There's gold in the MUD12 April 2021
As the number of mixed-use developments (MUDs) and schemes across the UK and EMEA continues to rise, their combination of residential, retail, leisure and entertainment facilities – as well as co-working spaces and shared amenities – could become a mainstay of the hospitality sector. Jim Banks speaks to Russell Kett, chairman of HVS; Marloes Knippenberg, CEO of Kerten Hospitality; and Dexter Moren, founder of Dexter Moren Associates, about the rise of MUDs and their appeal in a post-Covid world.
One of the most remarkable features of the hospitality sector is its willingness to evolve. Hotel operators are constantly looking to innovate in both services and property design, and keeping pace with the demands of the market is the main priority. That flexibility, drive and focus on service has put hospitality at the very heart of the recent boom in mixed-use developments (MUDs).
A MUD can be many different things. It can be the extension of services from a hotel into the surrounding community to open up new revenue opportunities. When hotels provide food and beverage services, working and meeting spaces and leisure opportunities, they are also by default mixed-use assets. Taking this logic a step further, hotels are perfectly poised to become cornerstones of their communities.
“Hotels have become MUDs in their own right,” observes Dexter Moren, founder of architect’s practice Dexter Moren Associates, which specialises in hospitality design. “Most hotels we work on are much more than guest accommodation. There is a real focus on engaging and providing facilities and services to the local community. This includes leisure as well as co-working spaces, deli and retail.”
Moren suggests that, as they are 24-hour operations, hotels can be a real boost to dying high streets by supporting local retailers. This could be by providing collection and pick-up after hours for dry cleaners, florists or a host of other businesses.
One approach to the MUD concept is to repurpose existing properties and incorporate residential and retail elements. Another approach – one that is attracting a growing number of investors – is the development of a purpose-built site with hospitality at its heart that works in combination with a broad mix of living, working, retail and entertainment spaces. The modern MUD is more than just a floor of retail with apartments above. It can be a blend of serviced apartments, hostels, sports and leisure venues, co-working spaces and even retirement living.
“MUDs are spreading fast now,” says Marloes Knippenberg, CEO of global mixed-use operator Kerten Hospitality. “Real estate developers are often focused on the bricks and mortar and the speed of development. Now, people have become keener and smarter, so developers are ready to look outside their comfort zone.”
To have a single-use asset has become a costly investment,” she remarks. “So, we have worked on developments with long and short-stay components, work environments and related services. The perfect mix depends on the location and what else has been built around it. What investors need is visionary owners who see where the world is going.”
Connecting with the community
Kerten styles itself as a disruptive and dynamic force in international hospitality. It focuses solely on the management of mixed-use developments in key global destinations. Knippenberg is the driving force behind the company and she has grown its operational and pipeline portfolio from one brand in one country to more than 35 development projects across three continents. The company creates lifestyle destinations that combine branded residences, serviced apartments, luxury and mid-market hotels, fully serviced collaborative workspaces and food and beverage concepts, with a focus on the community. It manages a portfolio of 11 owned brands including Cloud7 Hotel and Residence, The House Hotel and Residence and a co-working and business club concept called Ouspace.
“We started talking about MUDs five years ago,” notes Knippenberg. “Back then, owners were being sold cookie-cutter proposals. So, we wanted to do something different. The idea was that brand collaborations could increase footfall. A MUD is more than just retail and residential. It is more than building an apartment building and putting one floor of retail on the bottom. It is about connecting people.”
This means shaping the future for better living and improving communities in the process. With a string of recent projects across the Middle East, the company has worked with some of the region’s largest developers, including Tatweer Misr in Egypt, and has recently opened a new entertainment and business centre in the Al Rawdah district of Jeddah, Saudi Arabia, of which The House Hotel is a key element.
Kippenberg argues that the most important factor for each development is that it reflects the needs of the location. The blend of housing, hospitality and workspace is defined by what will complement the community. “Short-stay versus long-stay varies greatly between projects, but the hotel component is always needed to provide services,” she says. “We run our own hotel brands because big hotel brands are not built to collaborate. We operate the hotel but we give up the lobby, which is prime real estate for retail.”
For Moren, the growing interest in such developments is symptomatic of changing attitudes among investors, who are increasingly open to novel ideas. This broadening of horizons dovetails with the willingness of hotels to reach beyond their front doors and connect with local communities.
“Traditionally, the investment community has had a kind of apartheid attitude to real estate, eschewing anything other than pure retail, pure offices and so forth,” Moren says. “In the recent past they’ve realised that mixed use, like a mixed investment portfolio, is actually a risk hedge and this has driven a more positive stance towards MUDs.”
Moren also points out that flats or offices without other facilities in immediate proximity are becoming less and less desirable. Furthermore, hotel food and beverage has also morphed into deli-style retail, with local residents able to buy fresh or artisan produce on their way home.
Investors open their eyes
The flexibility of MUDs is increasingly catching the attention of investors, who see them as a financially sound proposition that diversifies income streams and eliminates the dependency on one asset class.
“There is no one-size-fits-all development, no cookie-cutter template,” observes Russell Kett, chairman of advisory consultancy HVS, which has supported the hospitality sector through the last 40 years of its evolution.
Survey respondents that said they are currently investing in mixed-use assets.
PwC and the Urban Land Institute
“Often a MUD is a building with retail on one floor, then a couple of floors of office space and then residential space above it,” he adds. “That does technically constitute a MUD, but there is no hotel element. Now, the design is entirely marketdriven and the hotel is always part of it, but we take a blank sheet of paper and look at a whole range of possibilities.”
Where there is sufficient land, a golf course might be part of the plan. Alternatively, other real estate components could be added to improve a project’s financial viability. For instance, new apartments could be built for sale to private owners, who may rent them out as part of the site’s property pool. Retail, offices, meetings and conference facilities might also be part of the plan, alongside leisure and hospitality offerings.
“Serviced apartments, long-stay accommodation and branded residences are also included in the mix, so we now see multi-hospitality buildings with hostels, hotels and apart-hotels and even brands where all three are provided,” says Kett. “I can’t think of any location where a combination of demand from hostel to different levels of hotel to long-stay is not appropriate.”
A mix of accommodation, workspaces and leisure facilities cushions the high-end costs of development and potentially provides better returns with the blend of short-term and long-term income streams diversifying the risk to revenue. What’s more, complementary asset classes within a development can act as catalysts for each other, further strengthening the revenue stream.
When designed well, MUDs comprise elements that complement each other and drive revenue generation, in part by being connected to the local communities beyond their walls.
Similarly, the convergence of complementary elements enables a holistic view of sustainability within a large development – a key concern for communities, guests, residents and investors alike. It’s a line of thinking that fits neatly with a postpandemic focus that will likely turn from Covid regulations and vaccine disposal to long-term climate change solutions.
“The future is focused on sustainability and reducing carbon waste, so in all instances the first approach is – and should be – how to repurpose existing real estate,” says Moren. “That is today’s creative challenge for architects and interior designers, and some of the most exciting projects are ones where extraordinary spaces are re-imagined.”
“From an ESG perspective, everything being built must have sustainability at its heart,” adds Kett. “Some investors won’t touch it unless the development addresses green issues. From the perspective of a sustainable business model, the ability to adapt is essential and developers have to think about how buildings can be repurposed over time.”
As the hospitality sector looks at how to recover from Covid-19, the appeal of sustainable, mixed-use developments with built-in characteristics that mitigate risk will no doubt catch the eye of investors. As the pandemic drives people to work and study at home more than ever before, MUDs become a natural solution to a growing demand for versatile spaces that can be sold as an ideal way to combine living and working in one place.
“Pre- and post-Covid, we’ve seen a massive decline in high street retail, as well as a possible long-term reduction in office demand,” says Moren. “The future use of empty retail space will definitely be a MUD if it’s not an Amazon depot. Co-working and co-living models are replacing traditional, boring single-use buildings with a focus on mixed use.”
MUDs could be fertile ground on which both local communities and the hospitality industry plant the seeds of recovery. In an industry accustomed to evolution, the turn towards mixed-use hospitality spaces is a trend that’s been knocking on the door for some time.