COVER STORY, JULY 2009

A NEW DESIGN
Architects are shaping a new model for project collaboration in order to jump-start development.
Kevin Jeselnik

Heartland Real Estate Business recently spoke with a collection of Midwest-based architects about the changing nature of their role in commercial real estate. As financing becomes harder to secure and the construction pipeline slows, design firms are seeking to take a larger up-front role in the process to land business and push projects forward.

Diversify the Portfolio

In order to engage with clients at the earliest possible point in a project’s life, many architecture firms are working to diversify the project types they can offer, as well as engaging in the development process in new ways. Dublin, Ohio-based M+A Architects, formerly Meacham and Apel, has redoubled its focus on available government incentives, which includes being aware of, writing and submitting grants for developers, while also building relationships with city officials looking to take advantage of those opportunities.

“We have employees that focus on [incentives and grants], enabling them to start the education process for developers,” says Matt Canterbury, director of business development for M+A Architects. “It is a higher level of networking, and it is one more step towards diversifying what we can offer clients. It is extremely important to continue to grow our services in a market like this.”

With developers, M+A is completing more up-front work before a project goes forward. “It is more of a partnership attitude,” says Lori Bongiorno, an associate with M+A. “We are doing more work before a project goes forward. We are trying to forge a relationship and get in on the ground level.”

Additionally, the firm has broached the possibility of becoming an equity partner in projects alongside the developer. A more vested interest in a project ensures the firm’s involvement, and provides a higher probability that it will move forward in this financially unstable environment.

“Generating an equity component of an architectural company is really just bridging the gap between the things we already do and the few parts of the process in which we aren’t yet involved,” Canterbury says. “The benefit right now, is that if the architect is being asked to help provide funding, we become more vested in the success and rewards of that project.”

For Hollis + Miller Architects, which has offices in Lee’s Summit, Missouri, and Overland Park, Kansas, diversification has always been a focus. According to Ed Alexander, a vice president and partner, the firm established four core areas — K-12 education, higher education, municipal and government work, and private commercial development — in order to offset real estate’s natural up-and-down cycles.

“In slow economic times, we find that competition increases greatly in the municipal/government sector amongst architectural firms, as those with core focuses in other areas try every other possible avenue — which is understandable,” Alexander notes. “The part that hurts the most is not so much the competition, but when that competition starts cutting fees. If that occurs, when the economy rebounds, it is very difficult to get back to normal fees.”

Follow the Money

An architect’s standard fees once were the only financial considerations necessary for design teams on each project. Now, firms are assuming a larger role in the financing as a way to ensure that a project has the best possible chance of moving forward.

“In order to get these projects off of the ground, we are networking with banks,” says Canterbury. “We are educating ourselves about various banks and financing options, and then acting as a liaison and educating them as to why a project works and what makes it viable. It is equal parts sales, business and architecture.”

Relationships are also being forged with municipal entities, as the recession and subsequent stimulus funds have necessitated the growth of public/private partnerships in commercial real estate.

“We are seeing a lot more city involvement,” Alexander says. “There is an emerging push/pull relationship between some of these cities that believe they must protect the public’s interest and the design team, which has the expertise regarding what the public and developer wants.”

“That is a trend that we’ve really identified,” Canterbury adds. “For at least the next 5 years, the private work from the past is not going to be financed or be done the way it used to be done. There is going to be significant public money, be it from a city, large retirement fund or trust agency, to drive private development.”

Continuing Education

In some ways, an architect’s role has always in part been to educate developers about the most practical or desirable design possibilities. Now, firms are taking the education process much further, from explaining to a bank a project’s viability or informing a developer of the benefits of sustainable practices. One emerging source of business for architects is retrofitting existing properties for maximum sustainability.

“Retail owners are starting to realize the large capability for public impact that their centers have,” Canterbury says. “Developers want what they are doing to be transparent, with signage that depicts green elements, which is used to both educate visitors and attract tenants.”

The challenge in the Midwest is to convince most developers of the cost benefit of going green. According to Canterbury, Costar reports show that green properties on the coasts fetch higher rental rates than standard projects, while that trend isn’t seen in the Heartland.

“We see sustainability growing faster in the retail sector,” Alexander adds. “But it is going to take much more education on the part of developers to understand the financial benefits, such as the cost of lease and cost common area maintenance.”

In the years ahead, as the industry emerges from the downturn with a more efficient, sustainable business model, we can all hope that lessons have been learned, and that architects, developers and lenders have all been taking the same classes.

East Hills; St. Joseph, Missouri Hollis + Miller East Hills In St. Joseph, Missouri, Hollis + Miller has redesigned the East Hills Mall, an approximately 30-year-old, 700,000-square-foot enclosed mall, into a modern shopping center with enclosed and outdoor space. East Hills regional landmark, and the only enclosed mall in the northwest Missouri area. Owner MD Management understood the needs of the community and had the desire to improve the property and take it into the next generation of design, creating spaces that more accurately reflect what size requirements tenants are looking for, as well as some outdoor excitement with a lifestyle component and an interior that enhances the shopping and leisure experience. This was a center built over 30 years ago and then expanded about 20 years ago. As a result of time and economic conditions, the center needed a complete makeover inside and out. In addition, Hollis + Miller created an exterior lifestyle component. East Hills is anchored by Sears, Dillard’s and JC Penney.

The Marina District; Sandusky, Ohio M+A Architects The Marina District The Marina District is a mixed-use venture that involves a series of public and private improvements to a stretch of waterfront property along the Lake Erie shoreline in Sandusky, Ohio. The proposed plans for this extensive multi-phase project include three residential buildings, a hotel development, an expanded public park area along the shoreline with increased public access to the shoreline park, and approximately 25,000 square feet of commercial space for retail and restaurant development. As a cooperative enterprise, the public improvements will be spearheaded by the City of Sandusky, while the private developments will be led by Alternative Development, a real estate development firm based in Columbus, Ohio. The Marina District will incorporate a range of eco-friendly practices and sustainable building materials, providing a stylish and comfortable community that also helps to conserve the natural resources that surround it. As a master planned community, the buildings, as well as improvements to the streets, parking and public shoreline, will integrate “green” living practices wherever feasible. Each building in the project will also be seeking to register for LEED certification. The project demonstrates several new and changing development trends, including: • Mixed-use developments incorporating heavier residential components with smaller retail/restaurant components, whereas previously many developments trended the opposite way. • Sustainable live, work, play developments. In general, the residential sector has been slower to adopt sustainable design trends. • Public/private development partnerships for the purpose of economic stimulus and affordable sources of financing through the public agency.

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