Inflation, attracting tenants and land scarcity are common challenges commercial developers face when building new shopping malls in Mexico, but recently their headaches are coming from a difference source: neighboring committees.
The Energy Reform heightened the importance of the environmental and social impact that infrastructure development has on it surroundings. With the Hydrocarbon Law and Electric Industry Law, the elaboration of Social Impact (EIS) and Environmental Impact Evaluations (EIE) was made mandatory in all energy projects. The law empowered citizens to take charge on what is built and how it is constructed in their surroundings and forced the industry to place more emphasis on not just how to be technically sustainable, but also financially, socially and environmentally. This has now spread to all types of infrastructure development and communities are coming together to ensure that constructions are for the good of everybody.
By 2050, INEGI expects that 90 percent of the Mexican population will be living in cities. There will be a greater scarcity of land as the years go by, and it will be more expensive for developers to acquire. ICSC estimates that by 2025 Mexico will have more than 107 million people living in urban areas, approximately 760 shopping centers and 23.3 million m2 GLA leading to a ratio of 22m2 of commercial space per 100 habitants. Although the growing middle class and stable economy continues to demand more commercial space, land scarcity in these urban areas is challenging the creativity of developers.
THE TROUBLE WITH MALLS
In most cases, the determining factor for the success of any type of commercial development is location, location, location. As cities expand, land becomes scarcer and developers must collect their parcels over the course of several years to have a plot large enough for development. For Grupo Sordo Madaleno’s (GSM) Reforma Colón, it took the company three years to fuse together 27 different properties totaling more than 45,000m2 in Mexico City’s historic downtown and this problem will only continue to grow.
Land use regulations in cities have also become stricter due to high densities. To maintain control of urban sprawls, the Ministry of Urban Development and Housing (SEDUVI) developed various processes for companies wishing to develop real estate projects. One of those processes demands commercial developers carry out Urban Impact Evaluations for projects that exceed 5,000m2 and a second evaluation must be done if the project is expanded over another 5,000m2. But changes in the Mexico City Human Settlements Law, Housing Law and new permits and licenses have caused developers many headaches in 2017. “Permits are the most difficult aspect of creating a new commercial real estate development,” says Eduardo Güemez, CFO Of Mexico Retail Properties (MRP).
Regardless of the type of real estate development being constructed, from malls to offices, developers must have all the necessary permits before breaking ground. In 2017, Chapultepec Uno, one of Reforma’s newest skyscrapers experienced a temporary decommissioning implemented by authorities, and even though it only lasted 48 hours it still implies extra costs to the developers. “The closure was caused by a neighbor with enough influence to cause problems,” says Francisco Martín del Campo, Founder and Director General of Arquitectoma. “Normally, the authorities give a warning at least a week before closing a project but in this case, it was carried out without the proper justification. Authorities often listen to influential people but projects can protect themselves by making sure they are following all regulation and norms.”
JUMPING THROUGH LEGAL HOOPS
According to Güemez, the situation is often exacerbated by lack of clarity regarding the role of the developer. “In Mexico City, given its size and density, the permits required by the government must play a big role,” he says. “But unfortunately, developers are often faced with pressure and obligations that are not legally well-defined.” Before MRP purchased the terrain for its Patio Tlalpan project, it was the first psychiatric hospital in Mexico, the San Rafael Clinic, which holds historical value to the community. There was debate about whether developers should be allowed to construct there. With INAH or INBA involved, there were inevitable delays due to the intricacies of developing on or near a historical landmark. On top of the various land and construction permits that developers have to have to build a commercial center.
Another issue developers face is the continuity across different levels of government, that can often impose different requirements. “Having to make agreements with different municipalities or government agencies can increase uncertainty in the project,” says Güemez. “If a developer has the right permits and is respecting the use of the land stated by the government, developments should be respected.” Transparency plays a key role in ensuring that the land is being used in the most efficient way possible to benefit the communities. These blurred lines create room for interpretation and misconception, which is why it is important to improve license and permit processes.
A common concern of neighborhoods is that the mega developments will monopolize the energy and water supply, withholding it from the residential areas. This was the case with GSM’s Artz project in the south of Mexico City. “Artz is a project that by nature transformed it into a controversial topic, not for what it represents but because of where it is located and because sometimes people are not well-informed about a project,” says Director of Architecture, Javier Sordo Madaleno de Haro. GSM invested more than MX$200 million (US$11 million) on public infrastructure around the commercial development, including installing U-turns, bypasses and tunnels to ensure to the community that mobility would not be a problem. For Artz, GSM also allocated 50 percent of the rentable space, which was more than 20,000m2, to green areas for the community.
For both the Artz and Patio Tlalpan projects, the main fear from neighbors was that it would add to the mobility problems the delegations already experience. This is the most common worry whenever there is a new shopping center because more people will be attracted to the area. This is why developers must adapt the surrounding infrastructure the best they can to ensure that the mall does not add to the problem. “The problems that arise with neighborhoods is that everybody wants to have a supermarket nearby but nobody wants it next to their house,” says Güemez. “It is important to consult with neighbors and have as many people on board as possible but these types of things could also open doors to excessive demands from the community.”
Patio Tlalpan is a power center located in Insurgentes Sur 4177, near the freeway to Cuernavaca. This mall will have more than 38,583 m2 GLA, 65 commercial spaces and is expected to have an area of influence of 309km2. The closest shopping centers total area are Perisur and Galerias Coapa located 3km and 9km away, respectively. The project was expected to be completed by 2Q17 but due to various issues with the surrounding communities, it has been pushed back to 4Q17. In a 500m2 radius around Patio Tlalpan there are more than 7,867 people, 2,630 homes and 252 businesses. The developer, MRP experienced many setbacks due to inconformity of neighbors and the new government.
Artz is designed to be the heart of the south and the new Antara. This 50,500m2 mixed-use project is located in the heart of one of Mexico’s most expensive housing areas in the south of Mexico, Pedregal. Its dream-like location has access to Periferico, surrounded by hundreds of potential customers and passersby. It is located only 4km away from Perisur which is one of the most popular and oldest malls in the south. In its 500m2 radius, it will impact more than 4,329 people, 1,449 homes, and 212 businesses. For Grupo Sordo Madaleno, the main challenge that it encountered was the reception of the surrounding neighborhoods in terms of mobility and lack of infrastructure.
GOVERNMENT TAKING ACTION
But in the midst of the uncertainty, the government is stepping in. Laboratorio para la Ciudad is an experimental division of the Government of Mexico City. The laboratory is a space where global specialists pose new ways of approaching issues relevant to the city, incubate pilot projects and promote multidisciplinary meetings around civic innovation and urban creativity. Through the Laboratorio, the Mexico City government has already carried out some interesting projects to bridge the gap between developers and citizens. “The Cooperative Action System (SAC) is a program in which a percentage of the funds developers invest in the city are used for projects that benefit the surrounding communities,” explains Gabriella Gómez-Mont, the Laboratory’s Director General. “There have also been public consultations regarding the use of these funds, meaning the communities have an input into the use of the money. Government, local communities and companies invested in the area can sit side by side and make the decisions.”