Mixed Use: Avoiding a mix up

Eric GummersFirstly by way of definition, the definition of mixed use for the purpose of this short briefing is a development project that combines more than one element of residential, hotel, leisure, retail and entertainment.

Any single element would constitute a substantial development in its own right, however, the combination of various elements in an integrated fashion adds value and creates an attractive proposition to end users.

It is generally accepted that the most successful mixed use projects require a brand although the brand may be integral to the specific project and the project could create its own brand dentity. In the current climate, my personal view is that working with a recognised brand, where the branded operator brings skills and resources alongside, increases the probability of a successful outcome and may add considerable value.

In our experience, taking the relatively simple concept of mixed use and implementing this as a coherent workable long term developed project involves considerable planning an a rigorous approach to documenting the interest of the various participants involved. That process needs to allow for the life cycle of the project and is not just a question of getting to opening.

What if?
Mixed use projects comprise a matrix of participants and the project structure needs to be sufficiently robust to cater for change; and to regulate sometimes conflicting interests over long time periods

What if there is a change of control or insolvency of the operator of a key element or the brand

Does the chosen manager/operator have the complete skill set to properly operate the various elements of the project. For example, the ability to successfully run a leisure offering is not proof that the same operator has the skills needed for the retail aspects.

How does the structure address the ability to remove or change an operator who is underperforming and what impact would this have on the chosen branding

Branding - I have indicated the importance of branding and the positive impact this can have on a successful outturn. In looking at the choice of brand, the addition of a brand is unlikely to rescue a poorly designed project.

Involving an international brand will involve adherence to brand standards which is on an ongoing commitment coupled with branding fees. This commitment needs to be effectively applied across the project so that the branded proposition is coherent.

Customer Information - Developers can often miss the importance of the information that can be retained in relation to the consumers looking at, interest in, visiting and using a mixed use development.

That customer information has a huge potential value in relation to the resort and can be used to maximise the utilisation of the resort.

Having made all the investment in hard assets together with the expense of launching a project, it is remarkable that often the customer information is left in the hands of third party suppliers, is not consolidated and the developer may not have obtained access rights.

From a legal perspective, consideration needs to be given to the customers’ rights of privacy and the appropriate protection of such personal data.

Recipes for Success
•Invest considerable time and effort in planning the mechanisms for management and maintenance of the project.
• Look hard at the calculations of ongoing costs and the way that these costs are spread across the various elements
• Avoid the temptation of low balling estimation of future annual costs to end users as this will sow the seeds for future discontent
• Never over promise in relation to features
• Look at each element on a stand alone basis and work out the cross rights that are needed so that each element can continue to effectively function if there are future changes in ownership
• Allow for some flexibility; an ability to make changes in configuration during the life of project

Mixed use projects are very attractive in terms of delivering a project with multiple amenities and creating communities where people wish to live and visit. The mixed use combination, when well executed, will drive revenue to all aspects of the project and assist with achieving year round occupancies. The successful mixed use project is the product of considerable planning and a foundation of this will be a well thought through legal structure.

Eric Gummers is a leading hotel and leisure lawyer who has advised on a number of significant mixed use projects internationally. Email: e.gummers@howardkennedy.com, +44 207 8308234

Posted:
24/02/09
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