Lenders Push Retail to Mixed-Use Projects

Jeff Rinkov is the CEO of Lee & Associates.

LOS ANGELES—Lenders have become really conservative on retail projects this year, and while retail construction was already slow, it is now barely happening. Except, that is, in mixed-use developments that have a ground floor retail component. Lenders may be eschewing retail product, but mixed-use projects, especially multifamily mixed-use in urban cores, is still all the rage in the capital market worlds. While the propensity to lend on these projects may confine retail to mixed-use, it may also catalyze more retail construction. “The lending environment is becoming really constrictive, and lenders are becoming really conservative,” Jeff Rinkov , CEO of Lee & Associates , tells GlobeSt.com. “The one thing that you can finance for sure is an urban core multifamily building where the retail makes up 10% of the rentable square footage and the net income.” Rinkov says that this may help to catalyze retail construction, because there are so many mixed-use projects in the pipeline. It also means, however, that most of the retail construction in the next several years will be in mixed-use projects or massive lifestyle centers from major developers. “We will probably see the most retail construction in mixed-use developments, where there is creative office, live/work, multifamily and ground floor retail,” he adds. “You may see some high identity incremental construction by very significant players, like Caruso Development, but those will be lifestyle-based centers that provide an experience.” The conservatism in the debt market has been focused on retail and office projects, while industrial and multifamily have still seen ample capital chasing deals. “I have seen the pull back mostly with retail and with office,” Rinkov says. “For infill industrial and even speculative industrial, there is a pretty good flow of funds from lenders there and for multifamily, there seems to be no end to lender participation there. That probably means that our cycle will get prolonged because lenders will be selective and that will draw out projects. It also means that developers will need to be very selective in the projects that they take on. There is not an abundance of debt out there for construction-type loans and fringe projects.” While retail construction is slow, retail consumer spending did gain steam in the second quarter, with growth in the food and services and health and beauty categories. Rinkov says that a stronger market will be marked by more construction, and hopes that mixed-use construction will help to catalyze more momentum in the retail sector.