationale for each.

Ultimately, the developer needs to demonstrate how the various components of the project fit together. If the project
will require subsidy, the developer should be prepared to articulate the reasons why the project requires subsidy and
to provide a compelling policy case for the subsidy for each of the project’s components. It is particularly important
that the developer be able to provide a solid rationale for including a commercial component of the project if that
will increase the project’s need for subsidy.

Best Practice: Identify a mix of funding sources that are consistent with the project design and risks. Create
investment opportunities for different types of investors. Match investors’ goals and return expectations with short,
medium and long-term financing niches.

Most projects will require a mix of conventional debt, equity and subsidy funding. A multi-tiered financing
structure will enable the developer to maximize the utility of each funding source and will help reduce both the
amount of loan funds needed from conventional lenders, who typically require high short-term returns, and the
amount of outright grant funds needed from subsidy funders. This approach will allow the developer to utilize
more patient and creative investments vehicles.

Best Practice: Understand and be able to demonstrate a commercial market.

The developer should be able to demonstrate that all operating assumptions for the commercial component of the
project are grounded in a clear understanding of the surrounding commercial market.

Best Practice: Use conservative assumptions.

The developer should use conservative assumptions with respect to lease rates (at or below market for that area),
vacancy rates (15-20%), lease up rates (at least six months), tenant improvement allowances, and operating costs.

Best Practice: Either target businesses and entrepreneurs with a demonstrated track record and a strong likelihood
of success, or, structure your project to mitigate risk associated with more risky commercial uses.

If a project’s target market for retail is small locally owned retail businesses, the project’s financing plan should
acknowledge, and be structured to mitigate, the increased risks associated with these users. Some developers, for
example, have mitigated risk by obtaining financial guaranties or building large reserves into their projects.

73
www.genesisla.org
74
Doty, Robert and Kristina Kelchner. “Seed Money: New Initiatives are addressing the front-end financing
challenge of brownfields redevelopment.”
Mixed-use Development: Issues and Best Practices Page 42
VII. Property Management
Property management for commercial spaces is significantly different than that of housing
projects. Commercial leases depart from residential leases, especially in terms of rent increases,
evictions and bankruptcy. It is important to have an attorney review the lease before signing any
tenants. Establishing a long-term relationship with a broker will facilitate a quick response time
for filling vacancies.

In addition, commercial property managers need to manage the relationship between the
commercial tenants and residential tenants, set policies about hours of operation, maintenance,
and parking, respond to security issues, and oversee larger common areas. Many developers
prepare tenant handbooks (with policies for late fees, hours of operation, parking, complaints,
and maintenance orders) and maintain an ongoing capital needs budget that includes funds for
redoing the spaces every few years as well as maintaining capital improvements. A good outline
for a property management plan can be found on the Bay Area LISC website at
www.cdexchange.org/stories/storyReader$84 .

For larger commercial spaces with multiple tenants, some developers have utilized centralized
retail management to control the retail mix, pay attention to changes in the retail market, and
attend to business recruitment, maintenance and security. For developments that have several
start-up businesses, it might be helpful to partner with a CDC or professional consultant to offer
training on merchandising, marketing, and financial management.

Another suggestion is to work with property management and community development groups to
help offer promotions and special events that will contribute to a stronger sense of community.
For those mixed-use projects seeking to create a sense of place, marketing the overall project will
be an ongoing task critical to its success.

Mixed-use Development: Issues and Best Practices Page 43


VIII. Conclusion
Mixed-use development is complicated, costly and risky. Unsubsidized and undirected market
forces clearly would produce few, if any, mixed-use developments in the Twin Cities. Market
forces, however, are not always strong enough to support the type of development that is
necessary to build and foster good communities, which is ultimately what the popular push for
mixed-use development is about.

Mixed-use development is a term that is often used to represent a broader goal of place-making.
In many neighborhoods, when residents request that shops or restaurants be included in a
proposed development, it is out of the desire to create a unique spot that meets the needs of
residents, draws visitors, and encourages community interaction. While retail and commercial
uses can serve these functions, they can also be achieved through the incorporation of other
elements such as cultural institutions and parks into the neighborhood. In order to use retail and
commercial development as a strategy for place-making, the project needs to have a good
fundamental location for such a use.

It is also true that for mixed-use development to succeed as a transit enhancing response to
worsening traffic congestion, the project must maximize location efficiency by serving as many
of the daily needs of residents as possible. Developers should research and understand what mix
of retail uses is most suitable, what density of population is required to support that mix, and
what demographics of future residents are most compatible with transit-oriented development.

Even when the location for a mixed-use project makes sense, and there is transportation and a
surrounding commercial market that will support it, mixed-use projects remain difficult to
implement successfully. Successful implementation requires careful analysis of where people
want to live, the services that shoppers want (residents, employees, visitors), and the accessibility
of these services. It also requires careful and deliberate planning around creating a design that
will satisfy the project’s parking and logistical needs, serve as an attractive amenity in the
community, and integrate the project well into the surrounding neighborhood.

Successful implementation of a mixed-use project also requires a carefully assembled


development team that includes strong management, development and design experience on both
the commercial and housing side of the deal, and, in most cases, local government will need to
be an involved partner. Local governments that can play an active role in developing local area
plans, providing infrastructure, and ensuring land supply can significantly alter the perceived
market conditions in an area. Around the country, the most successful mixed-use, smart growth
developments have involved partnerships between the private and public sectors.

Financing mixed-use projects, though complicated and difficult, is possible. Developers face the
conundrum of needing to create something that is unique, identifiable, and desirable enough to
attract residents, visitors, and employers, but, consequently, not being able to easily finance their
project through traditional means. Developers need to structure their projects creatively to
provide investment opportunities for a range of investors (debt, equity, public and charitable
subsidies) that correspond with the project’s performance expectations and the investors’ goals.
The onus is on the developer to demonstrate that the project is creating value in the community
beyond its short term market performance and that precisely because of this value the project
will prove its worth in the market place over time.

Mixed-use Development: Issues and Best Practices Page 44


Ultimately, mixed-use development will succeed as a place-making, growth accommodating, or
transit enhancing strategy only if the project is located, managed, designed and financed in a
manner that is constantly mindful of the complexity that is inherent in the product type.

Mixed-use Development: Issues and Best Practices Page 45


ATTACHMENTS

Attachment A: Mixed-use Projects in the Twin Cities


Examples of recent mixed-use projects that are have either recently come on-line or are currently
under development include the following:

East Village in Minneapolis. East Village is a mixed-income, mixed-use project developed by


the Central Community Housing Trust (CCHT) at 11th Avenue and 8th Street in the Elliot
Park Neighborhood just outside of downtown Minneapolis. The project features approximately
6,000 square feet of commercial space and 179 units of housing which include 18 townhomes,
and a mix of efficiency, 1 bedroom and 2 bedroom apartments. Forty of the units are reserved
for households earning 50 percent or less of the area median income. The project, which opened
in 2001, features off street parking and an underground parking garage. East Village was a tax
credit project that also had funding from the Metropolitan Council, MHFA, the Family Housing
Fund, and the City of Minneapolis (HOME).

Many Rivers East in Minneapolis. The American Indian Housing and Community
Development Corporation (AIHCDC) is currently developing Many Rivers East, which is the
first phase of a two phase mixed-use project on Franklin Avenue in the Phillips neighborhood of
south Minneapolis. The four story building will feature 50 rental units and nearly 6,000 square
feet of commercial space. The project, which is expected to come on-line by the end of 2003,
will include a mix of 1 bedroom, 2 bedroom, and 3 bedroom units. Thirty seven (37) of the units
will be subject to tax credit rent and income restrictions. The project also has a project-based
Section 8 contract that will make 7 of the three bedroom units affordable to very low-income
families. The project is being financed with a mix of tax credit equity, housing revenue bonds,
and funds from MHFA (MARIF & Urban Indian), MCDA, and the Empowerment Zone.

Selby Grotto in St. Paul. Financing closed in July 2003 on this 40 unit project that includes
3,890 square feet of commercial space. The project, sponsored by Legacy Management and
Development Company and the Selby Area Community Development Corporation, will
feature a mix of one and two bedroom units. Thirty of the units will be affordable to families
earning 60% or less of the area median income (5 of those will be affordable at 30% or less of
AMI) and the remaining ten units will not be rent or income restricted. The project is being
financed with a mix of tax credit equity, tax exempt bonds, and funds from the MHFA (MARIF
and the Challenge Fund), the Family Housing Fund, the City of St. Paul (STAR and CDBG) and
the Ramsey County Endowment Fund.

Grande Market Place in Burnsville. Grand Market Place is a mixed-use development


consisting of 113 apartments and 15,000 square feet of commercial space, currently under
development by Sherman Associates in conjunction with the Burnsville’s Heart of the City
redevelopment initiative. Fifty of the apartment units will be affordable to individuals with
incomes at or below 60% of the area median. Additionally, 23 of the 50 affordable units will
provide housing to current or recent recipients of MFIP, Minnesota’s welfare program, to assist
them in achieving economic independence. The Grande Market Place development is located in
the center of the city with convenient access to employment, social services, transportation,
schools and recreation. The MHFA provided $3,150,000 in funding for the project through two
Agency programs designed to serve MFIP recipients, and to encourage development of
workforce housing with financial contributions from local businesses or employers. The

Mixed-use Development: Issues and Best Practices Page 46


development is receiving tax credits, as well as funding from the Dakota County Community
Development Agency, the Family Housing Fund and the City of Burnsville.

Marketplace Lofts in Hopkins. The Marketplace Lofts is an ownership project currently under
development by the Cornerstone Group that will feature 48 loft-style condominiums and
17,000 square feet of retail space. The lofts range in size from approximately 700 square feet to
1,700 square feet and are priced from $140,000 to the mid $300,000’s. The retail space will
include a restaurant, coffee shop, boutiques and service-oriented businesses. Store fronts will
have large windows, ornamental lighting, architecturally distinctive signage and brick facades.
Construction on the $11.6 million project is expected to be complete in fall 2003.
Kennsington Park in Richfield. Kensington Park (formerly Lyndale Gateway) is the capstone
to revitalizing the area of 76th Street and Lyndale Avenue in the City of Richfield. This project
will redevelop a highly visible block of blighted commercial property and become an area filled
with new housing, shops and restaurants. The Cornerstone Group hopes to begin construction
on the project, which will feature 95 condominium units, 14 townhomes, and 25,000 square feet
of retail space, in summer 2003. The townhomes will border the single family neighborhood to
the west and three stories of housing over retail space and two restaurant sites will border
Lyndale Avenue. Lyndale Avenue will also be redesigned with streetscape improvements
including a landscaped median, ornamental lighting and special pavers. The townhomes will be
approximately 1,650 square feet and will be priced from the $290,000’s. The condominiums
will range from 680 square feet to over 1,400 square feet and range in price from the $130,000’s
to $300,000. The project is being assisted financially from the Richfield Housing and
Redevelopment Authority and from a grant from the Metropolitan Council.
Excelsior and Grand in St. Louis Park. Excelsior & Grand is the first stage of St. Louis Park's
premier redevelopment project: Park Commons. This project will revitalize Excelsior Boulevard
and create a community "focal point" or downtown for St. Louis Park. By 2005, the 15-acre
Excelsior & Grand site will house eight to ten buildings centered along a 600 ft.long town green
that runs from Excelsior Boulevard to Wolfe Park. The buildings – ranging from four to seven
stories – will have offices, retail shops and restaurants on the ground floors and apartments on
the upper floors. Designed to be pedestrian-friendly and inviting, most parking will be
underground or in parking ramps behind buildings. This design presents a more attractive view
from Excelsior Boulevard than the typical expanse of parking lots frequently seen in front of
shopping centers and office complexes. Although subject to change, the proposed mix of uses is:
82,000 sq. ft. of retail service establishments, 37,500 sq. ft. of office space and 660 housing
units. Out of 660 units in the Excelsior & Grand development, 18 will be low income housing
units. Excelsior & Grand, which is being developed by TOLD Development Company, was
recently named "Best Multifamily Project" in the CityBusiness’ "Best in Real Estate" awards
program.

Mixed-use Development: Issues and Best Practices Page 47


Attachment B: Resources for Business Development Assistance
Minneapolis Community Development Agency (MCDA) publishes a guide to “Starting a
Business in Minneapolis” that provides useful information on licensing, community resources,
and requirements for operating a restaurant. A copy can be obtained by calling MCDA Business
Link at 612-673-5465.

There are a variety of Community economic development corporations and small business loan
funds can be found at the following web pages:

Minneapolis Consortium of Community Developers


www.mccdmn.org

City of St. Paul Business Resource Center


www.stpaulbusiness.org

Neighborhood Development Center


www.windndc.org

Minneapolis Community Development Authority


www.mcda.org

St. Paul Planning & Economic Development


www.ci.stpaul.mn.us/depts/ped/

Metropolitan Development Association (MeDA)


www.meda.net

Women Venture
www.womenventure.org

Mixed-use Development: Issues and Best Practices Page 48


Attachment C: Funding Sources for Mixed Use Projects
The list that follows is a list of some of the sources that have been used, or could be used to help finance
mixed use development projects. This list is not comprehensive, and is intended only to help identify
some sources that might be available to assist mixed-use projects. While the authors have attempted to
ensure the information provided is accurate, funding programs change often, and we strongly recommend
against relying on the information provided herein to inform planning. Please contact the sources
directly if you have interest in using them for your project.

This report borrows heavily from Sources of Funding for the Development of Affordable Housing,
published by the Central Community Housing Trust and Neighborhood Planning for Community
Revitalization at the Center for Urban and Regional Affairs in January 2002. To see that report in its
entirety, visit www.npcr.org/reports/npcr1174/npcr1174.html.

The list is organized into four parts: Housing Specific Sources, Economic Development Specific Sources,
General Community Development Sources, and Brownfield Redevelopment Sources.

I. Housing Specific Sources

Funding Source: Minnesota Housing Finance Agency (MHFA)


Funding Program:
Source Type: State

Description: The MHFA offers a variety of programs and financial products to support the
development of multifamily affordable housing, including:
◊ Low and Moderate Income Rental Program (LMIR) – first mortgage debt
◊ Housing Tax Credit Program – federal tax credits
◊ Preservation Affordable Rental Investment Fund (PARIF) – deferred loan
◊ Minnesota Families Affordable Rental Investment Fund (MARIF) – deferred
loan
◊ Housing Trust Fund: capital, operating subsidy, rental assistance – [deferred
loans/ grants]
◊ Economic Development and Housing Challenge Program (EDHC) – [deferred
loan]
◊ Housing Opportunities for Persons with AIDS (HOPWA)
◊ HOME Rental Rehabilitation – [deferred loan]
◊ Rental Rehabilitation Loan Program – [installment loan]

Type of Deferred loans; First Mortgage Loans; Housing Tax Credits; Grants
Financing:
Eligible Limited dividend profit or nonprofit entities, cities and HRAs
Applicants:
Amount:

Restrictions: Visit the MHFA website at


http://www.mhfa.state.mn.us/managers/Multifamily%20Program%20Matrix.pdf
or contact MHFA directly to learn more about these programs and their applicability
to mixed use projects.
Application Most funding is available through the Super RFP. The RFP is generally published in
Cycle: December and May/June, with funding decisions made in April and October.

Contact Minnesota Housing Finance Agency, 400 Sibley Street, Suite 300, St. Paul, MN
Information: 55101-1998, Phone: 651-297-5136; Fax: 651-296-7608
Web site: http://www.mhfa.state.mn.us

Mixed-use Development: Issues and Best Practices Page 49


Funding Source: Hennepin County

Funding Program: Affordable Housing Incentive Fund

Source Type: County

Description: AHIF provides gap funding for projects that create or preserve affordable
housing for people at or below 50 percent of area median income ($38,350 for a
family of four). The RFP is patterned after the HOME program administered by
Hennepin County. AHIF funding should be used for capital gap funding of "last
resort." The applicant must demonstrate that AHIF is a vehicle to leverage other
public/private funding. CDBG funding is encouraged as one source of leveraged
funding.

Type of Financing: The type, terms and conditions of assistance provided will vary depending on the
needs outlined in each application, the availability of funding resources, and type
of activity. Generally a loan will be offered.

Eligible Applicants: Eligible applicants include governmental agencies, Community Housing


Development Organizations (CHDO's), community-based organizations,
Community Action Agencies, nonprofit and for-profit entities, and tribal
organizations.

Amount: Grants range from $25,000 to $500,000, with an average grant size of $250,000

Restrictions: Rental units, home ownership units, new construction, substantial and moderate
rehabilitation, preservation of existing viable units, transitional housing, and
rental housing with a mixed income rental structure are all eligible uses,
providing that all AHIF-assisted units meet AHIF criteria.

AHIF funds may be used for mixed use projects, but may only be used to support
costs associated with producing or preserving housing units dedicated to serving
persons at 50% of AMI and below.

Application Cycle: Annual, with a deadline of July. The review coincides with MHFA's Super RFP
timeline.

Contact Information: 417 N. 5th St., Suite 320, Minneapolis, MN 55401-1362 phone (612) 348-9260
fax (612) 348-2920. www.co.hennepin.mn.us/tcw/housing/welcome.html
e-mail: Carol.Kelleher@co.hennepin.mn.us

Notes: Priority is given to projects that develop units for people at or below 30 percent
of area median income ($24,850 for a family of four).

Mixed-use Development: Issues and Best Practices Page 50


Funding Source: Ramsey County

Funding Program: Ramsey County Housing Endowment Fund

Source Type: County

Description: Ramsey County created the housing endowment fund to provide capital
funding for housing developments in Ramsey County that serve low income
families.

Type of Financing: Deferred loans

Eligible Applicants: Developers of affordable housing.

Amount: Contact Ramsey County for further information.

Restrictions: Contact Ramsey County for further information.

Application Cycle: Contact Ramsey County for further information.

Contact Information: Judy Karon -- 651-266-8006

Notes: Because of budget cuts Ramsey County does not anticipate it will make any
commitments from this fund in 2004 and possibly beyond. Please contact
Ramsey County for specific information regarding the status of this program.

Mixed-use Development: Issues and Best Practices Page 51


Funding Source: Ramsey County

Funding Program: CBDG/HOME

Source Type: Federal funds distributed at county level

Description: Ramsey County is an entitlement community that receives an annual


distribution of CDBG and HOME funds from the Department of Housing and
Urban Development. Ramsey County awards these funds to housing projects
located in Ramsey County in accordance with the guidelines of the HOME and
CDBG programs.

Type of Financing: Grant

Eligible Applicants:

Amount:

Restrictions: All rules and restrictions associated with HOME and CDBG funds apply.

Because the City of St. Paul is a separate entitlement community, Ramsey


County HOME and CDBG funds are available only for suburban projects.

Application Cycle: Ramsey County has a formal application cycle each February, but occasionally
makes awards out of cycle. Contact Ramsey County directly for further
information.

Contact Information: Judy Karon -- (651) 266-8006

Notes:

Mixed-use Development: Issues and Best Practices Page 52


Funding Source: Family Housing Fund

Funding Program:

Source Type: Private Non-profit

Description: The Family Housing Fund works with public agencies, nonprofit
organizations, and private developers to preserve and expand the
supply of affordable rental housing in the metropolitan area.
The Fund pools its dollars with other private and public funds to subsidize the
production and preservation of affordable rental housing. The Fund makes
grants and loans to developers who create rental housing by rehabilitating
housing or building new apartments and townhomes.

Type of Financing: Grants, Loans, Deferred loan

Eligible Applicants: Developers of affordable housing.

Amount:

Restrictions:

Application Cycle: FHF project funding is typically distributed through the Super RFP, twice
annually (applications are typically due in February and August).

Contact Information: Family Housing Fund


Midwest Plaza West, Suite 1650
MPLS, MN 55402
(612) 375-9644
(612 375-9648 fax
www.fhfund.org
Notes:

Mixed-use Development: Issues and Best Practices Page 53


Funding Source: Metropolitan Council

Funding Program: Local Housing Incentives Account Program

Source Type: Regional Government

Description: The Metropolitan Livable Communities Act created the Local Housing
Incentives Account (LHIA) which authorizes the Metropolitan Council to make
grants to eligible municipalities to meet negotiated affordable and life-cycle
housing goals that are consistent with and promote the policies of the
Metropolitan Council. The LHIA provides incentives for municipalities to
create and/or maintain affordable and life-cycle housing opportunities.

Type of Financing: Grants

Eligible Applicants: Municipalities in the seven-county region.

Amount:

Restrictions: For certain costs associated with projects that help municipalities meet their
housing goals, including, but not limited to, acquisition, construction,
preservation and rehabilitation of permanent affordable and life-cycle housing.
Projects proposing homeownership opportunities for families with low and
moderate incomes are strongly encouraged. Must be matched 1:1 by
municipality participating in Livable Cities for projects that will meet
negotiated housing goals.

Application Cycle: Part of MHIG's Super RFP. The RFP is generally published in December and
May/June, with funding decisions made in April and October.

Contact Information: Guy Peterson , Metropolitan Council, Mears Park Center, 230 East Fifth Street,
St. Paul, MN 55101, Phone: 651-602-1418, Fax: 651-602-1442,
E-mail: guy.peterson@metc.state.mn.us

Notes:

Mixed-use Development: Issues and Best Practices Page 54


Funding Source: Federal Home Loan Bank of Des Moines

Funding Program: Affordable Housing Program (AHP)

Source Type:

Description: A twice-a-year competitive grant program which benefits projects targeting


families at or below 80 percent of the area median income. The Affordable
Housing Program Implementation Plan is generally revised annually, with
changes to scoring criteria.

Type of Financing: New construction gap financing; rehab gap funding; homebuyer assistance;
construction financing; funding for infrastructure.

Eligible Applicants: Project sponsor in partnership with Home Loan Bank Member.

Amount: Up to $500,000 depending on size and nature of project.

Restrictions:

Application Cycle: Two semi-annual funding application rounds: first round is February through
March; second round is August through September. Preliminary application
reviews prior to deadlines are possible; first contact a staff member by phone to
request such a review.

Contact Information: Federal Home Loan Bank of Des Moines, 907 Walnut Street, Des Moines, IA
50309
Phone: 1-800-544-3452 or 515-281-1000,
Web site: http://www.fhlbdm.com

Notes:

Mixed-use Development: Issues and Best Practices Page 55


Funding Source: Federal Tax Credit

Funding Program: Federal Low Income Housing Tax Credit (LIHTC) Program

Source Type: Federal (distributed at State and Local level)

Description: Federal income tax credit awarded by MHFA or sub-allocators (such as the City
of St. Paul and MCDA) to equity investors in rental housing that will meet
income and rent restrictions for at least 15 years; IRS program that facilitates
corporate equity investment. Primary source of private investment.
Developments financed with tax credits may obtain equity for their project by
passing through the value of the credits to a limited partner investor. The
limited partner may be made up of a group of local investors, or the
development may be pooled with other HTC projects and the benefits passed
through to national corporate investors.

Type of Financing: Investor equity generated through Federal Income Tax Credit.

Eligible Applicants: Nonprofit and for-profit sponsors are eligible applicants, as well as limited
liability entities.

Amount: Limited to $350,000 annual credit per development over 10-year period.

Restrictions: Rents for 20% of the units must be affordable to tenants at 50% of median
family income, or 40% of units must be affordable to tenants at 60% of median
income. Tax credit investment is currently $.80/$1.00. The units must be rented
to low- and moderate-income tenants for at least 15 years.

No more than 20% of the gross square footage of the project may be for a use
that is not housing.

Application Cycle: Part of MHFA's Super RFP. The RFP is generally published in December and
May/June, with funding decisions made in April and October.

Contact Information: Susan Haugen , Minnesota Housing Finance Agency , 400 Sibley Street, Suite
300 , St. Paul, MN 55101, Phone: 651-296-9848
Web site: http://www.mhfa.state.mn.us;

OR , if the municipality your project is located in is a sub-allocator (e.g. St.


Paul, Minneapolis, Dakota County, etc), contact the municipality directly.

Notes:

Mixed-use Development: Issues and Best Practices Page 56


Funding Source: US Department of Housing and Urban Development (HUD)

Funding Program: Community Development Block Grant (CDBG)

Source Type: Federal

Description: HUD makes annual distributions of CDBG funds to “entitlement communities”


(central cities of metropolitan statistical areas, and urban counties with
populations of at least 200,000) to ensure decent affordable housing for all, to
provide services to the most vulnerable, and to create jobs and expand business
activities. Entitlement communities distribute the funds in accordance with the
program guidelines.

Type of Financing: Grant

Eligible Applicants:

Amount:

Restrictions: CDBG funds must be used for activities that benefit low- and moderate income
persons. All activities must meet one of the following national objectives:
benefit low-and moderate income persons, prevention or elimination of slums
or blight, community development needs having a particular urgency because
existing conditions pose a serious and immediate threat to the welfare of the
community.

Application Cycle: Consult local entitlement community (City of Minneapolis, City of St. Paul,
Ramsey County, Hennepin County).

Contact Information: For general information on the CDBG program:


www.hud.gov/offices/communitydevelopment/programs/cdbg.cfm

Notes:

Mixed-use Development: Issues and Best Practices Page 57


Funding Source: US Department of Housing and Urban Development (HUD)

Funding Program: HOME

Source Type: Federal

Description: The HOME program was created to expand the supply of decent, affordable
housing for low and very low-income families by providing grants to States
and local governments referred to as participating jurisdictions or “PJs”. PJs
use their HOME grants to fund housing programs that meet local needs and
priorities. PJs have great flexibility in designing their local HOME programs
within the guidelines of the program.

Type of Financing: Grants

Eligible Applicants:

Amount:

Restrictions: Twenty (20) percent of the total units in multifamily projects that utilize
HOME funding must be occupied by very low income people and rents must
not exceed those affordable to persons earning 50% of the area median income
(as defined by HUD).

Application Cycle: Contact participating jurisdictions.

Contact Information: For general information on the HOME program:

www.hud.gov/offices/cpd/affordablehousing/programs/home/index.cfm

For HOME rent and income limits:

www.hud.gov/offices/cpd/affordablehousing/programs/home/limits/rent/index.cfm

Notes:

Mixed-use Development: Issues and Best Practices Page 58


Funding Source: US Department of Housing and Urban Development (HUD)

Funding Program: Section 221(d)(3) and (4)

Source Type: Federal

Description: The program's purpose is to provide mortgage insurance to fund good quality
rental or cooperative housing for low- and moderate-income families, displaced
families, the elderly, and the disabled. The program is administered by HUD's
component agency, the Federal Housing Authority (FHA). Nonprofits use
Section 221(d)(3) mortgage insurance, while for-profits use Section 221(d)(4).

Section 221(d)(3) and (4) insures construction and permanent financing loans
originated by private, HUD-approved lenders for construction or substantial
rehabilitation of projects with five or more units of multifamily rental or
cooperative housing.

Type of Financing: Federal mortgage insurance.

Eligible Applicants: For-profit, nonprofit, and limited partnership sponsors of eligible affordable
rental projects may apply.

Amount: Section 221(d)(3) and (4) assign maximum per-unit dollar amounts that HUD
will insure. These maximums, which do not include exterior land
improvements, vary according to the size of the unit and the type of the
structure (elevator/non-elevator).

Restrictions: The program itself does not set any income eligibility limits for occupancy of
the housing. However, if mortgage insurance is used in conjunction with other
kinds of federal aid, such as low-income housing tax credits, the housing will
be subject to the income eligibility limits established under those other
programs.

Application Cycle: The project sponsor must make early contact with the local HUD multifamily
representative to determine if there is a market demand for the proposed
housing. Project applications are processed locally.

Contact Information: Tim Gruenes, US Dept. of Housing and Urban Development, 220 Second Street
South, Minneapolis, MN 55401, Phone: (612) 370-3000, x2252; Fax: (612)
370-3220 E-mail: tim_p._gruenes@hud.gov

Notes:

Mixed-use Development: Issues and Best Practices Page 59


Funding Source: Minneapolis Community Development Agency (MCDA)

Funding Program: Affordable Housing Trust Fund Program (AHTF)

Source Type: Local

Description: The Affordable Housing Trust Fund Program (AHTF) provides gap financing
for affordable and mixed-income rental housing production and preservation
projects located in the City of Minneapolis. The primary sources of funds for
this program are federal HOME funds and CDBG funds, but the fund also
includes other local money.

Type of Financing: Gap financing

Eligible Applicants: For-profit or nonprofit developers planning to build affordable units in


Minneapolis.

Amount:

Restrictions: Program funds are targeted to the development of large family housing,
supportive housing for homeless adults and families, and senior/elderly
populations.

Nonprofit developers may be eligible to receive up to $30,000 of Nonprofit


Development Assistance Funds ($2,000 per first 7 units; $1,500 for next 8
units; $1,000 for each additional unit).

All City/MCDA financially assisted rental housing projects of 10 units or more


shall have at least 20% of the units affordable at or below 50% of median
family income. 70% of the affordable housing funds will be allocated to units
with 2 or more bedrooms; 30% will be for units with 0 to 1 bedrooms.

Application Cycle: Program funds are offered through a competitive RFP process twice a year (at
the same time as the MHFA Super RFP).

Contact Information: Cynthia Lee, Minneapolis Community Development Agency, Crown Roller
Mill, 105 5th Avenue South, Suite 200, Minneapolis, MN 55401
Phone: 612-673-5274;
E-mail: Donna.Wiemann@mcda.org

Notes:

Mixed-use Development: Issues and Best Practices Page 60


Funding Source: City of St. Paul’s Department of Planning and Economic
Development (PED)

Funding Program:

Source Type: Local

Description: PED utilizes TIF, CDBG, HOME, HRA and STAR funds, on a selected basis, to
support housing projects that are consistent with the goals articulated in the
City’s annual Housing Action Plan.

Type of Financing: Gap funding

Eligible Applicants: For-profit and non-profit developers.

Amount:

Restrictions: PED investment decisions will be based on an evaluation of project need,


strategic importance, funding leverage, and relative strengths and weakness of
other projects requesting funding.

Application Cycle: Contact PED project manager directly.

Contact Information: City of Saint Paul Department of Planning and Economic Development (PED)
1400 City Hall Annex, 25 West Fourth Street
Saint Paul, MN 55102 . .
651-266-6700 (general info)
fax 651-228-3261

http://www.ci.stpaul.mn.us/depts/ped/
Notes:

Mixed-use Development: Issues and Best Practices Page 61


Funding Source: MCDA & PED

Funding Program: Multi-Family Housing Revenue Bonds

Source Type: State

Description: Minneapolis and St. Paul both receive annual entitlement allocations of
Housing Revenue Bonds with automatic 4% low income housing tax credits.

Type of Financing: Bonds (with tax credits)

Eligible Applicants: Developers

Amount: Depends on project size

Restrictions: Consult with staff at PED/MCDA staff, or, MFHA if your project is located
out side the core cities.

A guide for developers seeking Housing Revenue Bonds in Minneapolis is


available at:
www.mcda.org/Housing/multifamily/docs/HOUSING%20REVENUE%20BONDS.pdf

Application Cycle:

Contact Information: Contact staff at PED or MCDA for further information.

Notes:

Mixed-use Development: Issues and Best Practices Page 62


Funding Source: Minneapolis Public Housing Authority (MPHA)

Funding Program: Project-Based Assistance Program

Source Type: Federal

Description: MPHA's objectives for the Project-Based Assistance Program are to contribute
to the upgrading and long-term viability of the area's housing stock; to increase
the supply of affordable housing in areas with less than the regional average of
affordable housing; to integrate housing and tenant services such as education,
job training and day care; to disperse concentrations of assisted families; and to
promote the merger of public, semi-public or nonprofit agencies or
organizations to provide affordable housing with tenant services.

Type of Financing: Units of rental subsidy.

Eligible Applicants: Owners, developers or other ownership teams.

Amount:

Restrictions: Proposals will be accepted from applicants who agree to rehabilitate or


construct dwelling units for occupancy by tenants eligible for Section 8 rental
assistance. Almost any type of newly constructed or existing structures,
including single-family housing and multifamily structures may be used for
Project-Based Assistance. For the proposed project to qualify as rehabilitation,
existing structures must require a minimum expenditure of $1,000 per assisted
unit, including the unit's pro-rated share of work to be accomplished on
common areas or systems.

Properties must be located in the City of Minneapolis. Funding for the


construction or rehab of the dwelling units must be arranged independently, as
such funds are not available through the MPHA.

Subsidy amounts apply to housing costs only.

Application Cycle: The MPHA accepts applications through its Super RFP process as well as
through the MCDA program announcement in January.

Contact Information: Dean Carlson, Minneapolis Public Housing Authority


1001 Washington Avenue North
Minneapolis, MN 55401-1043
Phone: 612-342-1490.

Notes:

Mixed-use Development: Issues and Best Practices Page 63


Funding Source: St. Paul Public Housing Agency

Funding Program: Project Based Section 8

Source Type: Federal (administered locally)

Description: The St. Paul PHA administers project based section 8 program to support the
upgrading and long-term viability of the city's housing stock; increase the
supply of affordable housing; integrate housing and supportive services; and
promote the coordination and leveraging of resources. Decisions regarding the
application of project based section 8 assistance to specific projects depend on
current section 8 utilization rates and nature and location of project.

Type of Financing: Units of rental subsidy.

Eligible Applicants: Owners and developers of affordable housing projects.

Amount:

Restrictions: Contact St. Paul PHA for specific information regarding the use of project
based section 8 vouchers.

Application Cycle: On-going

Contact Information: Barb Sporlein


St. Paul Public Housing Agency
Central Administrative Office
480 Cedar Street, Suite 600
St. Paul, MN 55101
(651) 298-5664
Notes:

Mixed-use Development: Issues and Best Practices Page 64


Funding Source: Fannie Mae

Funding Program: Multi-Family Development Products

Source Type: Private non profit

Description: Fannie Mae provides a variety of affordable financing products for the
development of affordable housing.

Type of Financing: Federal funds and low interest loans.

Eligible Applicants: For-profit and nonprofit developers.

Amount:

Restrictions: Affordable housing is defined as properties with income and occupancy


standards that meet or exceed those of the Federal Low Income Housing Tax
Credit Program.

Application Cycle: Contact a representative for application materials and timelines.

Contact Information: Local delegated underwriting and servicing (DUS) lender:

Kevin Filter, President


2550 University Avenue West, Suite 310N
St. Paul, MN 55114
Phone: (651) 644-7694
For general information, see website:
http://www.fanniemae.com/multifamily/index.html

Notes:

Mixed-use Development: Issues and Best Practices Page 65


Funding Source: AFL-CIO

Funding Program: Housing Investment Trust

Source Type: Private

Description: The AFL-CIO Housing Investment Trust provides credit-enhanced financing


for the new construction and/or substantial rehabilitation of multifamily
housing and health care projects nationwide. Trust financing is tailored to meet
the specific needs of particular projects.

Type of Financing: Financing products include construction and permanent loans, forward
commitment loans, floating rate loans, and secured bridge loans.

Eligible Applicants:

Amount:

Restrictions: The AFL-CIO Housing Investment Trust requires borrowers and contractors to
make the following commitment to hire only union labor for all on-site
construction work on projects receiving Trust financing.

Application Cycle:

Contact Information: 1717 K Street, NW


Suite 707
Washington, DC 20036
(202) 331-8055
E-mail: info@aflcio-hit.com Website: www.aflcio-hit.com

Notes:

Mixed-use Development: Issues and Best Practices Page 66


Funding Source: Community Development Trust

Funding Program: Real Estate Investment Trust Equity

Source Type: Private

Description: CDT will provide debt and equity capital to retail, commercial, and other
projects located in community development areas.

Under its Equity Program, CDT invests "tax advantaged" equity in low-,
moderate-, and mixed-income multifamily properties to help preserve long-term
affordability. CDT is structured as an UPREIT, which could provide certain tax
deferrals to owners that exchange ownership interests in their property for an
interest in CDT. CDT's equity can be combined with tax-exempt financing and
tax credits to provide capital for rehabilitation and to increase the financial
viability of projects while they are maintained as affordable housing.

Through its Debt Program, CDT purchases new or existing, fixed-rate,


multifamily mortgages, secured by affordable housing projects nationwide.
Institutions that sell loans to CDT include banks, mortgage bankers, bank
consortia, housing finance agencies and community development financial
institutions. CDT primarily focuses on loans that may not be efficiently priced
by traditional secondary market investors due to small size or lack of
knowledge of affordable housing techniques. By providing competitive pricing
and liquidity to affordable housing lenders, CDT is helping to expand the flow
of capital to support the community development industry.

Type of Financing:

Eligible Applicants: Non profit and for profit developers.

Amount:

Restrictions:

Application Cycle:

Contact Information: www.commdevtrust.com

The Community Development Trust


1350 Broadway, Suite 700
New York, New York 10018
212-271-5080
cdt@commdevtrust.com

Notes:

Mixed-use Development: Issues and Best Practices Page 67


Funding Source: Enterprise Social Investment Corporation

Funding Program: Enterprise Mortgage Investments

Source Type: Private Foundation

Description: EMI provides first-mortgage financing to affordable housing developments


across the nation. As a Fannie Mae delegated lender EMI's program is designed
to streamline development financing and minimize charges to developers.

Type of Financing: Loan

Eligible Applicants: For profit or non profit developers of affordable housing.

Amount:

Restrictions: Multifamily rental housing projects with a minimum of 15 units are eligible for
EMI funding. The project can be located on either single or contiguous sites and
developed by nonprofit or for-profit entities. EMI's guidelines express a
preference for developments in central city locations and for properties with
individually metered utilities. The property must be a qualified low-income
project in which 75% of the units are affordable to residents earning 60% or less
of the area median income. Some flexibility on affordability is available,
depending on circumstances.

The minimum debt service coverage ratio is 1.10:1. The loan-to-value ratio
may not exceed 90% of appraised value based on the restricted rents of the low-
income units.

Application Cycle: Developers may apply anytime.

Contact Information: For additional information, e-mail Jeffrey R. Stern at jstern@esic.org


or contact EMI at:
Enterprise Mortgage Investments, Inc.
10227 Wincopin Circle, Suite 800
Columbia, MD 21044
Phone: (410)964-0552; Fax: (410) 715-9872
www.enterprisefoundation.org/esic

Notes:

Mixed-use Development: Issues and Best Practices Page 68


II. Economic Development Specific Sources

Funding Source: Department of Trade and Economic Development

Funding Program: Redevelopment Grant

Source Type: State

Description: DTED Redevelopment Grant Program was created to provide grant funding for
projects that result in the redevelopment or productive reuse of formerly
blighted properties.

Type of Financing: Grant

Eligible Applicants:

Amount:

Restrictions: The maximum grant award will be 50% of the total redevelopment costs.
Grants can pay for acquisition, demolition, infrastructure improvements and
other costs.

Application Cycle: The legislature did not allocate funds to this program in either FY 2002 or FY
2003.

Contact Information: Meredith Udoibok


651-297-4132
Meredith.udoibok@state.mn.us
www.dted.state.mn.us

Notes: This program is currently dormant and its future is uncertain. Inquire directly
with DTED staff for current updates on the status of this program.

Mixed-use Development: Issues and Best Practices Page 69


Funding Source: Department of Commerce/Economic Development Administration

Funding Program: Partnership Planning Grant, Public Works and Economic


Development Program, and Local Technical Assistance Program

Source Type: Federal Government

Description: EDA manages three grant programs relevant to commercial development in


distressed communities. The Partnership Planning Grant provides support for
the formulation and implementation of local economic development programs.
The Public Works and Economic Development Program provides funds for
distressed communities to upgrade infrastructure to attract new industry. The
Local Technical Assistance Program provides grants for feasibility studies.

Type of Financing: Grants

Eligible Applicants:

Amount: Average Grant sizes: Planning Grants: $50,000; Public Works $800,000; Local
Technical Assistance: $30,000.

Restrictions: EDA usually funds 50% of cost; match is required.

Application Cycle: Proposals are accepted continuously.

Contact Information: Chicago Region:


Illinois, Indiana, Michigan, Minnesota, Ohio, Wisconsin
111 North Canal Street, Suite 855
Chicago, IL 60606-7204
(312) 353-7706; (312) 353-8575 fax
C. Robert Sawyer, Regional Director
rsawyer@eda.doc.gov

Minnesota Contact:
John Arnold
104Federal Building
515 West First Street
Duluth, MN 55802
(218) 720-5326
jarnold1@eda.doc.gov

Notes:

Mixed-use Development: Issues and Best Practices Page 70


Funding Source: Department of Housing and Urban Development (HUD)

Funding Program: Section 108 Loan Guarantee Program

Source Type: Federal

Description: Under the 108 program HUD will guarantee loans for financing economic
development, housing rehabilitation, public facilities, and large-scale physical
development.

Type of Financing: Loan

Eligible Applicants: Applicants are CDBG entitlement cities; cities can then lend to nonprofit
organizations.

Amount: Applicant may apply for up to five times the public entity's latest approved
CDBG entitlement amount. Maximum repayment period is 20 years.

Restrictions: Eligible activities include economic development activities allowed under


CDBG: acquisition of real property, rehabilitation of publicly owned real
property, and construction, reconstruction, or installation of public facilities
(etc.).
Application Cycle:

Contact Information: MN Field Office


920 2nd Ave South
MPLS, MN 55402
(612) 370-3000
www.hud.gov/cpd/oed/programs.html
or contact a representative from your entitlement community directly.

Notes:

Mixed-use Development: Issues and Best Practices Page 71


Funding Source: Department of Housing and Urban Development

Funding Program: Economic Development Initiative

Source Type: Federal

Description: Competitive grants to local governments to reduce debt service associated with
Section 108 loans. Used for the same project as the 108 loan, or to improve the
viability of that project. A local government may use the grant to provide
additional security for the 108 loan (e.g. loan loss reserve), as a credit
enhancement (e.g. interest rate write down), or it may make a flexible grant to
the project.

Type of Financing: Loan

Eligible Applicants: Municipalities (who may then re-grant to non profit organizations)

Amount: Maximum grant is $1 million.

Restrictions: EDI must be accompanied by a Section 108 loan. See Section 108 loan
description Contact Economic Development Specialist for more information.

Application Cycle: Apply through HUD Super NOFA. Order application at 800-HUD-8929.
Proposals are submitted through HUD field office and to headquarters.

Contact Information: MN Field Office


920 2nd Ave South
MPLS, MN 55402
(612) 370-3000

www.hud.gov/cpd/oed/programs.html

Notes: See also BEDI program description below (Brownfield Remediation Sources)
for information on environmental clean-up funding in conjunction with EDI
grants.

Mixed-use Development: Issues and Best Practices Page 72


Funding Source: Department of Health: Office of Community Services

Funding Program: Community Economic Development Program

Source Type: Federal Government

Description: The focus of this program is to encourage the creation of projects intended to
create jobs and provide employment and business ownership opportunities for
low-income people through business, physical or commercial development.
Generally the opportunities must aim to improve the quality of the economic
and social environment of TANF recipients; low-income residents including
displaced workers; at-risk teenagers; custodial and non-custodial parents,
particularly those of children receiving TANF assistance; individuals residing
in public housing; individuals who are homeless; and individuals with
developmental disabilities. Grant funds under this program announcement area
are intended to provide resources to eligible applicants but also have the
broader objectives of arresting tendencies toward dependency, chronic
unemployment, and community deterioration in urban and rural areas.

Type of Financing: Grants

Eligible Applicants: Private, nonprofit organizations (including community development


corporations and charitable organizations).

Amount: Up to $700,000

Restrictions: Projects proposed for funding under this announcement must result in direct
benefits to low-income people.

OCS is particularly interested in receiving applications that involve public-


private partnerships that are directed toward the development of economic self-
sufficiency for low-income people and distressed communities through
projects that focus on providing employment and business ownership
opportunities for low-income people through business startups, business
expansions, development of new services, and/or other newly-undertaken
physical and commercial activities.

Application Cycle: Annual (check website)

Contact Information: Karen Turner at (202) 260-5683 or the


OCS Operation Center at 1-800-281-9519 for referral to the appropriate
contact person in OCS for programmatic questions or send an e-mail to
OCS@lcgnet.com.

www.acf.dhhs.gov/programs/ocs/index.html

Mixed-use Development: Issues and Best Practices Page 73


Funding Source: Department of Housing and Urban Development

Funding Program: Community Development Block Grant

Source Type: Federal

Description: Provides annual grants on a formula basis to entitled cities and counties for a
variety of community and economic development activities. Grant funds may
be passed through to nonprofits.

Type of Financing: Grants

Eligible Applicants: Local government (who may then re-grant to non-profits)

Amount:

Restrictions: Eligible activities include acquisition of real property, public improvements and
facilities; rehabilitation of residential, commercial/industrial or other nonprofit
owned, nonresidential buildings. As long as commercial activity meets a
standard (majority of jobs to people at 80% AMI) it is eligible for CDBG
funding.

Application Cycle: Contact your local municipality for more info on CDBG allocations.

Contact Information:

Notes:

Mixed-use Development: Issues and Best Practices Page 74


Funding Source: Department of the Treasury

Funding Program: Community Development Financial Institutions (CDFI) Fund

Source Type: Federal

Description: Provides funding for Community Development Financial Institutions (CDFIs)


or intermediaries that have completed a certification process.

Type of Financing: Loans and Grants

Eligible Applicants: Certified Community Development Financial Institutions (CDFIs)

Amount: Funding for core CDFIs is maximum $2.5 million and for intermediaries $1.5
million. Funds up to $150,000 are available for small and emerging CDFIs
(holds under $5 million in assets and has never been awarded CDFI Fund
money).

Restrictions: Funds may be used for purposes which support the applicant's business plan.
CDCs may be able to get certified and access these funds for loan pools, or
CDC economic development projects may be eligible for investments from a
CDFI.

Application Cycle: Contact a Program Adviser for more information.

Contact Information:
601 - 13th Street, NW, Suite 200 South
Washington, DC 20005
Ph: 202-622-8662; F: 202-622-7754
www.treas.gov/cdfi
cdfihelp@cdfi.treas.gov

Notes:

Mixed-use Development: Issues and Best Practices Page 75


Funding Source: Department of the Treasury

Funding Program: New Markets Tax Credits

Source Type: Federal

Description: Individual and corporate investors can receive a tax credit worth more than
30% of the amount invested by making an equity investment in a New Markets
business, an eligible "community development entity - CDE". CDEs can be
CDCs, bank CDCs and other groups. CDEs will apply to Treasury Dept. for
tax credit allocations. CDE’s can then make qualified investment s in low
income communities and pass the tax credits on to qualified investors that have
provided equity investment capital.

Type of Financing: Tax credits for loan or equity investments.

Eligible Applicants: Certified Community Development Entities that make capital or equity
investments in, or loans to, Qualified Businesses in a Low-Income
Community.
Amount:

Restrictions: Eligible uses include small business loans and commercial real estate
development investments in low-income census tracts.

Application Cycle: Contact Department of Treasury or LISC for more information.

Contact Information: 601 - 13th Street, NW, Suite 200 South


Washington, DC 20005
Ph: 202-622-8662; F: 202-622-7754
www.treas.gov/cdfi

Mike LaFave
Twin Cities LISC
(651)265-2290
mlafave@liscnet.org
www.liscnet.org/resources/new_markets.shtml?Social+&+Economic+Development

Notes:

Mixed-use Development: Issues and Best Practices Page 76


Funding Source: AFL-CIO

Funding Program: Building Investment Trust

Source Type: Private

Description: The AFL-CIO Building Investment Trust is a $1.4 billion pooled real estate
fund serving pension plans with union beneficiaries. It is managed by
Mercantile Safe-Deposit and Trust Company and sponsored by the AFL-CIO.
The mission of the Trust is to provide competitive risk-adjusted returns for its
participants through its investments in institutional quality commercial real
estate while promoting economic development and creating union jobs.

Type of Financing: Debt and Equity

Eligible Applicants: Developers committed to utilizing union labor

Amount:

Restrictions:

Application Cycle:

Contact Information: www.aflcio-bit.com

Mercantile-Safe Deposit & Trust Company


2 Hopkins Plaza, Suite 804
Baltimore, MD 21201
Henry C. Pitts
410-237-5516
hpitts@merctrust.com

Notes:

Mixed-use Development: Issues and Best Practices Page 77


Funding Source: Community Reinvestment Fund

Funding Program: Capital Expansion Tools

Source Type: Private Non-Profit

Description: CRF provides secondary loans to community development lenders by


purchasing their economic development and affordable housing loans.

CRF buys economic development, affordable housing and community facilities


loans. These loans are typically made by government agencies or nonprofit
organizations.

Type of Financing: Loans

Eligible Applicants: Community development lending organizations (typically government agencies


or non-profit community development lenders).

Amount:

Restrictions: With its Advance Commitment, CRF commits to buying a lender’s loan before
the loan is closed. CRF and the lender agree to underwriting and documentation
criteria to cover a specific dollar amount of lending. Because these loans have
not been seasoned, CRF requires sellers to retain a risk position in each loan.
But the form and amount of risk-sharing is tailored to the needs and
circumstances of each seller.

CRF will buy loans at their fair market value, which is determined by the
interest rate of the loan and other credit factors. Generally, with a good credit,
the selling organization receives par value for loans, less a transaction cost. If
the loans bear an interest rate that is below current market value, they will be
discounted. Likewise, if the loans bear an interest rate above market, they will
be valued at a premium.

Application Cycle:

Contact Information: Community Reinvestment Fund


801 Nicollet Mall, Suite 1800 W.
Mpls., MN 55402
(612) 338-3050
www.crfusa.com

Notes:

Mixed-use Development: Issues and Best Practices Page 78


Funding Source: Lend Lease Real Estate Investment Trust

Funding Program: Mezzanine Loans

Source Type: Private

Description: Lend Lease offers Mezzanine Loans that can be tailored to meet the needs of
borrowers seeking financing for stabilized, value-added, and development
opportunities. With over 100 structured transactions completed, Lend Lease has
the experience to offer flexible, creative financing solutions to real estate
owners and developers.

Type of Financing: Acquisition, development, rehabilitation, repositioning, bridge, entity financing


and other situational opportunities.

Eligible Applicants: Commercial, industrial, retail, multi-family, condominiums, hospitality, and


mixed-use projects.

Amount: $5 million to $20 million on loan transactions of $35 million to $100 million.

Terms: Up to 90% Loan to Value. Two to four years with extensions available. Target
yields range from 12% to 20%.

Restrictions:

Application Cycle:

Contact Information: structuredfinance@lendleaserei.com; Drew Fung, 212-779-5821

Notes: Established relationships with senior lenders include Fannie Mae, Freddie Mac,
Key Bank, Washington Mutual and others.

Mixed-use Development: Issues and Best Practices Page 79


Funding Source: Community Development Trust

Funding Program: Real Estate Investment Trust Equity

Source Type Private

Description: CDT will provide debt and equity capital to retail, commercial, and other
projects located in community development areas.

Under its Equity Program, CDT invests "tax advantaged" equity in low-,
moderate-, and mixed-income multifamily properties to help preserve long-term
affordability. CDT is structured as an UPREIT, which could provide certain tax
deferrals to owners that exchange ownership interests in their property for an
interest in CDT. CDT's equity can be combined with tax-exempt financing and
tax credits to provide capital for rehabilitation and to increase the financial
viability of projects while they are maintained as affordable housing.

Through its Debt Program, CDT purchases new or existing, fixed-rate,


multifamily mortgages, secured by affordable housing projects nationwide.
Institutions that sell loans to CDT include banks, mortgage bankers, bank
consortia, housing finance agencies and community development financial
institutions. CDT primarily focuses on loans that may not be efficiently priced
by traditional secondary market investors due to small size or lack of
knowledge of affordable housing techniques. By providing competitive pricing
and liquidity to affordable housing lenders, CDT is helping to expand the flow
of capital to support the community development industry.

Type of Financing:

Eligible Applicants: Non profit and for profit developers

Amount:

Restrictions:

Application Cycle:

Contact Information: www.commdevtrust.com

The Community Development Trust


1350 Broadway, Suite 700
New York, New York 10018
212-271-5080
cdt@commdevtrust.com

Notes:

Mixed-use Development: Issues and Best Practices Page 80


III. General Community Development Sources

Funding Source: Tax Increment Financing (TIF)

Funding Program:

Source Type: Local

Description: Tax increment financing is a locally controlled public financing mechanism


through which the increased property tax value a project creates is captured
overtime (for up to 25 years) to pay for up-front public costs associated with
the project.

Type of Financing: Semi-annual tax rebate payments (must be financed up-front).

Eligible Applicants: Municipalities or HRAs can create TIF districts. For profit or non-profit
developers may be assigned a TIF rights to TIF revenue to re-burse eligible
expenditures.

Amount: Depends on captured value of project.

Restrictions: There are many rules and restrictions associated with the use of tax increment
financing. At a baseline, TIF funds may be used only for specified purposes,
including land acquisition, site improvements, public and on-site utilities,
demolition, relocation, and administration.

A municipality must conclude that the project would not proceed and the
increased market value on the site resulting from the project would not
reasonably occur, but-for the use of tax-increment financing.

The maximum length, and specific rules governing a TIF district, depend on
the type of district.

Application Cycle:

Contact Information: Contact the municipality in which your project is located.

Notes: The value that TIF can bring to your project depends on the tax value your
project brings to the site. Because TIF is a steady stream of payments which
are typically financed to pay up front development costs, the amount of funding
TIF can bring to a project also depends on the rate at which you are able to
finance it. Financing an identical tax increment cashflow at 3%, as opposed to
7%, dramatically increases the present value of a project’s tax increment
cashflow.

Mixed-use Development: Issues and Best Practices Page 81


Funding Source: Tax Abatement

Funding Program:

Source Type: Local

Description: Abatement is a locally controlled public finance mechanism through which


taxing jurisdictions may use taxes from a project or development to pay for
costs associated with that development. Abatement, like TIF, is a tax rebate
rather than an exemption from paying taxes. Unlike TIF, however, where a
municipality’s decision to create a TIF district controls both the county’s and
the city’s share of taxes, each taxing jurisdiction must decide whether it wants
to abate a property’s taxes.

Type of Financing: Semi-annual tax rebate payments (must be financed up front).

Eligible Applicants: Taxing jurisdictions

Amount:

Restrictions: The maximum term of a tax-abatement is 15 years. Abatement cannot be use


in concert with TIF, but can be utilized after a TIF district is decertified.

Though the value of tax abatement is typically less than TIF, the rules
governing its use and administration are much less complicated.

Application Cycle:

Contact Information: Contact the municipality in which your project is located.

Notes:

Mixed-use Development: Issues and Best Practices Page 82


Funding Source: St. Paul Department of Planning and Economic Development (PED)

Funding Program: Sales Tax Revitalization Program (STAR)

Source Type: Local

Description: The STAR program is funded from sales tax revenue and is distributed annually
to further residential, cultural, commercial and economic development in both
Downtown Saint Paul and Saint Paul neighborhoods.
Type of Financing: Loans or Grants

Eligible Applicants: Eligible applicants include any public, private, or non-profit entity located in or
doing business in Saint Paul.

Amount:

Restrictions: Eligible activities include any physical components of strategies, programs,


and/or projects which strengthen and/or improve the neighborhoods of Saint
Paul. Capital improvements must have an expected life of seven years.
Examples of eligible activities include: Improvements of residential, commercial
and industrial property; Economic development efforts; and Minor public
improvements

STAR funds must be matched on a 1:1 basis with eligible resources.

Application Cycle: Funds are awarded annually through a separate competitive application
processes. One process is held for small grants, and one for large grants and
loan/grant combinations. Applications for both are online.

Contact Information: (651) 266-STAR, or E-mail:

bob.hammer@ci.stpaul.mn.us
michele.swanson@ci.stpaul.mn.us

Notes:

Mixed-use Development: Issues and Best Practices Page 83


Funding Source: Fannie Mae

Funding Program: American Communities Fund

Source Type: Private

Description: Equity and debt investments to for- or non-profit sponsors for rental housing,
homeownership, mixed-use, commercial, retail, and other facilities that support
residential communities. Also provides historic tax credits to
developments with at least a $2M tax credit.

Type of Financing: Equity


Short term to loans

Eligible Applicants: For profit and non profit developers.

Amount: ACF invests up to 80 percent of required equity. Equity investments generally


exceed $1M.

Restrictions: ACF invests in the construction and/or renovation of for sale, rental and mixed
use developments

Limitations on commercial/retail portion of a project: ACF will fund the


commercial part of mixed-use developments when there is a significant amount
of housing; ACF will fund solely commercial projects if they are specifically
neighborhood-serving and support surrounding housing.

ACF requires development partners to provide a 20 percent co-investment of


the required equity. ACF return requirements are commensurate with the total
projected equity returns for the development. Hold periods are typically 5-7
years (ACF requires a defined exit strategy).

Application Cycle: On-going. Contact regional office.

Contact Information: Midwestern Regional Office (312) 368-6288

www.efanniemae.com/hcd/comm_invest/acf/acf.html

Notes:

Mixed-use Development: Issues and Best Practices Page 84


Funding Source: Ford Foundation

Funding Program: Asset Building and Community Development

Source Type: Private -- Foundation

Description: Provides grants in Economic Development and Community and Resource


Development. Program Related Investments are made within the Economic
Development Unit. They are usually loans, but may be loan guarantees or
equity investments.

Type of Financing: Loans, Grants

Eligible Applicants: Non-profit organizations

Amount: PRIs commonly range between $1 million and $2 million. They are
competitive.

Restrictions: Visit website for further information.

Application Cycle: Visit website for further information.

Contact Information: www.fordfound.org

Notes: Ford Foundation funding is very competitive.

Mixed-use Development: Issues and Best Practices Page 85


Funding Source: Kresge Foundation

Funding Program: Bricks and Mortar Grants

Source Type: Private Foundation

Description: Provides challenge grants for capital campaigns. Eligible projects include
construction, renovation, purchase of major equipment, or purchase of real
estate. Relevant project areas include health care and long-term care, human
services, and public affairs.

Type of Financing: Grants

Eligible Applicants: Non profit organizations

Amount: Competitive proposals range from one-fifth to one-third of the cost of the
project. Recent grants have ranged between $150,000 and $600,000. Grants are
considered "challenge" for additional fundraising.

Restrictions: Projects are only eligible for funding once they have raised a certain amount.
See web site for proposal requirements.

Application Cycle:

Contact Information: 3215 W. Big Weaver Road, PO Box 3151


Troy, MI 48007-3151
Ph: 248-643-9630; F: 248-643-0588
www.kresge.org

Notes:

Mixed-use Development: Issues and Best Practices Page 86


Funding Source: National Cooperative Bank Development Corporation (NCBDC)

Funding Program: Community Development Loans

Source Type: Private

Description: Provides a range of financing tools to CDCs and CDFIs for commercial real
estate, small business development, community facilities, charter schools, and
affordable housing projects. Products include permanent loans, acquisition and
rehab loans, new construction loans, and lines of credit.

Type of Financing: Loans

Eligible Applicants: Cooperatives and other community-based non-profit organizations and their
for-profit affiliates.

Amount:

Restrictions: Terms vary for each product and for each funding request, depending on the
risk, size, and nature of the request.

Application Cycle: Ongoing. Contact representative.

Contact Information: Main Office


1725 Eye St., NW, Suite 600
Washington, DC 20006
Ph: (202) 336-7690; Fax: (202) 336-7804

Midwest Office
400 Selby Avenue, Suite Y
St. Paul, MN 55102
651-298-8268
651-298-8269 fax
www.ncbdc.org

Notes:

Mixed-use Development: Issues and Best Practices Page 87


Funding Source: National Council of La Raza – Raza Development Fund

Funding Program: The Hope Fund

Source Type: Private

Description: Provides low-interest loans for projects in Hispanic neighborhoods that include
housing as well as community facilities (charter schools, health centers), child
care, and nonprofit space. Also provides operating and acquisition lines of
credit.

Type of Financing: Loan

Eligible Applicants: Applicant organization must be a NCLR affiliate or be a Latino organization


that, in the future, may seek affiliation.

Amount:

Restrictions:

Application Cycle:

Contact Information: 111 West Monroe, Suite 1610


Phoenix, AZ 85003
Ph: 602-417-1401
www.nclr.org

Notes:

Mixed-use Development: Issues and Best Practices Page 88


Funding Source: Otto Bremer Foundation

Funding Program:

Source Type: Private Foundation

Description: The Otto Bremer Foundation accepts grant applications for the following
purposes:
• General operations
• Program or project development
• Organizational development
• Capital: building and/or equipment
• Challenge/matching grants
• Program Related Investments (PRIs)
For applicants requesting Foundation funding, asking and addressing the
question of how their proposals promote human rights is a consideration in the
grantmaking process.

The Foundation is supportive of organizations that have an impact on the future


well-being of their communities and address systemic change.
The Foundation works to insure that the impact of its funding results in all
people fully participating in community life.

Type of Financing: Grants and Loans (PRIs)

Eligible Applicants: Grants are restricted to private nonprofit or public tax exempt organizations for
purposes defined under section 501(c)(3) of the Internal Revenue Code.

Amount:

Restrictions:

Application Cycle: Applications are accepted at any time during the year; there are no deadlines.

Contact Information: Send Requests or Inquiries to:

Otto Bremer Foundation


445 Minnesota Street, Suite 2000
St. Paul, MN 55101-2107

phone (651) 227-8036


toll free number (888) 291-1123
fax (651) 312-3665
email: obf@bremer.com

Mixed-use Development: Issues and Best Practices Page 89


Funding Source: Calvert Foundation

Funding Program:

Source Type: Private Foundation

Description: Provides loan capital to community development organizations and other


community development financial institutions. Projects must contribute to
growing the local economy, expanding opportunity, or promoting work-related
activities, homeownership, and non-traditional business owners. The focus is on
low income communities.

Type of Financing: Loan (4.5%; 1-5 year term; semi-annual interest only payments).

Eligible Applicants: Community development corporations and other community development


financial institutions.

Amount: $50-$750,000

Restrictions: Organizations must demonstrate a 3 year track record and have a minimum of
$500,000 in assets. Loan amounts are restricted to 10% of total assets.

Application Cycle: Applications are accepted throughout the year; funding decisions made
quarterly.

Contact Information: Lori Scott


Investment Officer
(301) 961-4774
foundation@calvert.com
www.calvertfoundation.org

Notes:

Mixed-use Development: Issues and Best Practices Page 90


Funding Source: The McKnight Foundation

Funding Program:

Source Type: Private Foundation

Description: The McKnight Foundation uses its resources to create supportive communities
to share responsibility for children and families, and strengthen the Twin Cities
region so that it remains a good place to live.

Type of Financing: Grants

Eligible Applicants:

Amount:

Restrictions:

Application Cycle:

Contact Information: 710 Second Street South, Suite 400


Minneapolis, MN 55401
Phone: 612-333-4220; Fax: 612-332-3833
www.mcknight.org

Mixed-use Development: Issues and Best Practices Page 91


Funding Source: Minneapolis Empowerment Zone

Funding Program:

Source Type: Federal (administered locally)

Description: The Empowerment Zone (EZ) program is a holistic ten-year federal economic
development initiative for America’s inner cities. The mission of the
Minneapolis Empowerment Zone is to create healthy and sustainable
communities through economic development strategies and service links in the
most economically distressed areas of Minneapolis. The Minneapolis EZ makes
grants and loans in a specific, geographically defined target area to economic
development projects, affordable housing projects, community based services,
and crime reduction initiatives.

The Empowerment Zone makes loans and grants in five general areas:
community-based services, safety, economic development, education, and/or
housing.

Type of Financing: Grants and loans.

Eligible Applicants: Only projects within the designated Empowerment Zone boundaries are eligible
for Empowerment Zone funding. Visit the Empowerment Zone website to see
boundaries and for further information.

Amount:

Restrictions: EZ funds may be used flexibly. Contact the EZ directly.

Application Cycle: The Request for Proposals (RFP) process will be the primary access point to
Minneapolis Empowerment Zone (EZ) funds. To ensure that you are on the list
to receive notice of RFPs please contact the EZ office at their website
empowerment@ci.minneapolis.mn.us and indicate which type of RFP
application(s) you would be interested in receiving in the future [community-
based services, safety, economic development, education, and/or housing].

Contact Information: Mr. Kim Havey


105 5th Ave, Suite #200
Minneapolis, MN 55401
(612) 673-5016
empowerment@ci.minneapolis.mn.us
www.ci.minneapolis.mn.us/ez

Notes:

Mixed-use Development: Issues and Best Practices Page 92


IV. Brownfield Remediation Sources

Per a 1997 Legislative order, the Minnesota Pollution Control Agency, Department of Commerce,
Department of Agriculture, Department of Revenue and the Metropolitan Council have coordinated their
various programs regarding the assessment, cleanup and redevelopment at contaminated sites in
Minnesota.

The MPCA is a good first contact for information regarding programs and funding sources for
environmental remediation.

Contact information:
The Minnesota Pollution Control Agency (MPCA)
520 Lafayette Road
St. Paul, MN 55155-4194
Phone: 651-296-6300
http://www.pca.state.mn.us

Voluntary Investigation and Cleanup (VIC) Program


The MPCA Voluntary Investigation and Cleanup (VIC) Program is involved with many sites that are
considered brownfields. The VIC Program provides technical assistance, as well as administrative and
legal assurances to parties who want to investigate, clean up and return contaminated properties to
productive use. For more information, contact Jeanne Philipsen at 651-296-7291.

Voluntary Petroleum Investigation and Cleanup (VPIC) Program


The MPCA Voluntary Petroleum Investigation and Cleanup (VPIC) Program provides technical
assistance and liability protection to facilitate petroleum-contamination investigations and cleanups,
property transfers and development of brownfield sites where the contamination is limited to petroleum
compounds. For more information, contact Mark Koplitz, 651-296-7999.

Mixed-use Development: Issues and Best Practices Page 93


Funding Source: Department of Housing and Urban Development

Funding Program: Brownfields Economic Development Initiative (BEDI)

Source Type: Federal

Description: Competitive grants to local governments to reduce debt service with Section 108
loans early in the process of restoring abandoned industrial sites. Used for the
same project as the 108 loan, or to improve the viability of that project.

Type of Financing: Grant

Eligible Applicants: Municipalities

Amount: Maximum grant is $2 million

Restrictions: BEDI must be accompanied by a Section 108 loan.

Application Cycle: Apply through HUD Super NOFA. Proposals are submitted through HUD field
office. (typically early summer deadline).

Contact Information: MN Field Office


920 2nd Ave South
MPLS, MN 55402
(612) 370-3000

www.hud.gov/cpd/oed/programs.html
Notes:

Mixed-use Development: Issues and Best Practices Page 94


Funding Source: Minnesota Environmental Initiative

Funding Program: Resources for Redevelopment (R4R) Program:

Source Type:

Description: R4R develops and implements innovative noncommercial brownfields projects


by pulling together public and private resources to investigate properties that
have suspected environmental contamination. R4R splits the payment of the
hard costs for environmental site investigations with its nonprofit partner or a
private funder willing to match the R4R contribution (up to $5,000 per site
investigation plus the cost of project oversight). R4R will cover hard costs of
Phase I and/or Phase II environmental investigations and the costs of obtaining
written liability assurances when necessary.

Type of Financing: Grant

Eligible Applicants: Non-profit organizations

Amount: Up to $5,000

Restrictions: The funds are restricted to site which are being developed into facilities or
amenities for use by a non-profit entity.

Application Cycle:

Contact Information: www.mn-ei.org


Contact: Michael Welch
(651) 334-3388
Notes:

Mixed-use Development: Issues and Best Practices Page 95


Funding Source: Environmental Protection Agency

Funding Program: Brownfield Assessment Demonstration Pilots

Source Type:

Description: Provides funds for states, communities and other stakeholders to prevent, assess,
safely clean up and sustainably reuse brownfields.

Type of Financing: Grant

Eligible Applicants: Grants go to governmental entities but CDCs can receive direct contractor
services for Phase 1 and 2 environmental assessments project must have are-use
for community benefit.

Amount: Up to $200,000 per grant over 2 years.

Restrictions: Assessment grants provide funding for a grant recipient to inventory,


characterize, assess, and conduct planning and community involvement related
to brownfield sites. Revolving Loan Fund grants provide funding for a grant
recipient to capitalize a revolving loan fund and to provide subgrants to carry out
cleanup activities at brownfields sites. Cleanup grants provide funding for a
grant recipient to carry out cleanup activities at brownfield site.

Application Cycle: EPA brownfields grants will be selected on a competitive basis using a two-step
proposal selection process. Check website for timeline.

Contact Information: www.epa.gov/swerosps/bf/pilot.htm#assess

Notes:

Mixed-use Development: Issues and Best Practices Page 96


Funding Source: Minnesota Department of Trade and Economic Development
(DTED)

Funding Program: Contamination Cleanup and Investigation Grant Program

Source Type: State

Description: The Department of Trade and Economic Development can award grants to
development authorities for contamination investigations and the development
of a Response Action Plans (RAPs) or for the cleanup of contamination
prescribed in an Minnesota Pollution Control Agency (MPCA) approved RAP
on a site that will be redeveloped. In both cases, grants are awarded to those
sites where there is a planned redevelopment intention.

Type of Financing: Grants

Eligible Applicants: Cites, housing and redevelopment authorities, economic development


authorities or counties.

Amount:

Restrictions: Cleanup Grant applicants must have a MPCA approved RAP and must meet a
pre-cleanup land appraisal vs. cleanup cost criteria. Both applicants require a
25% match and the serious expectation that the site will be redeveloped.

Both publicly and privately owned sites qualify for this program.

Investigation and RAP development grants pay for the part of the costs of a
Phase I, Phase II investigation and/or PAP preparation. Contamination Cleanup
grants pay for part of the costs of cleaning up contaminants (defined under M.S.
115B.02) or cleaning up petroleum contamination that is not eligible for the
Minnesota Petrofund.

Application Cycle: Ongoing

Contact Information: Minnesota Department of Trade and Economic Development


Brownfields and Community Assistance Unit
651-296-5005

www.dted.state.mn.us/02x01x01.asp

Mixed-use Development: Issues and Best Practices Page 97