Mixed-Use Gains Momentum in Emerging US Markets
By Majid Radaei, RadCRE · · Industry Insights
Mixed-use developments are capturing significant investment in burgeoning US secondary markets like Raleigh and Nashville, driving placemaking and delivering strong returns amidst evolving urban migration patterns.
The Shifting Landscape of Urban Development
The acceleration of mixed-use development in emerging U.S. markets reflects a fundamental recalibration of urban planning and investment strategies. Driven by demographic shifts, evolving consumer preferences for live-work-play environments, and the search for higher yields outside primary gateway cities, secondary and tertiary markets are becoming hotbeds for integrated projects. This trend, highlighted in recent analyses by firms like JLL and CBRE, indicates a strategic pivot by developers and investors towards density and interconnectedness in previously overlooked locales.
Key Drivers and Market Selection
Several factors are propelling this growth. Population and job migration to Sun Belt and Mountain West cities, coupled with lower cost of living and a robust talent pool, are creating sustained demand for diverse real estate offerings. Markets such as Raleigh-Durham, Nashville, Austin, and Salt Lake City have witnessed significant inbound investment. For instance, Raleigh’s Research Triangle region continues to attract tech and life sciences companies, creating a natural demand for mixed-use projects that blend office space, residential units, retail, and hospitality.
The appeal for investors often lies in the diversification of income streams and the resilience offered by projects that combine multiple asset classes. While office vacancies remain a concern in many markets, integrating residential, retail, and experiential components can mitigate risk and enhance property values. Data from MSCI Real Assets (RCA) shows that investment volume in mixed-use projects, while still a smaller segment of total CRE transactions, grew nearly 15% year-over-year in certain emerging metros in 2023, outpacing single-asset class growth in many instances.
Notable Projects and Investment Trends
Recent high-profile developments underscore this trend. In Nashville, Brookfield Properties broke ground on its 37-acre Nashville Yards project, a massive mixed-use endeavor encompassing office, residential, hotel (including an Amazon office campus), and entertainment space. This project, with an estimated total investment reaching into the billions, exemplifies the scale and ambition of mixed-use strategies in expanding urban cores.
Similarly, Starwood Capital Group has been actively pursuing mixed-use conversions and ground-up developments in suburban emerging markets. Their strategy often involves transforming underutilized retail properties into vibrant community hubs with a mix of housing, services, and entertainment, addressing the ongoing evolution of consumer habits and the desire for localized amenities.
Challenges and Opportunities in Capital Markets
Despite the strong fundamentals, financing these complex projects poses unique challenges. The current interest rate environment, with SOFR hovering around 4.31% and Prime at 8.50%, necessitates creative capital stacks. Developers are increasingly relying on a combination of construction debt, often priced at SOFR + 300-500 bps, alongside significant preferred equity or mezzanine financing, which can command rates of 12-18%. Securing traditional bank financing for large mixed-use projects can be arduous, pushing sponsors towards alternative lenders and sophisticated equity partners.
“The emerging markets present a compelling landscape for mixed-use, but it’s far from a ‘set it and forget it’ strategy,” notes Majid Radaei, Founder of RAD Commercial Realty. “We’re advising clients to focus on markets with demonstrable job growth and diverse economic bases, not just population influx. From a capital markets perspective, the key is to de-risk the project early by securing anchor tenants or significant pre-leasing for office and retail, and to structure financing with enough flexibility to account for potential market shifts. For our clients, that often means exploring flexible bridge solutions combined with robust JV equity, or strategically leveraging programs like SBA 504 for specific components, ensuring a resilient capital stack that can withstand volatility.”
RadCRE's Role in Emerging Mixed-Use Markets
RadCRE provides comprehensive advisory and brokerage services for clients navigating the complexities of mixed-use development in emerging markets. Our expertise spans initial site assessment and market analysis to robust financial modeling, capital raising, and deal execution. With our deep understanding of various capital structures—from conventional construction loans to mezzanine and preferred equity solutions—we help clients optimize their financing to maximize returns and mitigate risk in these dynamic environments.
Tags: mixed-use development, emerging markets, commercial real estate financing, capital markets, real estate investment, RadCRE, Majid Radaei
Sources: JLL Research, CBRE Research, MSCI Real Assets (RCA), Commercial Observer, CoStar, GlobeSt, Starwood Capital Group corporate announcements, Brookfield Properties corporate announcements