With few exceptions, most developers will say that mixed-use projects are more challenging than single-use projects.

So it’s no surprise that combining mixed-use and mixed-income elements into one project creates double the challenges. Yet, there are hundreds of projects under development across the United States that prove you can successfully bring together a mix of uses.

In fact, many developers have found that including affordable housing in a mixed-use project is the only way to obtain approvals, while others contend that affordable housing projects are more successful when office or retail space is added.

Sweetening the deal

While mixed-use projects are the hottest trend, many municipalities only have single-use zoning, and getting a mixed-use project approved requires some fancy footwork on the part of developers.

Including affordable housing in a mixed-use project often persuades political leaders and city and county officials to give zoning approvals, said Jay Doherty, president of Cabot, Cabot & Forbes (CC&F), a Boston-based development firm that is developing Westwood Station, a 4.5-million- square-foot mixed-use development in Westwood, Mass., that includes Class A office space, retail space, 1,000 residential units, two hotels, and landscaped public parks.

Of the 1,000 residential units, 12 percent will be classified as affordable housing, and another 5 percent will be classified as moderate-income housing, Doherty said. “Massachusetts law requires that all towns and cities have 10 percent of their housing stock in affordable housing, so most have responded by forcing the inclusion of 10 percent affordable housing in most residential projects,” he noted, adding that CC&F agreed to include a higher percentage of affordable and moderate-income units in Westwood Station to “ensure goodwill from the town.”

Even with the low- and moderateincome housing to sweeten the deal, CC&F and its partners, Commonfund Realty, Inc., and New England Development, worked for three years with Westwood’s Economic Development Steering Committee to develop a master plan and went through more than 20 hearings to obtain approvals.

“In cities, you clearly get vigorous political support for a project with affordable housing,” Doherty said. “In the suburbs, citizens push back on affordable housing, and having other uses makes it easier for neighborhoods to accept those projects as well.”

The first phase of Westwood Station, which includes about 90 retail shops and restaurants, a 125,000-square-foot office building and 500 residential units, is expected to open in the fall of 2009.

Affordable housing required

Like CC&F, Fort Worth, Texas-based Museum Place Development Group (MPDG) agreed to include affordable housing in Museum Place, its mixed-use project near Fort Worth’s Cultural District, not only to get city approval but also to gain access to financial incentives.

Museum Place is the redevelopment of several existing central city blocks that were once home to a thriving commercial and residential neighborhood. It encompasses 11 acres, and when completed in 2009, the project will offer 173,000 square feet of retail and dining, 130,000 square feet of Class A office space, 550,000 square feet of residential development totaling roughly 500 units, and an upscale boutique hotel.

MPDG, which is a joint venture between Fort Worth-based JaGee Holdings, LLP, and TLCurban, set aside 15 percent of its residential units for affordable housing, said Reece Pettigrew, chief financial officer of JaGee Holdings, adding that units will be restricted to families that earn between 65 percent and 80 percent of the area median income (AMI).

500 units, and an upscale boutique hotel. Pettigrew said Fort Worth is focused on promoting central-city redevelopment and prefers mixed-use projects. Museum Place will serve as a model for the city’s commercial corridors plan, urban village program, and mixed-use zoning ordinance.

As part of the city’s economic development agreement for Museum Place, the city and MPDG will participate in a tax-sharing program in exchange for affordable housing. The agreement is one of the first in Fort Worth to include a quality affordable housing provision, Pettigrew said.

“I am not sure we would have thought of including affordable housing without the city bringing it to our attention,” Pettigrew admitted. “Working with the planning department and getting the city involved early was critical because they pointed us in the right direction for grants and incentives.”

Offsetting the cost

While many developers might prefer to build affordable housing projects exclusively, they’re realizing that those projects are sometimes more financially feasible when they include commercial uses. Retail and office space, along with hotels, can offset the financial loss caused by the affordable housing component, said Ed Walters, founder and partner of The Walters Group, a Barnegat, N.J.-based developer.

The Walters Group is developing a 370-acre mixed-use, mixed-income project in Stafford Township, N.J. The project, dubbed Stafford Park, features a village center theme with 565 age-restricted homes and 112 affordable apartments, as well as a retail complex. The project will also include an ice skating rink and 25,000 square feet of office space.

Walters said Stafford Township required Stafford Park to include affordable housing. “We knew a project of this size would require affordable housing to get approvals,” he noted. Residents at Stafford Township will pay between $650 and $850 per month for affordable housing units.

To help with the cost of the project, which has a price tag of more than $140 million, The Walters Group has applied for lowincome housing tax credits (LIHTCs), Walters said, adding that the process is very competitive. “It’s not that easy,” he said. “The critical mass of other uses in the project will generate enough revenue to pick up the shortfall for the affordable piece. Other uses go a long way to making a project with affordable housing work financially.”

Portland, Ore.-based Guardian Management made a similar decision for the Crane Building. Several developers had unsuccessfully approached the development as a single-use project until Guardian took the project on, transforming the historic six-story masonry brick tower alongside a one-story warehouse and loading dock in Portland’s Pearl District into a mixed-use project.

Guardian uses two floors of the Crane Building as its corporate headquarters. A large restaurant and fish market is housed in the warehouse/loading dock, and retail space is located on the ground floor. Affordable loft apartments occupy three floors, and two penthouse suites are situated on a newly constructed rooftop, according to Tom Brenneke, president of Guardian Management.

“We decided to lease space to a restaurant and a retail store because we needed healthy rents, and the only way to get that rent was through retail,” Brenneke said, adding that Guardian used many capital sources to fund the $24 million redevelopment cost, including historic tax credits, a construction loan, loans from the local urban renewal agency, equity raised through a private-placement memorandum, and energy tax credits.

Fighting for tax credits

Combining commercial space and affordable housing makes it more difficult to obtain LIHTCs, according to Jim Sari, CEO of The Landmark Group, a Winston- Salem, N.C.-based developer that specializes in urban revitalization.

Recently, Sari had to lobby the North Carolina Housing Finance Agency to allocate LIHTCs for his redevelopment of downtown Weldon, N.C., including the renovation of five one- and two-story buildings dating from 1885. The buildings were transformed into 24 affordable units and three street-level commercial spaces.

Three of the units are available for families that make up to 40 percent of the AMI, while eight units are set aside for those earning up to 50 percent, and 13 units for those with incomes up to 60 percent of the AMI.

Sari said he had to come into the LIHTC scoring process with “every bell and whistle” to obtain financing. And, even then, he had to take advantage of state and federal historic tax credits, various loans, grants, and operating subsidies from the city to make the project work financially.

The city even had to provide water, sewer, and trash for 30 years for no cost and cap the property taxes to get the project to break even. Otherwise, the rents in Landmark’s Weldon buildings are so low— $250 to $400 per month—expenses would have exceeded revenues, Sari said.

“Mixed-use projects and downtown redevelopments are not affordable products they’re used to doing,” Sari said. “Most state programs are most comfortable with vanilla projects, and projects like Weldon aren’t vanilla. They’re just harder to finance because they’re unique.