MIXED-USE PROJECT DEVELOPMENT PROCESS:

FEATURES, PITFALLS AND COMPARISONS WITH SINGLE-USE

PROJECTS

Charles Y.J. Cheah1 and Kok Sang Tan2

¹ Assistant Professor, School of Civil and Environmental Engineering, Nanyang Technological University, Singapore
² Quantity Surveyor, Shimizu Corporation, Singapore
Correspond to cyjcheah@ntu.edu.sg

ABSTRACT: In many urban cities, mixed-use development is becoming increasingly essential for the creation of an
attractive and sustainable environment that promotes economic vitality, social equity and environmental quality. Due to
the differences in scale, scope and intent, certain aspects within the project delivery process of mixed-use are not the
same as “conventional” single-use projects. The objective of this paper is to highlight these aspects. Two cases in
Southeast Asia serve to illustrate the uniqueness and challenges of mixed-use. In conclusion, the differences between
mixed-use and single-use are evident in terms of the diversity of team members, the necessity of multiple market
analyses, and a multi-layer (versus singlesource) financing structure. Finally, issues concerning ownership tangles, land
assembly, planning and application procedures, investment criteria of institutions have been identified as major pitfalls.

Keywords: Feasibility study; Financing; Mixed-use development; Planning

1. INTRODUCTION The proponents of contemporary mixed-use promote

either a planned community, or suggest what the Urban
In today’s urban and suburban development, mixed-use Land Institute calls “multiuse projects” (several uses
development schemes are often promoted as essential within one or more buildings) in inner core areas. Put
towards the creation and preservation of an attractive and simply, the name of the game has to be synergy – all uses
sustainable living environment. Designers and developers must function smoothly on an independent basis and in
attribute the motivation behind such development conjunction with each other.
schemes to the public’s desire for a community [1]. In Mixed-use development cannot be created or
urban areas, the infill tends to be vertical, with retail, conserved without special efforts from the participants
office, and residential stacked to maximize density. In involved in the project development. Currently, those
suburban areas, broader and horizontal developments in parties involved in this type of projects – developers,
the form of town centers and traditional neighborhood investors, designers, constructors and tenants, commonly
developments are flourishing. The propensity towards find mixed-use development more problematic and riskier
adopting either a vertical or a horizon scheme also differs than conventional single-use projects. This perception is
geographically. largely reasonable. A proper understanding of the role,
According to Bell [2], mixed-use development is practice and concern of individual parties is essential
gaining importance due to three primary reasons: towards successful realization of initially expected
·More public policies are pointing developers in that benefits. For engineering and construction professionals,
direction: developers can gain an economic edge at the the increasing demand for integrated efforts among
city level by taking advantage of existing project team members and frequent emphasis on life
infrastructures and increasing densities. cycle planning both add to the necessity to understand the
·There is a market demand for it: there are more and differences between mixed-use and singleuse
developments.
more indications that people feel a sense of vibrancy
Rightfully, a complete discussion on this topic should
and community when they live in a mixed-use
be structured along five phases: project initiation;
development.
feasibility studies and financing; planning and design;
·People living in mixed-use developments have a construction; marketing and operational management.
definite transportation advantage: it saves on time if Due to limitation of space, only the first three phases are
one work near where he/she lives and has nearby access addressed in more detail. Theoretical aspects are
to amenities facilities. associated or compared with the actual happenings in two
When contemporary planners and designers speak of selected cases – the Kuala Lumpur City Centre in
mixeduse, they often do not advocate a jumble of uses. Malaysia and the Suntec City in Singapore. Practical
information of the two cases was collected through Southeast Asia, Singapore's largest shopping and
interviews with personnel who were once involved in entertainment centre, a landmark fountain and other
these projects, in conjunction with secondary data amenities. Designed to be a “city within city”, Suntec
obtained from Internet websites and news articles. City's overall objective was to integrate various
development components into a logical city centre that
2. BACKGROUND OF CASE STUDIES also connects and relates to adjacent developments and to
the larger Central Business District (CBD) of Singapore.
2.1 Kuala Lumpur City Centre (KLCC), Malaysia The development sit is connected by both internal roads
KLCC is a master-planned, mixed-use development and perimeter highways. Pedestrians can reach the site
occupying 40.5 hectares of prime land in the middle of from the nearby subwaystation, link bridges, and
Malaysia’s capital city. The major landmark of the project underpasses to adjoiningdevelopments. Inspired by
–the PETRONAS Twin Towers, serves as the primary traditional Eastern symbolism,the design blends elements
anchor of the development. The success of KLCC was from the ancient Chinese art ofplacement (otherwise
seen from the outset to be of national interest. The owner known as “feng shui”).
and developer – KLCC Holdings Berhad (whose largest
shareholder is PETRONAS, the national petroleum 2.3 Comments and Observations
company), was responsible for the development and is The KLCC development is clearly impressive and
currently still coordinating new projects undertaken proved to be a successful mixed-use development project.
directly or in joint venture with others. The total area of The effort made to achieve the end result of the initial
KLCC will eventually be some 1.67 million m2. The phase of the development was massive. The project
development projects completed as of mid-2005 include served a purpose greater than a typical mixed-use, high-
the PETRONAS Twin Towers, the Kuala Lumpur rise development – perhaps with an element of national
Convention Centre, Suria KLCC (a shopping centre), two ambition to make a mark on the world map. One could
office towers, a 643-room five-star hotel, a district argue that whatever the additional cost born by the
cooling centre and a 20-hectare public park providing an developer – beyond what perhaps would not be spent by a
ideal recreational venue. “traditional” private developer – has to be chalked up to
The total cost of developing the twin towers and its attain the greater good of the city and the country. Most
ssociated infrastructure alone was Ringgit Malaysia (RM) of all, aside from the high standards it has established for
2.8 billion. This excludes the cost of Suria KLCC and the the real estate development community in the city along
other buildings involved. The financing methods used with the premium values it has been able to command,
were KLCC has also been a boon to nearby residential and
primarily traditional ones. Initial site clearance and the commercial properties. Put differently, even if the project
start itself may not generate comparable returns compared to
of infrastructure development were funded by “safer” conventional projects, it does generate some
shareholders’ equity. Project finance and working capital spillover benefits for adjacent properties due to its
were drawn from financial institutions in the form of landmark characteristics. Thus, from the viewpoint of the
loans. The twin towers were refinanced after completion. government and the public as a whole, some of the
The new facility consisted of a mix of mortgage-backed benefits recouped are indirect and cannot be quantified on
end-finance along with short, medium, and long-term paper.
bonds secured against PETRONAS’s long-term lease In the case of Suntec City, the key to the success
commitment. proved
KLCC is managed by a wholly owned subsidiary of the to be teamwork. Many different entities from several
developer. Property management is divided into several countries were involved with the project, including
divisions to attend to various needs and uses. Numerous investors, architects, general contractors, owners, tenants,
third-party contractors provide maintenance and managers, design and project consultants, and
management services. The largest of these is the operator government agencies. In order to achieve a smooth
of the 30,000-ton chilled water plant (the District Cooling completion of the project, extensive legal agreements
Centre), which combines natural gas-driven cogeneration were required. As proven, a unique and high-quality
equipment with various forms of steam turbine-driven project increases value, and value supports price.
chillers and electric chillers. A building control system Nowadays, Suntec City has become one of the most
provides central management and monitoring for air valuable office buildings in Singapore.
conditioning control, lighting control, electrical and
chilled 3. PROJECT INITIATION
water status monitoring, and energy management services.
Success in mixed-use development, more so than in
2.2 Suntec City, Singapore most other types of development, requires a capable and
A mixed-use project on an 11.7-hectare site, this mega diverse development team. According to research
development project comprises five blocks of office space, conducted by the Royal Institute of Chartered Surveyors
(including one 18-storey and four 45-storey office towers), [3], it is important for the development team not just to
the largest international exhibition and convention centre include a right mix of development skills, but also to
in engage all of that experience in the project early in the
design phase so that the result is a strong mix of variety, to determine what specific uses should be included
vitality and visual interests. Depending on the scope and through a thorough market analysis for each contemplated
nature of the project, an architectural firm or a planning use.
firm forms the core of the design team, with specialists
added to the group as appropriate. Specialists are 4. FEASIBILITY STUDIES AND FINANCING
important even for a single-use project, but in a mixed-
use development they are more critical, because it is very Once a site has been identified, concerns typically
difficult to find one firm capable of handling the detailed begin to center on assessing multiple market potentials.
design of all the various elements of the project. The process involves the use of statistical analysis and
Especially in projects with numerous freestanding field research to determine supply and demand within
components, it is common to have one planner/designer specific market areas. The market studies must also
to develop a general concept and land use plan and other consider the market synergy resulting from a combination
separate architects to design individual buildings. It is of complementary uses in a single development. After the
also necessary to include market analysts, contractors, market analysis is complete, the developer would decide
financial analysts, financial institutions, and property what portion of an unfulfilled or totally new market the
managers as early as possible in the team. proposed development could actually capture. The
In the case of the KLCC project, an international developer can also determine where the cornerstone of
architectural competition was held and eight of the the project is derived from. Next, the timing, phasing, and
world’s land allocation are considered under the development
leading architects presented their design concepts. Cesar implementation program and strategies [4].
Pelli & Associates Architects was selected to design the Although the PETRONAS Twin Towers often steal the
project’s first phase, including the PETRONAS limelight in terms of publicity, Suria KLCC, a highly
headquarters, its adjacent tower and a shopping center successful shopping center, was purposely planned and
that was attached to the office towers. In this project, the constructed at the same time as the twin towers. This
developer had also set up an entire local architecture facility features 338 department stores, shops, restaurants,
practice to advance the work from a local standpoint as and entertainment outlets within its net leasable area. In
well as to facilitate transfer of knowledge and technology this case, Suria KLCC had been clearly identified by the
during the development process. project developer as the cornerstone of the project as it
As for the Suntec City project, the challenge of helps to draw significant numbers of people to the
translating the vision for Suntec City into reality was development.
delegated to a team of international consultants, who However, there are other projects that might not have
worked closely with a group of Singapore managers. The clear cornerstone uses but instead a careful balance of
collaboration of renowned American architects I.M. Pei uses.
& Partners and Tsao & McKown of New York on the In such cases, the problem becomes more difficult
master plan enabled the team to win the Urban because the developer must address numerous conflicting
Redevelopment Authority (URA) tender. Tsao & objectives. For example, there is no clear single
McKown, as the design architect, worked closely with the cornerstone in the Suntec City project. As a one-stop
local architects – DP Architects, on working drawings center in a prime business location, the development
and authority approvals. provides services ranging from postal, banking,
These two projects show that the mix of development telecommunications, travel, medical, shopping, dining,
team members plays an important part during the initial and entertainment. The balance of these uses was
stage of a mixed-use project development. They also designed as an amenity for the built-in customer base in
demonstrate that the local architects still play a critical the Suntec City’s office tower, which constitute of a total
role even when international renowned firms are engaged. working population of 30,000 people.
The former would assist in getting local approvals and Because mixed-use development usually takes a long
infusing period of time for pre-development planning and
local elements and flavors into the design concept. More construction, the possibility that the overall economic
than just providing state-of-the-art design concepts, the climate would change is greatly increased. In addition,
latter would bring prestige and marketing value to the mixed-use development is involved in different land use
project. markets with its own cycles apart from the overall
The location of any development site fundamentally economy. Hence, it is wiser for the developers to
affects the nature and success of the development. Most minimize their risk by implementing project phasing. In
development approaches can be divided initially into two the Suntec City project, ground breaking took place in
categories: the search for a use for a site, or the search for 1989 and the project was launched in three phases over
a site for a use. Mixed-use development, however, is not the period from 1994 to 1997. Similarly, the KLCC
as simple, and both approaches can often play a role project is meant to be constructed in phases over many
within the same project. A development entity, for years. The master plan shows a total of 22 separately
example, might be predisposed to developing a mixed-use titled development parcels surrounding the park. At least
project, identifying a suitable site for such a development, seven parcels either have been developed or are under
but be uncertain about the exact mix of uses. Thus, the construction as of 2005.
initial assessment must be followed by a second analysis
 Perhaps the most difficult element of implementing a A preferred plan and design would need to react to
successful mixed-use project is securing adequate and both
appropriate financing. Different uses demand different internal and external factors. Compared to most
sets of development and management skills, pose unique conventional single-use projects, mixed-use
risks, and require distinct investment parameters – all of developments require considerably more complex designs,
which add layers of complexity to underwriting and not only good architecture but also urban planning
investing. Moreover, most mixed-use projects, considerations. Physical outlook, image, the
particularly those in expensive locations, require public interrelationship of elements, and the project’s
subsidies, which have their own investment criteria. relationship to the surrounding environment are crucial to
Consequently, mixed-use developers must assemble a the economic success of mixeduse development. In
mix of equity, conventional debt, and subsidy funding addition, the approach adopted by the development team
that is consistent with the mission and performance [5]. may be influenced by other factors. These include: (1)
An international joint venture had been formed in size of the scheme; (2) location and setting; (3)
Suntec City – the project was partly funded by a architectural “fashion”; (4) the requirements and attitudes
consortium whose 11 shareholders are among Asia’s of investors, occupiers and their advisers; (5) other
most successful entrepreneurs. Joint venturing with planning requirements and public opinion. While factors
financial institutions is also an ideal method of arranging (1), (2) and (3) are generally within a developer’s control
financing for project development. In some cases, a joint in many conventional single-use projects, this may not be
venture is created between developers specializing in the case for mixed-use, especially when unique public
different project components, for example, between a policies are dictating the development initiatives.
hotel operator and an office or retail developer. Although the planning and design of the KLCC project
At certain times during the business cycle, it may be was a success one, it was not entirely trouble-free either.
advantageous to create a joint venture between the The architect’s brief for the twin towers involved
developer and major tenant in the mixed-use development requirements to reflect a Malaysian identity, but at that
that wants to have the building associated as part of its time there were no relevant projects in the country that
corporate identity. This is evident in the KLCC project as could easily be translated into a vernacular high-rise
KLCC Holdings formed a joint venture partnership in design. It was after researching the Islamic heritage that
which PETRONAS would become a major shareholder the architect proposed the geometric pattern composed of
and an anchor tenant of the development. Another two rotated and superimposed squares with small,
approach to joint venture involves bringing the developer rounded infills. Like the exterior design, the entrance
together with the landowner. The developer avoids design of the towers was also inspired by the country’s
having to acquire the land, and the equity in the land cultural heritage, incorporating contemporary Malaysian
assists in financing the project. motifs adapted from traditional handicrafts such as timber
Some developers prefer to retain all of the equity in carvings. Similarly, the planning and design of Suntec
their project. Situations arise, however, in which it is City were in fact governed by special intentions.
better to have 50% of a completed project than 100% of Buildings and features are arranged in a configuration
one that cannot be built. The developer may sell part of that was inspired by traditional Eastern symbolism and
his equity in several ways: a land sale-leaseback, outright ancient Chinese art of placement. In its entirety, Suntec
sale of a portion of the project, or formation of an equity City resembles a left “hand” – the convention centre
syndication or Real Estate Investment Trust (REIT). In represents the “wrist”, the 18-storey office block is the
the case of the KLCC project, each separate development “thumb”, and the four 45 storey office towers depict the
within KLCC is responsible for discerning and meeting “fingers”. The “palm” is cradling a “ring” that is
its own financing needs. To date, construction and end represented by a fountain. With its cascading water
finance facilities have been predominantly by way of flowing inward, it is said to represent the retention of
equity finance and traditional bank borrowings. KLCC’s wealth and bring prosperity to tenants and visitors alike.
agreement with each respective development partner All these features, which may seem trivial or superstitious
mandates a maximum 60:40 debt-toequity ratio in which to some, prove to be symbolic in the eyes of the owners.
any cost overrun is paid for through advances from
shareholders. As for the case of Suntec City, the total 6. COMPARISON BETWEEN SINGLE-USE
development cost of S$2.3 billion was funded with an AND MIXED-USE DEVELOPMENTS
undisclosed shareholder equity contribution and
approximately S$1.5 billion in debt, with the balance Some of the key differences between mixed-use and
being single-use development processes are summarized in
funded from the sale of office space (both Towers One Table 1, which also include issues from the two other
and phases that are not discussed here in detail due to the
Two were sold out prior to construction completion). The limitation of space. It is evident that some of these
debt had been fully paid off from sales in 1998. differences could affect the functioning of the role of
many parties, including design and engineering
5. PLANNING AND DESIGN professionals. For example, while a
Design- Build contractor may position itself as the single
party responsible for both design and construction in a
single-use project, the contractual arrangement of a mixed Consequently, the aforesaid contractor may need to work
use project could be more segmented, especially when closely with other consultants/contractors and would have
there are separate parcels within the same project. less flexibility in controlling its own scope of the work.

Table 1. Comparison of Main Features between Mixed-use and Single-use Projects

Phases of
Development Mixed-Use Development Single-Use Development
Process
Experienced and diverse project development Single experienced architect/project manager
team acting as project team leader
Involvement of public sector agencies crucial Relatively minor/routine involvement of public
Project Both financial and non-financial development sector agencies
Initiation objectives must be well defined Common and obvious development objectives
Analyzing multiple markets / development Analyzing only a specific market potential;
potential and evaluating the overall market there is little concern on synergy since it is
synergy meant for single-use
Necessity to define alternative development Independent development program and
programs and strategies strategy
Feasibility Complex feasibility analysis to define and Simple pro-forma analysis and economic
Studies optimize the development programs modeling
and Financing Necessity to securing large, multi-layer Single source of financing is possible and
financial commitment and structuring financial financial arrangement is straightforward
arrangements between project owner and bank
Complex planning and design issues
Conventional architectural and structural
involving
design process
urban considerations
Planning and Urban considerations play a more limited role
Creation of interrelationships among design
Design in overall project planning and design
elements and also between project and the
Involvement of specialists is less profound due
surrounding environment
to simplicity of design
Significant involvement of specialists
Multiple contractors working in different Usually single contractor who has sole control
Construction parcels/phases; interfacing is critical of planning and coordination of site works
Interaction with more specialists/designers Fewer number of architects/design engineers
More varied and innovative approaches on Marketing approaches targeting specific use
marketing strategies for numerous uses only
Marketing and
Long term promotion is necessary to continue More effort on promotion before project
Operational
building interests among general public completion and relatively less thereafter
Management
Centralized control management systems for Single responsibility for property management
multiple uses agency

7. PITFALL OF MIXED-USE and amenities, make different components dependent on

DEVELOPMENTS AND one another for completion. In the long run, it usually is
RECOMMENDATIONS TO OVERCOME better to create distinct systems, wherever possible, to
avoid reliance on another owner. Nevertheless, even with
7.1 Ownership Tangles distinct systems, it is desirable to have a single party that
Mixed-use development often involves multiple owners handles one-stop development and management for all
whose priorities regarding design, governance, and phases of the development. This would reduce
changes in use or ownership can be in conflict both coordination time and multiple ownership complexities
during development and after the project is complete. associated with having too many parties executing the
Reactive resolutions are time consuming, costly, and master plan [6].
potentially fatal to the project. Although a mixed-use
project could have only one project developer, it would 7.2 Land Assembly
still need to be structured for many different property To create a credible and viable mixed-use development
owners. It is necessary to organize project and legal site, land assembly can be a very formidable task. Bell [7]
documentations for future changes based on each use. highlighted that site selection is the foremost problem of
Extra efforts are required upfront, but this is ultimately mixed-use development because large parcels of land
the most cost-effective strategy. Shared physical must be assembled. While successful mixed-use projects
boundaries, as well as various common building systems require the coordination of many actors, local
governments occupy the best position to create and
sustain the larger vision and to assist with critical aspects partner in the process, as they play an active role in
of the development process such as land assembly, developing local urbanization plans, providing necessary
entitlement, and investment in key infrastructure facilities infrastructure, and even altering the public’s perception of
and other amenities. Stronger local authority action in market conditions in the area. Financing mixed-use
assembling sites, possibly using compulsory purchase projects is more complicated. This is exacerbated by the
powers, would facilitate mixed-use development schemes. fact that traditional means of financing (bank loans) could
When a public-private agreement exists between the come at a higher cost due to the perception of higher risks.
developer(s), the builder(s), and the local government, the As such, the development team needs to structure the
parties would be more willing to make their commitments project creatively to provide investment opportunities for
to ensure success of the project. a range of investors. The responsibility is on the team to
demonstrate that the project is creating value in the
7.3 Planning Application and Procedures community beyond its short term market performance and
The lengthy planning application and decision-making will prove its worth in the market place over time.
process in mixed-use development often discourages Some common pitfalls and drawbacks that create
developers from considering such schemes. The key to barriers to the realization of mixed-use development have
any mixed-use development is creating consensus among also been identified. However, the events in the two case
local residents, neighboring property owners, government studies suggest that these barriers can be overcome – with
agencies and the developer. In order to make things go as good determination, proper planning and design, co-
smoothly as possible, it is recommended to lay the operation, flexibility, imagination and good timing. It is
political groundwork through community outreach efforts. important to realize that mixed-use is more of a
In addition, gaining the support of local government and development culture, rather than simply being another
creating clear lines of communication with government technical planning aspect. Ultimately, it is the mixed-use
agencies can substantially shorten the entitlement process. outcome (a richly textured environment comprising a
This point is clearly demonstrated in the KLCC project. mixture of life activities) rather than the mixed-use output
In view of the massive and fast-track development (a discrete development incorporating a mix of uses) that
program that the project developer KLCC Holdings had underpins the success of a mixed-use development project.
undertaken, the Kuala Lumpur City Government decided
to assist the project by providing dedicated building plan REFERENCES
inspection staff and facilities to expedite approvals.
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Banking, Vol. 5(8), pp. 66, 2004.
7.4 Institutional Investors’ Criteria [3] Royal Institute of Chartered Surveyors, Mixed Use
Institutional investors are sometimes reluctant to invest Development: Concept and Realities, RICS Research,
in mixed-use schemes because they are perceived to offer 1996.
poor long-term investment prospects, and are typically [4] Schwanke, D., Mixed-Use Development Handbook,
not large enough to generate the scale of profit sought by Urban Land Institute, Washington, D.C., 1987.
this type of investors. However, some developers have [5] Royal Institute of Chartered Surveyors, Mixed Use
successfully attracted investors by structuring multiple Development: Issues and Practice, RICS Research, 1998.
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faces its greatest uncertainty, and increasing returns to Estate News, April, pp. 35-57, 2000.
middle and long-term investors as the property
appreciates in value.

8. CONCLUSIONS
Mixed-use development is complicated, costly and
risky.
The continued emergence of mixed-use projects as a
powerful community development tool will ultimately
require all parties involved to continue learning about and
refining their approach to these projects. Successful
implementation of a mixed-use project requires a
carefully assembled development team that possesses
strong management, development and design experience.
It is most useful to involve the local government as a