The Mixed-Use Opportunity September 28, 2018 Marc DeLuca The live, work and play lifestyle movement is growing by massive proportions and is especially prevalent in suburban mixed-use communities. Single-use developments have their place within the market, but mixed-use projects offer a completely different experience. And keep in mind, mixed-use doesn’t necessarily mean a multi-acre development—it can be as simple as a purposeful multi-use office building with on-site retail and dining options proximate to quality housing and transit. Why mixed-use? There’s Opportunity Mixed-use communities add a tremendous amount of value and generate new opportunities across all sectors. As more professionals head to the suburbs where the cost of living is less, employers are following suit. Enter developers and commercial real estate investors eager to capitalize on demand for creative mixed-use and other amenities. This multi-industry cycle expansion pumps dollars directly into the local economy, which has a positive ripple effect on the macro market. Property values increase and most asset classes can command higher rents. In fact, Class A office space in mixed-use communities tend to lease at higher rates than single-use assets because employers are investing in their business by investing in their employees. And trends show that employees want that live, work and play lifestyle. In the same vein, office building retail and dining tenants validate higher premiums because they have a captive audience just a few floors up, in addition to street-level foot traffic. Catalyst for Change Mixed-use offerings work together to curate a sustainable micro economy that has the capacity to change entire neighborhoods. We are seeing an influx of reuse and historic mixed-use projects taking shape across the country, transforming archaic structures into dynamic and vibrant communities with office, retail, dining and residential space. These assets are unique, preserving much of a building’s historic attributes to create an architecturally interesting project that is modern and purposeful, but serves as the catalyst to an entire neighborhood revitalization. In Portland, OR, KBS is busy with its own historic mixed-use project. In 2016, it acquired the basement levels and floors one through five of the historic Meier & Frank Building, a 16-story structure that encompasses an entire city block directly across the street from Pioneer Square. KBS is converting the space into high-end office and retail space that appeals to the urban nodes of the Portland market. The Nines Hotel (not part of the acquisition) occupies the remaining top floors. It is a Lifestyle Thing Mixed-use projects are like mini-cities that create that urban feel without the downtown price tags, traffic or congestion. Beyond that, it is a lifestyle. KBS has deep roots in North Hills, a premier urban mixed-use development in downtown Raleigh, NC that offers a highly sought-after live, work, shop, play and stay lifestyle. Spanning more than 100 acres, residents have access to stores, restaurants, entertainment, office space, residential living, hotel accommodations and retirement community—satisfying almost every want and need. There KBS has been working on the Park Central Apartments project, a prized Class A multi-family complex with approximately 36,400 square feet of street-level retail space. The contemporary architectural design, luxury finishes and prime location of this particular asset has a certain cool factor that sets it apart from the rest of the market. The sense of ‘lifestyle’ is also becoming more apparent in the office where employers are emphasizing more on corporate culture to attract and retain workers. Professionals want to enjoy a culinary experience during lunch, maintain their health at the gym, and then relax with friends and family after a busy day at work. KBS’ CapTrust Tower—also in North Hills—gives professionals access to retail and restaurants on the ground floor, nearby fitness centers, farmers markets and more. Just a stone throw’s away, KBS also owns the Bank of America Tower (Tower Two at North Hills), one of the tallest buildings in Midtown Raleigh. These two office buildings are high in demand because tenants benefit tremendously from the sprawling North Hills mixed-used development. KBS was also pleased with its recent development of Midtown Plaza in the heart of North Hills. The 328,613-square-foot 12-story office tower was completed in 2017 and achieved a 100% occupancy level. KBS sold the property in February 2018. Mixed-use is certainly not a new trend, but it is a growing one. Coupled with rising transportation costs, increased digital connectivity, greater importance on “quality of life”—we expect to see mixed-use office in amenity-rich environments to become a gold standard of the future. Marc DeLuca is Regional President overseeing the Eastern U.S. As regional president for KBS, Mr. DeLuca is responsible for all acquisitions, dispositions and asset management activities in the Northeast, Mid-Atlantic, Southeast and Ohio. Mr. DeLuca is also chairman of the KBS Investment Committee that meets regularly to review and approve all new investments for the firm.