Urban Infill: Mastering Design Opportunities and Investment Hurdles

Urban Infill is the opportunistic repositioning of underutilized sites with higher density mixed-uses targeted to specific niche markets. Urban Infill presents unique development difficulties with increased density and re-zoning approvals, feasibility hurdles with expected investment returns, and most importantly, design opportunities to create new architectural profiles, thoughtful open space, and walkable streetscapes. Urban Infill is the premier signal that an area is ready for residential and live-work regeneration.

Advantages of Urban Infill

Urban Infill sites offer proximity for living closer to work, avoiding increasing suburban commutes. For obsolete warehousing or light manufacturing sites, prior uses can provide contextual themes for new developments. Infill allows larger footprints and denser residential projects than prior uses, creating a new “Density of Investment" for financial institutions based upon expected future values. An absorption advantage also exists, as sites are typically under the development radar screen.

Disadvantages Also Exist

Urban Infill occupies pioneering locations, where security and quality of life perceptions are not always positive. Prior uses may cause environmental uncertainty which affects timeline and financing. Approval thresholds are equally unclear due to re-zoning and increased density necessary for feasibility. Landowners may have unrealistic expectations for site values which can stifle revival that the neighborhood would otherwise enjoy. Hence, cities should consider assisting site acquisitions based on future Tax Increments generated, as existing uses are upgraded to mixed-use, producing higher taxes with portions re-dedicated to site infrastructure.

Feasibility Testing

Many architects fail to understand that the “holy grail” for developers is the capitalized value of a project, not its cost. This capitalized value concept is foreign to many architects as they may concentrate on controlling cost alone. Developers also focus on net operating income (NOI), the net revenue after operating expenses, maintenance, and taxes—but not including financing/mortgage charges. Financial institutions also focus on NOI as the source for debt repayment.

The Advanced Design Studio at the University of Texas-Arlington (UTA) has developed feasibility templates and cash flow models for architects to illustrate NOI over time with discounted cash flow (DCF) spreadsheets. These inflate both revenues and expenses each year over 10 years, and include a hypothetical residual project sale in year 11. Then the annual NOI amounts and residual sale are discounted to present day at an appropriate discount rate (UTA Model uses 8.5%).

The resulting net present value (NPV) is also used in computing the internal rate of return (IRR) which includes mortgage debt (UTA’s model set at max 70% loan to cost). IRR is also carefully monitored by developers during design (UTA model threshold feasibility is 12% IRR). Thus, architect/developer interactions feature two distinct modalities—architects fixated on cost and developers focused on IRR.

Architects should know that the developer’s “management of risk” drives development value—and that designers who have an understanding of the risks and revenue potentials of their work will accordingly have more powerful roles in creating better architecture.

The Infill Design Opportunity

Urban Infill allows great flexibility for architects if they understand the developer’s financial objectives. Density is the watermark solution for Urban Infill, as shared costs can be spread further and mixed use offers more revenue to afford architectural features, landscaping, and designed open space.

Multifamily is today’s favored product, as young professionals eschew suburbia for more engaging urban experiences. Even conservative organizations such as the Pension Real Estate Association have endorsed a “Walkability Premium” of increased value for developments with walkable character.

Most Urban Infill is “stick-built” to conserve costs, providing wood-framed residential over a concrete podium ground floor, with supporting retail as significant revenue source and amenity. Structured parking is the unintended consequence of higher density Urban Infill, as the cost of urban parking is tenfold over that for suburban. Solutions include tuck-under and podium style garages with units built above. These solutions do not improve the streetscape experience and hence parking is a very special design challenge.  Design limitations imposed by stick-built require articulated facades and a “kit of parts” of materials and design vocabularies which adopt existing neighborhood context to achieve visual appeal for the “Walkability Premium” sought.

Putting the “Mix” into Mixed-Use

Urban Infill relies on dramatic transformation of former uses into higher intensity environments, mixing workplace and housing with retail. This requires careful planning as each use has varied mechanical preferences and user systems. Restaurants require kitchen exhaust and solutions to manage deliveries and trash removal far beyond what is needed for residential. Collision of these systems and services within the base building often cause design and configuration conflicts.

Urban Infill Critical Success Factors

Six components define critical success factors with desired attributes and performance standards:

Create Transforming Site/Use Concepts

• Architectural Image
• New District Character

Planned Mix of Retail/Foodservice Offerings

• Targeted Tenant Mix
• Food /Fashion/Frivolity

Design Emphasis on Walkability + Open Space

• Streetscape Quality
• Public + Private Spaces

Offer Broader Residential Choices

• Multifamily + MicroLofts
• Stacked Townhomes

Respect User-Driven Configurations

• Retail Layout/Servicing
• Parking Adequacy

Advanced Testing of Financial Feasibility

• Identify Market Niches
• Illustrate Target Returns

The Big Picture: Reconnecting the Urban Landscape

Urban Infill removes “missing teeth “from the urban streetscape experience and mitigates security concerns with underutilized properties. Increased density allows Tax Increment Financing to justify better landscaped open space and community infrastructure. Urban Infill activates neighborhoods, making them more sustainable and livelier. Unlike suburban development, Infill can use surrounding urban fabric as context. Architects who master design limitations and financial challenges of Urban Infill can create more valuable, authentic, and sustainable places.

For information on Higher Density Benefits, Demographics, and Industry Clusters, see UTA Center for Metropolitan Density Research Journals—CfMD #1 for Research Premises and Interim Uses, and CfMD #2 for selected Advanced Studio projects—at www.uta.edu/architecture/research/cfmd.