Build it once. Operate it forever.

Parking costs are always discussed as the biggest impediment to mixed use and urban infill projects; and that is correct, especially when analyzing up front capital costs. However, developers often focus too much on the initial costs risks, glossing over the operating costs of a new project. Milhaus would argue that what constitutes the biggest impact on the costs of urban infill and mixed use development is the efficiency of the building; which is driven predominately by the density of the product. Common corridors, common amenities, vertical shaft maintenance, interstitial space, security, etc., all comprise the true costs that must be included in the proforma.

Milhaus is regularly presented with urban projects and proformas that include per-unit operating costs calculated by averaging surrounding suburban, slab on grade, non-corridor design, and surface parking lots. All the while, the same developer in the same proforma has completed serious budgeting and gained significant contractor input for construction costs, infrastructure improvements, FF&E, and all the up front capital components.

Now, a good analyst understands the dramatic affect that a small per-unit operating cost adjustment can make to a proforma. Sometimes, a few hundred dollars per unit can have a bigger effect than manipulating the size of a parking garage. As a developer, investor or banker, make sure that you do a thorough analysis of these portions of the budget. A failed mixed use or urban infill project negatively affects far more people than those involved with the project itself. Remember that you only build it once, but you operate it forever.