Evolution of the ‘Burbs

Despite a growing urban population, suburbia still serves a purpose.

Mosaic Target

For the first time in a century, urban populations are growing at a faster rate than those in the surrounding suburbs. Indeed, the downtown job markets have weathered the recession better than their suburban counterparts, and demographics from both ends of the age spectrum have been demanding high-density, walkable lifestyles with easy access to transportation.

Development has thus been shifting back toward the urban cores, as commercial builders and owners have raced to fill the need, leaving the outdated surburbs behind.

The suburbs do still have a purpose. Families with school-age children often prefer a less urban lifestyle, and some seniors that have long lived there prefer to age in place. But as the world changes, they will need to attract a wider base of residents and businesses to survive. Yet the lack of convenience that characterizes these spread-out, automobile-oriented areas is working against them, and only those with an ability to reshape themselves have a true chance for growth.

“Today’s suburbs have an oversupply of large-lot housing that was built for mom, dad, two kids and the dog,” observed Ed McMahon, senior resident fellow and the Charles E. Fraser chair for sustainable development and environmental policy at the Urban Land Institute. “There is an undersupply of multi-family, small-lot housing and mixed-use development for the 78 percent of households who do not have school-age children.”

A large portion of suburban retail is out of date for the times, as well. For the past 20 years, developers have built retail space at a pace about five times faster than same-store sales. If there is anything that the recession has taught retail developers, it is that markets are overstored. This is particularly true in the suburbs, where there are more than 1 billion square feet of vacant retail space, mostly of the big-box, strip center variety. McMahon and a growing cohort of urban designers and developers believe that the largest retail trend of the next generation will be the conversion of dead or dying strip and mall settings into walkable urban places.

Consider that only one new enclosed mall has been built in the United States since 2006. The same time period has witnessed more than 200 mixed-use suburban town centers take shape. If one takes a step back and thinks about the defining characteristics of the major retail model in America, “ugly” and “congested” are two of the first words that come to mind. But the out-of-date retail assets represent an opportunity when their location is combined with the demand for denser, transit-oriented living.

“We have lots of flat, large, well-drained sites with major infrastructure in place,” McMahon noted. “If you develop there, you save rural land and you can turn a NIMBY into a YIMBY. The one thing we have learned when people say that they hate sprawl, it is not that they hate subdivisions or housing, it is that they hate these commercial corridors.”

Refining,  Rebuilding
But not every underutilized retail asset is equal when it comes to its potential for the next urban node. In order to understand where and how to build the next mixed-use masterpiece, it makes sense to examine the evolution of suburbs. While some suburbs have their roots in the 19th century, the suburbs we typically refer to in the U.S. were built after World War II.

“Suburbanization was happening as a way to access the American dream in many respects,” said Ellen Dunham-Jones, AIA, board chair of the Congress for the New Urbanism and professor of Architecture and Urban Design at Georgia Tech. “In the early ’70s, you got a lot of white flight adding to movement, and offices, malls and jobs were increasingly leaving the cities. Retail followed the rooftops, which continues to be the trend.”

Newer suburbs began to leapfrog over the inner rings. Each generation of new stock got an initial bump by stealing market share away from the older areas. In her co-authored book Retroffiting Suburbia, Dunham-Jones argued that the leapfrogging pattern has ultimately given the earliest suburban rings something of incredible value: a relatively central location in the now expanded metro area. Gas prices and the movement of jobs back toward city centers have made this trend all the more potent.

“The fact is that these areas have been leapfrogged so much that they now have the central location. They now have the opportunity to remake themselves into not just a bedroom community—or not just a community with bedrooms over there, an office park over here, a mall over there—they can actually become something more urban.”

The first generation of these suburban retrofits largely comprised developer-led endeavors. When the recession hit in 2008, most of the developers were knocked out of the game, yielding a second generation of projects that were publicly led. During the prior boom years, the public sector was mostly in a reactive mode and did not always consider the bigger picture when it came to development. The recession allowed municipalities to take a breath and become more proactive, asking their communities about the kind of growth they wanted and what type of zoning was needed to focus the density where it made the most sense. Some of the most successful projects have been occurring in areas that have shed their isolating Euclidean zoning codes in favor of form-based codes that focus on controlling the physical form of the built space rather than the type of land use.

“With a form-based code, you are letting developers know that if you give us a proposal that meets the massing as it’s described in the master plan, we don’t even have to go up for a community vote. If it meets the code, here is your permit. It gives predictability and knocks off at least a year of taxes paid sitting on an unbuilt property,” explained Dunham-Jones.

She added that we are now in the midst of a third generation of suburban retrofits that involves some very savvy public-private partnerships that are structured to meet specific needs of the parties involved.

“What is surprising to me is how every single development is such a custom deal. Sure, you do see a lot of deals involving tax increment financing (TIF) and payment in lieu of taxes (PILT), but then you have some quirky ones.”
For example, many surban redevelopments involve laying down a new street grid over a superblock, which are much larger than traditional blocks and feature greater setback for buildings. Sometimes the new streets become public property—and sometimes they do not. Dunham-Jones cited the example of University Town Center, a 56-acre mixed-use project in Prince George’s County, Md., where the developer, Herschel Blumberg, felt he could do a better job maintaining streets than the county. But Blumberg wanted the police to patrol, so he worked out a deal in which the city received parking meter revenue in exchange for policing. In another interesting deal structure, Continuum Partners reinvented a 104-acre mall superblock in Thornton, Colo., as 22 blocks of retail, office, residential and green space.

Continuum paid for almost all of the infrastructure improvements, and in return got to keep a percentage of sales tax raised on the site until the investment was paid off.

While local governments are more than ready to stimulate new corridors and increase tax revenues, NIMBY sentiments can be a problem, especially given infill development’s tendency to introduce new land uses. Both Dunham-Jones and McMahon believe that the best way to ease fear about these types of large-scale projects is to show off the magic of a well-done urban node in a suburban setting.

“The old expression is that a picture is worth 1,000 words. Well, a real project is worth 1,000 pictures. One thing that has started to happen—and I have led some myself—is that a group of local officials, builders and citizen activists will visit another city where they have already done a walkable, high-density, mixed-use project and kick the tires on it. They go back feeling much more comfortable with the concept after seeing it in person.”

Guidance from the Capital
The best place to visit on a tour of the future suburbs? Washington, D.C., which offers perhaps the greatest number of walkable urban pockets in its suburbs. Part of their prevalence is due to the maturity of those suburbs and the strength that the various county governments wield. A community of open-minded and collaborative developers also plays a role. But as with many facets of real estate, it all comes back to what the market demands.

“My hypothesis here is that this development activity is being driven by the knowledge community, the creative class. Knowledge economy workers demand, for the most part, walkable urban places,” said Chris Leinberger, Charles Bendit distinguished scholar and research professor in George Washington University’s School of Business.

For the last half century, Washington has enjoyed the most educated workforce in the country. Right now, 48 percent of Washingtonians over the age of 25 have at least a bachelors degree, versus a nationwide figure of 30 percent. Leinberger, who is also a nonresident senior fellow at the Brookings Institute and president of LOCUS, a coalition of developers and investors advocating for walkable urban development, has found the Washington area to be the most walkable in the country. Interestingly enough, the next five highly educated areas—Boston, Denver, Portland, Seattle and San Francisco—are also the next five most walkable places, according to his Brookings research. He says cities that want to land a highly educated population need to examine their urban design policies.

“Ideally, the Memphises of the world begin to build walkable urban places. If they don’t build them, they will never get the creative class. It is a mandate that if you don’t offer what the market demands, what the creative class wants, they aren’t coming.”

Leinberger’s research suggests that sprawl is coming to an end in certain metropolitan areas. He recently partnered with Dunham-Jones and Georgia Tech on a research project examining the rise of walkable environments in Atlanta, which at one point was the poster child of sprawl. In the 1990s, only 13 percent of the city’s development took place in walkable urban spaces. In the 2000s, that number rose to 26 percent. In today’s real estate cycle, Atlanta has seen 60 percent of its development, or 36 walkable urban places, erected on just 0.88 percent of the built landmass. On a national level, Leinberger is reaching the conclusion that 80 percent of all future development is going to be located in less than 10 percent of the built environment.

“So you better figure out where that 10 percent is. You don’t want to build in the 90 percent. That strategy of going out and buying farmland is over. Fringe development has collapsed. If you are out there, drop all your options or sell whatever you have to a greater fool,” he observed.

In Washington, D.C., part of that 10 percent sweet spot is centered along where the Metro stations meet underutilized commercial corridors known for strip retail, malls and small office parks—places like North Bethesda along the Rockville Pike in Montgomery County, Md., where The JBG Cos. is focused on adding amenities around its existing office product. In 2010, the firm completed the first phase of a mixed-use project known as North Bethesda Market that brought the tallest building to Montgomery County. The project, which is located two blocks from the White Flint Metro station, transformed a parking lot and retail strip into 411 luxury apartments and 200,000 square feet of retail anchored by Whole Foods. The second phase is currently under construction and is set to bring in another 400 units, 120,000 square feet of retail and 150,000 square feet of office space.

“Fifteen years ago, when we first started focusing a little bit on adding these amenities, the zoning didn’t allow it,” said Rod Lawrence, principal at JBG. “A lot of suburban areas still have Euclidean zoning in place that separates the uses, and what we were trying to do was technically illegal. That was the first hurdle we faced. The second was infrastructure. Trying to build a walkable, pedestrian-friendly network to better access the transit and connect the amenities was a huge challenge.”

New Generation
JBG is building another transit-oriented mixed-use development about 10 miles southwest in Fairfax County, Va. Known as Tysons West, at full build-out the property will feature 250,000 square feet of retail, 400,000 square feet of office space, 700 apartment units and nine public spaces. The project is strategically located steps from the Spring Hill Station of the new 28-mile Silver Line Metro that is scheduled to open in 2014. The site was the former home of the Moore Cadillac/Hummer dealership, and JBG re-used and repurposed a parking garage as retail space. An urban-style Walmart was the first retail tenant to open its doors this past April.

“These projects aren’t like the projects of the past,” Lawrence said. “Developers used to go into a suburban area and build something knowing it would have a negative impact, trying to minimize the effects by saying that traffic isn’t going to be that bad, and that they are going to generate all this tax revenue. In reality, the assets became a burden on the community. But today, this new generation of projects is beneficial, and people are starting to understand that more and more as they look at the data and standing examples.”

Another stunning illustration of the redevelopment of an underutilized suburban D.C. property can be found just five miles south of Tysons West in Fairfax, Va., where Edens has undertaken the largest project in its history with Mosaic District, a 1.9 million-square-foot, LEED for Neighborhood Development Pilot Project. The walkable infill asset was built on the site of a former Cineplex, United Rentals and a series of small parcels that fronted an alley. Today, there are 500,000 square feet of retail, 112 LEED-certified townhomes, a 148-room hotel, 73,000 square feet of office space, two multi-family assets (one by AvalonBay Communities that is in lease-up, another by Mill Creek Residential Trust that just broke ground) with a combined 1,000 units and an Angelika Film Center. The retail portion is anchored by a Target that rests above two levels of parking that sit above a series of ground-floor shops. Each component was meticulously selected to create a unique space catering to a specific demographic.

“We were dealing with one of the most highly educated, well-traveled demographics in the country,” explained Steve Boyle, a managing director at Edens. “Offering a theater that catered to a more intellectually sophisticated palate with less mainstream content was something we felt the area was ripe for.”
With shops featuring a trendy lineup of local retailers, Edens sought to merchandize the office space for a hipper demographic. While Boyle said the office brokers looked at his team like they “were pure retail idiots,” Edens recently signed a 58,000-square-foot office lease with tech/apparel company CustomInk.

Edens approached the hospitality component with a like-minded thought process, selecting boutique developer LodgeWorks for the site. LodgeWorks ended up selling the hotel to Hyatt while it was under construction in a deal that speaks to the draw of the area.

“We designed this place for the community—not for the retailers, not as a typical developer would. We had an eye on it being a place for the community to come adopt and take on as their own,” Boyle explained.

Part of the community’s embrace of Mosaic District results from the inclusion of a one-acre programmed park at the base of the theater. According to William Caldwell, AIA, a managing director at Edens, open public space is a must-have for any suburban infill project. He also says there is no such thing as too much attention to detail when working on design. Edens employed five different architects at Mosaic District, so there were different hands working on all the buildings. This was one way to veer the development away from the trend of town centers that mimic 19th century styles.

“The ultimate goal was to create something authentic for the time, something that is organic and can embrace change,” Caldwell said. “We never saw this as a project. We see it as an urban development in a suburban area. At its core, we see it as building a new community.”

This story appeared in the November 2013 issue of Commercial Property Executive magazine.