Non-residential yields higher returns in mixed use development

AACI | Vice President, The Regional Group of Companies Inc.
  • Nov. 13, 2012

When a new condo tower was proposed for 500 Preston St. in Ottawa, the developer attempted to appease irate residents with the promise to create on the first floor an Italian heritage museum.

The development site was off of Preston Street, appropriately nicknamed “Corso Italia,” the heart of the city’s Italian community.

But according to Lori Mellor, executive director of the Preston Street Business Improvement Area, the offer was a rather crass attempt to dupe local residents. After all, there was no budget to operate and staff a museum. So rather than follow through on the museum idea, the developer soon tweaked its plan to instead place four levels of parking at grade.

The latest sore point for Mellor is another proposal for a 19-storey condo on a dead-end street off of Preston. City staff and the developer discussed the project for months behind closed doors before engaging in any form of dialogue in the community.

Preston Street, like many communities in many cities across Canada, has found itself struggling to maintain a frank and honest dialogue with developers and city hall to achieve densification targets that make sense and don’t wipe out the character of the existing neighbourhood. In Mellor’s view, too much development is being driven by entities from outside the nation’s capital, who “want to get in, make their money and get out.”

“Why does it all have to be all high-rise condo apartments?” she said. “Why not have mixed density?” Even bringing R4 zoning, which allows for the construction of stacked townhomes, into a residential neighbourhood of single-family homes, is in itself a significant amount of intensification, she added.

It is in the best interests of developers who want to avoid costly engagements before the likes of the Ontario Municipal Board to consider how they can achieve their fiscal targets by working with the communities in which they plan to build.

Ground floor image of 500 Preston St. from the City of Ottawa planning report

Non-residential yields higher returns in mixed use development

There is without doubt a financial case to be made for a cookie-cutter approach to development that favours high-rise condo towers. But consider this: if you have a mixed-use site plan that also includes retail and office space on the lower floors, that non-residential space yields a higher return on the investment versus residential units. The entire property may in fact be more profitable as a mixed-use development, without having to add the additional storeys that violate city planning directives and enrage local residents. And those lower levels can of course be built with facades that fit in with the character of the existing streetscape.

But this requires additional work at the front end. Studies must be done to gauge the need for additional retail in the area, the amount of foot traffic that is likely, and the proximity to public transit and parking availability for commuters. One of Mellor’s frustrations is that developers keep proposing single-use condo towers for her community, despite the fact that a retail gap assessment study has already identified the need for more mixed-use development. This study found that $630 million of business is being lost because of lack of amenities within a one-kilometer diameter of Preston, basic amenities such as pharmacies and grocery stores.

A myopic preoccupation with single-use condo towers

In addition to a myopic preoccupation with single-use condo towers, developers often shoot themselves in the foot by not being candid with residents and being dismissive of their concerns. I’ve seen a developer stand up at a community meeting and boldly declare “there will be no additional traffic as a result of this project.”

This is of course quite impossible. How can you add 70 units to a site where there isn’t anything and say there won’t be some degree of impact? Perhaps the impact will be marginal, but there will still be an impact. Do the study, or at least, look at comparable studies, to be able to show the community some real data to allay their concerns.

It behooves developers to work with the communities in which they want to build, to avoid costly opposition and ferret out what may be quite lucrative business opportunities that outshine building yet another 18-storey condo tower. For Mellor, the answer is more stringent and consistent intervention from city hall that is onside with local communities. But I believe there is a business case for developers to police themselves better. As I have said before, planners, designers and architects might see a way to create something complimentary to an existing community if they fire up their imaginations. Isn’t that what they went to school for?

John Clark is Vice President with The Regional Group of Companies Inc. He has more than 33 years of experience in the real estate appraisal field, is a fully accredited…

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John Clark is Vice President with The Regional Group of Companies Inc. He has more than 33 years of experience in the real estate appraisal field, is a fully accredited…

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