Pandemic Puts at Risk Thriving Model of Real Estate

Real estate investment and blockchain technology

“Is water wet?” was Will Gilson’s blunt question when asked whether opening three restaurants amid a pandemic is particularly challenging.

But the restaurateur is also optimistic because Cambridge Crossing, a 4.5 million-square-foot mixed-use development near Boston, is slated to open this fall. He sees the scale and position of the complex as boons for his business, whatever happens.

Mixed-use developments over the last few decades have become a symbol of the urban revival of the world. Built with an ecosystem of residences, offices, plazas, hotels, shops and restaurants, they are often thriving complexes. Developers like them for the scope, and business owners like them for the density of people that is constant.

In some cases, these projects have transformed entire areas: 28-acres of Hudson Yards over an old train yard have brought new life to an underused corner of Manhattan, and Florida’s 56-acre Water Street Tampa will connect the downtown to its waterfront. They have generally helped to define the live-work-play ethos many younger professionals seek in cities.

But in those developments, the coronavirus threatens to upset the allure of retail and restaurants. Safety concerns and a changing patchwork of regulations related to state and local levels of virus defense have led developers to rethink the layouts and designs of such areas. Ideas coming into the forefront could be around for years, or at the first sign of a coronavirus vaccine they could start to fade away.

Without all the components in order, beginning a mixed-use project can be difficult, and the confusion of how to continue leaves hands of developers tied. They can’t pitch the office or residential space until retailers and restaurants line up. And because some companies are having trouble paying rent in the pandemic, developers are being forced to look at other ways of collecting payment, including a model that bases rent on sales alone, isolating the tenant more from downturns.

But developers agree that security measures are necessary if projects are to retain the lower-level shops and restaurants that help attract people to the top of offices, hotels and residences.

According to Les Hiscoe, chief executive of Shawmut Design and Construction, a Boston company that works with retailers and restaurateurs, the return to normal will not come simply by limiting crowd sizes that will not be possible for shops and restaurants that already survive on a slim profit.

Developers and designers are mulling interior and exterior changes to address this challenge that could drastically repurpose space, a revision that will require both customers and merchants to re-adjust their experiences and expectations. For example, behind-the-scenes work will now take over a lot of space once used for sales or dining as vendors continue to shift to more takeout and pickup service.

Lauren Chipman, CEO of Chipman Design Architecture in Des Plaines, Illinois believes that what they have seen with their customers in the past is that they really want to maximize the front of the house. That really needs to change, according to her and believes that what we’re going to see is some of the front-of-house operations recaptured.

Some restaurants in mixed-use developments could embrace the concept of the ghost kitchen and fully switch to takeout and delivery.

Less drastically, safe operation could focus on controlling the flow of customers who go inside. Architects and contractors say they have received graphics and other signage requests from customers to guide people through stores and restaurants so they don’t bunch up or run into each other.

There is also increasing demand for motion-enabled technology in a variety of areas, including toilets and sinks in bathrooms, doors, checkout counters, clothes racks, and elevators.

Many mixed-use developments already have the infrastructure in place for such a shift away from contact, according to Webber Hudson, the lead developer on Hudson Yards, an executive vice president at the Related Cos. Originally intended for heating, cooling, and odor control, air filtration systems can be used to combat pathogens.

Hand sanitizer will be omnipresent, merchandise will be spread further apart, and material that is considered to be a possible short-term coronavirus hosts, such as marketing placards and sometimes seen bric-a-brac at checkouts, will go out.

But Hiscoe warned that demand for these technologies and materials might lead to a shortage of supplies. It’ll come down to a rivalry of who’s the cleanest and who gives the customer the most confidence to buy there on the basis of the best mitigation strategies.

Then there are the changes that will be invented on the go, including those related to modular construction, pop-up stores, ghost kitchens and various ways to recirculate air, according to Duncan Paterson, a Los Angeles principal at the Gensler architecture firm.

Such safety features could also have staying power.

The challenges faced by retailers and restaurateurs have put the sneeze guard to mind, Daniel L. Tessarolo, Chipman Design Architecture’s chief operating officer believes. According to Smithsonian Magazine, the plastic dividers which now ubiquitously cover buffets and salad bars evolved out of a single chain in Ohio and Pennsylvania when increasing ranks of self-service restaurants in the country were trying to protect food from the germs of customers.

Plans for reopening companies could also be a measure of the durability of the US mixed-use concept, which was late to adopting more complexes than cities in Europe and Asia, according to Paterson. But the mixed-use projects can be strongly positioned with their complementary parts and urban locations.

Gilson said that by relying on condo and apartment dwellers, his restaurants in Cambridge Crossing could survive lost foot traffic from a reduced bureau population.

With mixed use, you will be adaptable even though there is a decline in the workforce. Even though remote work is common, the tenants of the office do not go away entirely.

For business owners like Gilson the stakes are high. The pandemic has spurred job losses for the retail and food service industries and reached record highs. Nearly 1.9 million Americans filed new claims for state unemployment benefits in the week ending May 30, the Labor Department reported on Thursday; the total number of State benefits collected increased to 21.5 million seasonally adjusted.

So it’s not uncommon for developers to advertise the retailers and restaurateurs they’ve rented space to prior to an opening, and even those they could buy, because those tenants help attract customers and other businesses.

For starters, the proposal to rebuild the former headquarters of the Boston Globe has encouraged the possibility of a brewery and beer garden. A housing-office-retail hybrid in the Miami area, the Plaza at Coral Gables, features a 30,000-square-foot entertainment center with bowling lanes and bocce courts. And Fifth & Broadway which is one of the largest recent developments in Nashville is expected to feature an Apple store.

Developers and owners then need to find a way to retain attractions such as ease of pandemic-related restrictions, according to Phil Colicchio, executive managing director at Cushman & Wakefield, a brokerage company specializing in advising independent restaurants.

Because there is nothing as the alternative, Colicchio thinks. The alternative is that of a ghost city.
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