Are Infill Developments Worth Your Investment?

By Published On: August 19, 20226 min read

Infill development is on the rise, and it’s no wonder why. Fewer professionals are moving to the suburbs, in an effort to avoid traffic and long commutes to work, shopping and dining. The accessibility of these amenities is worth the price of city rent for many.

As an investor, infills are a great way to capitalize on city real estate, often at discount prices. You may have heard about some of the hurdles city politics pose to commercial and residential infill projects. But with a little creativity and a community-first proposal, you stand to enjoy a high return on your investment and the satisfaction of serving a community in one fell swoop.

What Is an Infill Development?

An infill development is the new construction or adaptive reuse of vacant or underutilized spaces between other developments.

Infill construction is often referred to as “urban infill” because it commonly occurs in urban centers. However, suburban infill is also an investment possibility.

Infill developments may refer to construction on vacant lots, brownfield and greenfield developments, and the renovation of historic structures.

Why Invest in Infills?

Infills offer the creative real estate investor a world of potential. From mixed-use retail and housing infills to office infills in central business districts (CBDs), you’ve got opportunities to get into the center of the action.

In fact, if you live in a city, you’ve probably noticed a new residential highrise around every corner. Apartment buildings are stacked upon lower-level restaurants, laundromats, cafes and other popular amenities. As the number of cars on the road increases, professionals are willing to pay more to live closer to the business districts in which they work.

Mott Smith, CEO of Amped Kitchens, told Leverage.com he’s worked on multifamily infills, commercial kitchen infills and more. He suggested that today multifamily housing infills get the most attention because “it’s the most under-supplied infill product in big cities.” Office and retail, he said, suffered during COVID and are still in the process of bouncing back.

Armstead Jones, Strategic Real Estate Advisor at LandCashin, has experience with infill deals, all of which were apartment buildings constructed on vacant lots. He confirmed that “the most profitable urban infills are those with commercial tenants and residential units above it.” He added that communities need good retail stores, and the rents are higher than the residential. Plus, banks will lend on them because it’s a credit tenant.

But as an investor or developer, is it really worth it to you to invest in infill developments? Let’s check out the benefits and drawbacks.

Benefits of Infill Properties

There are many benefits of infill development for communities and real estate investors that you need to understand before embarking on your project.

Community Benefits

Believe it or not, infill developments are the subject of controversy. Often confused for gentrification — and sometimes aligned with it — you may run into problems with the city council regarding your proposed infill development.

That’s why it’s so important to understand the community benefits of infills. You may need to state your case at some point during the process. Here are a few talking points you can use:

  • Infill properties revitalize urban centers and encourage much-needed investment in low-income communities.
  • Depending on the municipality, increased residences encourage city planning commissions to add amenities like parks, community centers and public transportation.
  • Infill developments may save existing historic buildings.
  • Infill investments bring money back into the local economy by closing the gap between residents and businesses.
  • In some cases, you can build entire neighborhoods complete with shopping centers (see the infill example of Lowry, Denver, Colorado below). It’s a huge investment with an even more impressive return.

Benefits to Commercial Real Estate Investors

Don’t be scared off by the controversy. As an investor, you stand to see a return on your investment monetarily and in the community. Here are some reasons you should consider investing in infills:

  • Local and state governments often provide financial incentives for infill construction for developers.
  • Property owners can get in at the ground level for up-and-coming communities.
  • Depending on the city you plan to invest in, city centers are often thriving, desirable locations meaning occupancy rates are rarely an issue.

Drawbacks of Investing in Infills

As we alluded to above, there are some hurdles that developers building in suburban areas may have to deal with. Most of them include city politics.

Detractors make the following arguments, so be prepared with positive, data-backed rebuttals:

  • Gentrification: Infill communities can price out the people who already live there
  • New construction in the city is more costly than in the suburbs
  • City construction can lead to months or years of inconvenience for members of the community
  • Increased traffic due to new residents
  • Perceived negative impact on the character of a community
  • Potentially sacrifice green spaces
  • Mixed-use zoning nightmares for all involved

For investors, Jones confirmed that infill developments can face zoning challenges because it limits the number of units allowed. “Limited units mean limited cash flow for the project.”

Jones also noted that finding financing for infills can be a long journey. “Financing is hard because the debt service ratios are low and banks won’t lend.”

However, Smith countered that financing is no longer a real issue. He states zoning and minimum parking requirements pose a greater threat to infills. In fact, “Most older (pre-1960s) buildings that make up the walkable city neighborhoods we love would be completely illegal to build today,” due to zoning laws.

That doesn’t mean you’re out of luck, though. Try connecting with a knowledgeable commercial real estate broker. Brokers have a vast network of debt funds, banks, credit unions and hard money lenders who have more flexible terms. They also have experience facing zoning and commercial real estate financing challenges. Private lenders’ rates may be higher than banks, but they afford you the opportunity to get your project off the ground.

Examples of Successful Infill Developments

Here are a few infilling examples to get your creative juices flowing. These developers turned vacant lots and rundown structures into impressive cash-flowing investment properties.

Small Urban Infill: The Kohlstrand Building

The Kohlstrand Building in Seattle is an excellent example of adaptive reuse in infill buildings. Originally built in 1910 as a marine supply building, it is located in an industrial neighborhood, hence the rustic look.

Designed by Graham Baba Architects and built by CDB General Contractors LLC, this cozy infill serves the community with a cafe, three restaurants, four commercial offices and a wine storage area. It also boasts of preserving the original culture of the area.

Suburban Infill: Lowry, Denver, Colorado

Formerly a U.S. Airforce base, Lowry is a stunning example of how transformative infill projects can be. An extensive mixed-use development with residential single-family homes and convenient commercial spaces where residents can shop and work, Lowry has gone from an unsightly abandoned military dystopia to an adorable suburb professionals are scrambling to move into.

Infill Developments Can Be a Great Investment

Experienced real estate investors stand to make good money on infill developments, especially multifamily housing with retail stores below. With infills, you can help the community by providing much needed services for city residents.

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