MIXED-USE PROJECT DEVELOPMENT PROCESS:

FEATURES, PITFALLS AND COMPARISONS WITH SINGLE-USE

PROJECTS

Charles Y.J. Cheah and Kok Sang Tan

1 2

¹ Assistant Professor, School of Civil and Environmental Engineering, Nanyang Technological University, Singapore
² Quantity Surveyor, Shimizu Corporation, Singapore
Correspond to [email protected]

ABSTRACT: In many urban cities, mixed-use development is becoming increasingly essential for the creation of an
attractive and sustainable environment that promotes economic vitality, social equity and environmental quality. Due to
the differences in scale, scope and intent, certain aspects within the project delivery process of mixed-use are not the
same as “conventional” single-use projects. The objective of this paper is to highlight these aspects. Two cases in
Southeast Asia serve to illustrate the uniqueness and challenges of mixed-use. In conclusion, the differences between
mixed-use and single-use are evident in terms of the diversity of team members, the necessity of multiple market
analyses, and a multi-layer (versus singlesource) financing structure. Finally, issues concerning ownership tangles, land
assembly, planning and application procedures, investment criteria of institutions have been identified as major pitfalls.

Keywords: Feasibility study; Financing; Mixed-use development; Planning

1. INTRODUCTION either a planned community, or suggest what the Urban

Land Institute calls “multiuse projects” (several uses
In today’s urban and suburban development, mixed-use within one or more buildings) in inner core areas. Put
development schemes are often promoted as essential simply, the name of the game has to be synergy – all uses
towards the creation and preservation of an attractive and must function smoothly on an independent basis and in
sustainable living environment. Designers and developers conjunction with each other.
attribute the motivation behind such development Mixed-use development cannot be created or
schemes to the public’s desire for a community [1]. In conserved without special efforts from the participants
urban areas, the infill tends to be vertical, with retail, involved in the project development. Currently, those
office, and residential stacked to maximize density. In parties involved in this type of projects – developers,
suburban areas, broader and horizontal developments in investors, designers, constructors and tenants, commonly
the form of town centers and traditional neighborhood find mixed-use development more problematic and riskier
developments are flourishing. The propensity towards than conventional single-use projects. This perception is
adopting either a vertical or a horizon scheme also differs largely reasonable. A proper understanding of the role,
geographically. practice and concern of individual parties is essential
According to Bell [2], mixed-use development is towards successful realization of initially expected
gaining importance due to three primary reasons: benefits. For engineering and construction professionals,
·More public policies are pointing developers in that the increasing demand for integrated efforts among
direction: developers can gain an economic edge at the project team members and frequent emphasis on life
city level by taking advantage of existing cycle planning both add to the necessity to understand the
infrastructures and increasing densities. differences between mixed-use and singleuse
·There is a market demand for it: there are more and more developments.
indications that people feel a sense of vibrancy and Rightfully, a complete discussion on this topic should
community when they live in a mixed-use be structured along five phases: project initiation;
development. feasibility studies and financing; planning and design;
·People living in mixed-use developments have a definite construction; marketing and operational management.
transportation advantage: it saves on time if one work Due to limitation of space, only the first three phases are
near where he/she lives and has nearby access to addressed in more detail. Theoretical aspects are
amenities facilities. associated or compared with the actual happenings in two
When contemporary planners and designers speak of selected cases – the Kuala Lumpur City Centre in
mixeduse, they often do not advocate a jumble of uses. Malaysia and the Suntec City in Singapore. Practical
The proponents of contemporary mixed-use promote information of the two cases was collected through
interviews with personnel who were once involved in A mixed-use project on an 11.7-hectare site, this mega
these projects, in conjunction with secondary data development project comprises five blocks of office
obtained from Internet websites and news articles. space, (including one 18-storey and four 45-storey office
towers),
2. BACKGROUND OF CASE STUDIES the largest international exhibition and convention centre
in
2.1 Kuala Lumpur City Centre (KLCC), Malaysia Southeast Asia, Singapore's largest shopping and
KLCC is a master-planned, mixed-use development entertainment centre, a landmark fountain and other
occupying 40.5 hectares of prime land in the middle of amenities. Designed to be a “city within city”, Suntec
Malaysia’s capital city. The major landmark of the City's overall objective was to integrate various
project –the PETRONAS Twin Towers, serves as the development components into a logical city centre that
primary anchor of the development. The success of also connects and relates to adjacent developments and to
KLCC was seen from the outset to be of national interest. the larger Central Business District (CBD) of Singapore.
The owner and developer – KLCC Holdings Berhad The development sit is connected by both internal roads
(whose largest shareholder is PETRONAS, the national and perimeter highways. Pedestrians can reach the site
petroleum company), was responsible for the from the nearby subwaystation, link bridges, and
development and is currently still coordinating new underpasses to adjoiningdevelopments. Inspired by
projects undertaken directly or in joint venture with traditional Eastern symbolism,the design blends elements
others. The total area of KLCC will eventually be some from the ancient Chinese art ofplacement (otherwise
1.67 million m2. The development projects completed as known as “feng shui”).
of mid-2005 include the PETRONAS Twin Towers, the
Kuala Lumpur Convention Centre, Suria KLCC (a 2.3 Comments and Observations
shopping centre), two office towers, a 643-room five-star The KLCC development is clearly impressive and
hotel, a district cooling centre and a 20-hectare public proved to be a successful mixed-use development project.
park providing an ideal recreational venue. The effort made to achieve the end result of the initial
The total cost of developing the twin towers and its phase of the development was massive. The project
ssociated infrastructure alone was Ringgit Malaysia (RM) served a purpose greater than a typical mixed-use, high-
2.8 billion. This excludes the cost of Suria KLCC and the rise development – perhaps with an element of national
other buildings involved. The financing methods used ambition to make a mark on the world map. One could
were argue that whatever the additional cost born by the
primarily traditional ones. Initial site clearance and the developer – beyond what perhaps would not be spent by a
start “traditional” private developer – has to be chalked up to
of infrastructure development were funded by attain the greater good of the city and the country. Most
shareholders’ equity. Project finance and working capital of all, aside from the high standards it has established for
were drawn from financial institutions in the form of the real estate development community in the city along
loans. The twin towers were refinanced after completion. with the premium values it has been able to command,
The new facility consisted of a mix of mortgage-backed KLCC has also been a boon to nearby residential and
end-finance along with short, medium, and long-term commercial properties. Put differently, even if the project
bonds secured against PETRONAS’s long-term lease itself may not generate comparable returns compared to
commitment. “safer” conventional projects, it does generate some
KLCC is managed by a wholly owned subsidiary of the spillover benefits for adjacent properties due to its
developer. Property management is divided into several landmark characteristics. Thus, from the viewpoint of the
divisions to attend to various needs and uses. Numerous government and the public as a whole, some of the
third-party contractors provide maintenance and benefits recouped are indirect and cannot be quantified on
management services. The largest of these is the operator paper.
of the 30,000-ton chilled water plant (the District Cooling In the case of Suntec City, the key to the success
Centre), which combines natural gas-driven cogeneration proved
equipment with various forms of steam turbine-driven to be teamwork. Many different entities from several
chillers and electric chillers. A building control system countries were involved with the project, including
provides central management and monitoring for air investors, architects, general contractors, owners, tenants,
conditioning control, lighting control, electrical and managers, design and project consultants, and
chilled government agencies. In order to achieve a smooth
water status monitoring, and energy management completion of the project, extensive legal agreements
services. were required. As proven, a unique and high-quality
project increases value, and value supports price.
2.2 Suntec City, Singapore Nowadays, Suntec City has become one of the most
valuable office buildings in Singapore.
3. PROJECT INITIATION latter would bring prestige and marketing value to the
project.
Success in mixed-use development, more so than in The location of any development site fundamentally
most other types of development, requires a capable and affects the nature and success of the development. Most
diverse development team. According to research development approaches can be divided initially into two
conducted by the Royal Institute of Chartered Surveyors categories: the search for a use for a site, or the search for
[3], it is important for the development team not just to a site for a use. Mixed-use development, however, is not
include a right mix of development skills, but also to as simple, and both approaches can often play a role
engage all of that experience in the project early in the within the same project. A development entity, for
design phase so that the result is a strong mix of variety, example, might be predisposed to developing a mixed-use
vitality and visual interests. Depending on the scope and project, identifying a suitable site for such a development,
nature of the project, an architectural firm or a planning but be uncertain about the exact mix of uses. Thus, the
firm forms the core of the design team, with specialists initial assessment must be followed by a second analysis
added to the group as appropriate. Specialists are to determine what specific uses should be included
important even for a single-use project, but in a mixed- through a thorough market analysis for each contemplated
use development they are more critical, because it is very use.
difficult to find one firm capable of handling the detailed
design of all the various elements of the project. 4. FEASIBILITY STUDIES AND FINANCING
Especially in projects with numerous freestanding
components, it is common to have one planner/designer Once a site has been identified, concerns typically
to develop a general concept and land use plan and other begin to center on assessing multiple market potentials.
separate architects to design individual buildings. It is The process involves the use of statistical analysis and
also necessary to include market analysts, contractors, field research to determine supply and demand within
financial analysts, financial institutions, and property specific market areas. The market studies must also
managers as early as possible in the team. consider the market synergy resulting from a combination
In the case of the KLCC project, an international of complementary uses in a single development. After the
architectural competition was held and eight of the market analysis is complete, the developer would decide
world’s what portion of an unfulfilled or totally new market the
leading architects presented their design concepts. Cesar proposed development could actually capture. The
Pelli & Associates Architects was selected to design the developer can also determine where the cornerstone of
project’s first phase, including the PETRONAS the project is derived from. Next, the timing, phasing, and
headquarters, its adjacent tower and a shopping center land allocation are considered under the development
that was attached to the office towers. In this project, the implementation program and strategies [4].
developer had also set up an entire local architecture Although the PETRONAS Twin Towers often steal the
practice to advance the work from a local standpoint as limelight in terms of publicity, Suria KLCC, a highly
well as to facilitate transfer of knowledge and technology successful shopping center, was purposely planned and
during the development process. constructed at the same time as the twin towers. This
As for the Suntec City project, the challenge of facility features 338 department stores, shops, restaurants,
translating the vision for Suntec City into reality was and entertainment outlets within its net leasable area. In
delegated to a team of international consultants, who this case, Suria KLCC had been clearly identified by the
worked closely with a group of Singapore managers. The project developer as the cornerstone of the project as it
collaboration of renowned American architects I.M. Pei helps to draw significant numbers of people to the
& Partners and Tsao & McKown of New York on the development.
master plan enabled the team to win the Urban However, there are other projects that might not have
Redevelopment Authority (URA) tender. Tsao & clear cornerstone uses but instead a careful balance of
McKown, as the design architect, worked closely with the uses.
local architects – DP Architects, on working drawings In such cases, the problem becomes more difficult
and authority approvals. because the developer must address numerous conflicting
These two projects show that the mix of development objectives. For example, there is no clear single
team members plays an important part during the initial cornerstone in the Suntec City project. As a one-stop
stage of a mixed-use project development. They also center in a prime business location, the development
demonstrate that the local architects still play a critical provides services ranging from postal, banking,
role even when international renowned firms are engaged. telecommunications, travel, medical, shopping, dining,
The former would assist in getting local approvals and and entertainment. The balance of these uses was
infusing designed as an amenity for the built-in customer base in
local elements and flavors into the design concept. More the Suntec City’s office tower, which constitute of a total
than just providing state-of-the-art design concepts, the working population of 30,000 people.
 Because mixed-use development usually takes a long within KLCC is responsible for discerning and meeting
period of time for pre-development planning and its own financing needs. To date, construction and end
construction, the possibility that the overall economic finance facilities have been predominantly by way of
climate would change is greatly increased. In addition, equity finance and traditional bank borrowings. KLCC’s
mixed-use development is involved in different land use agreement with each respective development partner
markets with its own cycles apart from the overall mandates a maximum 60:40 debt-toequity ratio in which
economy. Hence, it is wiser for the developers to any cost overrun is paid for through advances from
minimize their risk by implementing project phasing. In shareholders. As for the case of Suntec City, the total
the Suntec City project, ground breaking took place in development cost of S$2.3 billion was funded with an
1989 and the project was launched in three phases over undisclosed shareholder equity contribution and
the period from 1994 to 1997. Similarly, the KLCC approximately S$1.5 billion in debt, with the balance
project is meant to be constructed in phases over many being
years. The master plan shows a total of 22 separately funded from the sale of office space (both Towers One
titled development parcels surrounding the park. At least and
seven parcels either have been developed or are under Two were sold out prior to construction completion). The
construction as of 2005. debt had been fully paid off from sales in 1998.
Perhaps the most difficult element of implementing a
successful mixed-use project is securing adequate and 5. PLANNING AND DESIGN
appropriate financing. Different uses demand different
sets of development and management skills, pose unique A preferred plan and design would need to react to
risks, and require distinct investment parameters – all of both
which add layers of complexity to underwriting and internal and external factors. Compared to most
investing. Moreover, most mixed-use projects, conventional single-use projects, mixed-use
particularly those in expensive locations, require public developments require considerably more complex
subsidies, which have their own investment criteria. designs, not only good architecture but also urban
Consequently, mixed-use developers must assemble a planning considerations. Physical outlook, image, the
mix of equity, conventional debt, and subsidy funding interrelationship of elements, and the project’s
that is consistent with the mission and performance [5]. relationship to the surrounding environment are crucial to
An international joint venture had been formed in the economic success of mixeduse development. In
Suntec City – the project was partly funded by a addition, the approach adopted by the development team
consortium whose 11 shareholders are among Asia’s may be influenced by other factors. These include: (1)
most successful entrepreneurs. Joint venturing with size of the scheme; (2) location and setting; (3)
financial institutions is also an ideal method of arranging architectural “fashion”; (4) the requirements and attitudes
financing for project development. In some cases, a joint of investors, occupiers and their advisers; (5) other
venture is created between developers specializing in planning requirements and public opinion. While factors
different project components, for example, between a (1), (2) and (3) are generally within a developer’s control
hotel operator and an office or retail developer. in many conventional single-use projects, this may not be
At certain times during the business cycle, it may be the case for mixed-use, especially when unique public
advantageous to create a joint venture between the policies are dictating the development initiatives.
developer and major tenant in the mixed-use development Although the planning and design of the KLCC project
that wants to have the building associated as part of its was a success one, it was not entirely trouble-free either.
corporate identity. This is evident in the KLCC project as The architect’s brief for the twin towers involved
KLCC Holdings formed a joint venture partnership in requirements to reflect a Malaysian identity, but at that
which PETRONAS would become a major shareholder time there were no relevant projects in the country that
and an anchor tenant of the development. Another could easily be translated into a vernacular high-rise
approach to joint venture involves bringing the developer design. It was after researching the Islamic heritage that
together with the landowner. The developer avoids the architect proposed the geometric pattern composed of
having to acquire the land, and the equity in the land two rotated and superimposed squares with small,
assists in financing the project. rounded infills. Like the exterior design, the entrance
Some developers prefer to retain all of the equity in design of the towers was also inspired by the country’s
their project. Situations arise, however, in which it is cultural heritage, incorporating contemporary Malaysian
better to have 50% of a completed project than 100% of motifs adapted from traditional handicrafts such as timber
one that cannot be built. The developer may sell part of carvings. Similarly, the planning and design of Suntec
his equity in several ways: a land sale-leaseback, outright City were in fact governed by special intentions.
sale of a portion of the project, or formation of an equity Buildings and features are arranged in a configuration
syndication or Real Estate Investment Trust (REIT). In that was inspired by traditional Eastern symbolism and
the case of the KLCC project, each separate development ancient Chinese art of placement. In its entirety, Suntec
City resembles a left “hand” – the convention centre Table 1, which also include issues from the two other
represents the “wrist”, the 18-storey office block is the phases that are not discussed here in detail due to the
“thumb”, and the four 45 storey office towers depict the limitation of space. It is evident that some of these
“fingers”. The “palm” is cradling a “ring” that is differences could affect the functioning of the role of
represented by a fountain. With its cascading water many parties, including design and engineering
flowing inward, it is said to represent the retention of professionals. For example, while a
wealth and bring prosperity to tenants and visitors alike. Design- Build contractor may position itself as the single
All these features, which may seem trivial or superstitious party responsible for both design and construction in a
to some, prove to be symbolic in the eyes of the owners. single-use project, the contractual arrangement of a mixed
use project could be more segmented, especially when
6. COMPARISON BETWEEN SINGLE-USE there are separate parcels within the same project.
AND MIXED-USE DEVELOPMENTS Consequently, the aforesaid contractor may need to work
closely with other consultants/contractors and would have
Some of the key differences between mixed-use and less flexibility in controlling its own scope of the work.
single-use development processes are summarized in

Table 1. Comparison of Main Features between Mixed-use and Single-use Projects

Phases of
Development Mixed-Use Development Single-Use Development
Process
􀂃Experienced and diverse project development 􀂃Single experienced architect/project manager
team acting as project team leader
􀂃Involvement of public sector agencies crucial 􀂃 Relatively minor/routine involvement of public
Project 􀂃Both financial and non-financial development sector agencies
Initiation objectives must be well defined 􀂃 Common and obvious development objectives
􀂃Analyzing multiple markets / development 􀂃 Analyzing only a specific market potential;
potential and evaluating the overall market there is little concern on synergy since it is
synergy meant for single-use
􀂃 Necessity to define alternative development 􀂃 Independent development program and
programs and strategies strategy
Feasibility 􀂃 Complex feasibility analysis to define and 􀂃 Simple pro-forma analysis and economic
Studies optimize the development programs modeling
and Financing 􀂃 Necessity to securing large, multi-layer 􀂃 Single source of financing is possible and
financial commitment and structuring financial financial arrangement is straightforward
arrangements between project owner and bank
􀂃 Complex planning and design issues
􀂃 Conventional architectural and structural
involving
design process
urban considerations
Planning and 􀂃 Urban considerations play a more limited role
􀂃 Creation of interrelationships among design
Design in overall project planning and design
elements and also between project and the
􀂃 Involvement of specialists is less profound due
surrounding environment
to simplicity of design
􀂃 Significant involvement of specialists
􀂃 Multiple contractors working in different 􀂃 Usually single contractor who has sole control
Construction parcels/phases; interfacing is critical of planning and coordination of site works
􀂃 Interaction with more specialists/designers 􀂃 Fewer number of architects/design engineers
􀂃 More varied and innovative approaches on 􀂃 Marketing approaches targeting specific use
marketing strategies for numerous uses only
Marketing and
􀂃 Long term promotion is necessary to continue 􀂃 More effort on promotion before project
Operational
building interests among general public completion and relatively less thereafter
Management
􀂃 Centralized control management systems for 􀂃 Single responsibility for property management
multiple uses agency
7. PITFALL OF MIXED-USE political groundwork through community outreach
DEVELOPMENTS AND efforts. In addition, gaining the support of local
RECOMMENDATIONS TO OVERCOME government and creating clear lines of communication
with government agencies can substantially shorten the
7.1 Ownership Tangles entitlement process. This point is clearly demonstrated in
Mixed-use development often involves multiple owners the KLCC project. In view of the massive and fast-track
whose priorities regarding design, governance, and development program that the project developer KLCC
changes in use or ownership can be in conflict both Holdings had undertaken, the Kuala Lumpur City
during development and after the project is complete. Government decided to assist the project by providing
Reactive resolutions are time consuming, costly, and dedicated building plan inspection staff and facilities to
potentially fatal to the project. Although a mixed-use expedite approvals. Without such close interactions
project could have only one project developer, it would between the design team and the relevant statutory
still need to be structured for many different property bodies, initial phases of the project almost certainly
owners. It is necessary to organize project and legal would not have been completed as quickly as they were.
documentations for future changes based on each use.
Extra efforts are required upfront, but this is ultimately 7.4 Institutional Investors’ Criteria
the most cost-effective strategy. Shared physical Institutional investors are sometimes reluctant to invest
boundaries, as well as various common building systems in mixed-use schemes because they are perceived to offer
poor long-term investment prospects, and are typically
and amenities, make different components dependent on not large enough to generate the scale of profit sought by
one another for completion. In the long run, it usually is this type of investors. However, some developers have
better to create distinct systems, wherever possible, to successfully attracted investors by structuring multiple
avoid reliance on another owner. Nevertheless, even with investment opportunities into their projects for investors
distinct systems, it is desirable to have a single party that with different levels of investment horizons and return
handles one-stop development and management for all expectations. A project, for example, may offer modest
phases of the development. This would reduce returns to investor in the first few years, when the project
coordination time and multiple ownership complexities faces its greatest uncertainty, and increasing returns to
associated with having too many parties executing the middle and long-term investors as the property
master plan [6]. appreciates in value.

7.2 Land Assembly 8. CONCLUSIONS

To create a credible and viable mixed-use development
site, land assembly can be a very formidable task. Bell [7] Mixed-use development is complicated, costly and
highlighted that site selection is the foremost problem of risky.
mixed-use development because large parcels of land The continued emergence of mixed-use projects as a
must be assembled. While successful mixed-use projects powerful community development tool will ultimately
require the coordination of many actors, local require all parties involved to continue learning about and
governments occupy the best position to create and refining their approach to these projects. Successful
sustain the larger vision and to assist with critical aspects implementation of a mixed-use project requires a
of the development process such as land assembly, carefully assembled development team that possesses
entitlement, and investment in key infrastructure facilities strong management, development and design experience.
and other amenities. Stronger local authority action in It is most useful to involve the local government as a
assembling sites, possibly using compulsory purchase partner in the process, as they play an active role in
powers, would facilitate mixed-use development developing local urbanization plans, providing necessary
schemes. When a public-private agreement exists infrastructure, and even altering the public’s perception of
between the developer(s), the builder(s), and the local market conditions in the area. Financing mixed-use
government, the parties would be more willing to make projects is more complicated. This is exacerbated by the
their commitments to ensure success of the project. fact that traditional means of financing (bank loans) could
come at a higher cost due to the perception of higher
7.3 Planning Application and Procedures risks. As such, the development team needs to structure
The lengthy planning application and decision-making the project creatively to provide investment opportunities
process in mixed-use development often discourages for a range of investors. The responsibility is on the team
developers from considering such schemes. The key to to demonstrate that the project is creating value in the
any mixed-use development is creating consensus among community beyond its short term market performance and
local residents, neighboring property owners, government will prove its worth in the market place over time.
agencies and the developer. In order to make things go as Some common pitfalls and drawbacks that create
smoothly as possible, it is recommended to lay the barriers to the realization of mixed-use development have
also been identified. However, the events in the two case
studies suggest that these barriers can be overcome – with
good determination, proper planning and design, co-
operation, flexibility, imagination and good timing. It is
important to realize that mixed-use is more of a
development culture, rather than simply being another
technical planning aspect. Ultimately, it is the mixed-use
outcome (a richly textured environment comprising a
mixture of life activities) rather than the mixed-use output
(a discrete development incorporating a mix of uses) that
underpins the success of a mixed-use development
project.

REFERENCES
[1] Flynn, L., “Developing a Winning Combination”,
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2003.
[2] Bell, J., “A Mixed-use Renaissance”, Mortgage
Banking, Vol. 5(8), pp. 66, 2004.
[3] Royal Institute of Chartered Surveyors, Mixed Use
Development: Concept and Realities, RICS Research,
1996.
[4] Schwanke, D., Mixed-Use Development Handbook,
Urban Land Institute, Washington, D.C., 1987.
[5] Royal Institute of Chartered Surveyors, Mixed Use
Development: Issues and Practice, RICS Research, 1998.
[6] Culp, L., “Mixed Results for Mixed-Use”, National
Real Estate Investor, Vol. 45(8), pp. 24, 2003.
[7] Bell, J., “Mixed-use Property Review E Pluribus
Unum: The Synergies of Mixed Use”, Midwest Real
Estate News, April, pp. 35-57, 2000.