The mix definition for mixed use development refers to buildings that have multiple units zoned for different uses, usually residential (multifamily) and commercial (retail shopping centers and office building space). It can also include a mixed use of industrial, institutional and cultural units.
For example, a mixed use building might consist of several ground-floor retail stores with residential units (rental or condo) on higher floors. Some government-backed loans require at least 80% mixed use residential use. Assets America® funds mixed use development for medium and large properties, starting at $5 million.
Loans for mixed use property include short-term and long-term financing. The construction/rehab phase is financed by interest-only mixed use construction loans or commercial mortgage bridge loans from banks and private lenders, often backed by government agencies. They commonly have terms of 6 to 18 months but could conceivably run up to five years on larger projects. Mini-perm loans pay off the construction phase once a certificate of occupancy has been granted and 90% to 95% of the space has been leased and stabilized.
These loans have terms of up to five years, and are eventually replaced by permanent, commercial takeout loans, or mortgages, with amortization terms up to 30 years.
These loans are also used to refinance mixed use real estate. Assets America® can conveniently provide full, mixed use development financing for mixed use construction, mixed use bridge, mixed use mini-perm and mixed use takeout loans, thereby assuring funding continuity to investors and business owners nationwide. Our multi use bridge loan funding helps developers that don’t qualify for typical, bank-sourced construction loans.
Who Benefits from Mixed Use Development Loans
The two primary users of mixed use development loans are real estate investors and business owners. The investor will build/buy the mixed use building and lease out the space to commercial and residential tenants but may also sell units. This kind of investment is attractive on a risk/reward basis, as the commercial tenants usually pay more in rental income than do the residents, while the increased occupancy risk stemming from commercial tenants is offset by stable residential leases. Apartments are usually cheaper to maintain and don’t need commercial unit build-outs (aka TI’s) or leasehold improvement allowances. Taking all these considerations into account, mixed use buildings have attractive risk and return characteristics for investors. Of course, investors can choose to live in their mixed use development as well.
A business owner might buy one or more mixed use buildings, run the business in the commercial area while living in one of the residential units, and sell or lease out the remaining units, if any. The business owner may also function as landlord or might farm this function out to a professional property manager.
Mixed Use Buildings
As stated earlier, most mixed use buildings consist of a residential component occupying at least 80% of the net leasable area, with the remainder devoted to non-residential space, typically commercial office space and/or retail shopping center space. Here are some common mixed use development combinations:
Main Street Commercial/Residential: Commercial units on the ground level facing the street below a few stories of residential units.
- Urban Commercial/Residential: Similar to main street commercial/residential buildings except the commercial space doesn’t necessarily face out to the street. These building typically have 3 or more stories.
- Office and Multifamily: Residential (multifamily) units sharing space with offices in one or more buildings.
Live/Work Space: A building owned by a business in which the owner lives in the residential portion and works in the commercial portion. The below project, financed by Assets America®, is a beautiful Class “A” mixed used development, high-rise property in a tertiary market. The property consists of a “commercial component” on floors 1-5, and a residential component containing for sale, luxury condominiums on the 20 stories above the 5 floors of retail and office.
- Studio/Light Industrial: A building where residents can operate small workshops or studios.
- Retail District Retrofit: Renovated mixed use suburban properties that were once strictly retail.
- Hotel and Residence: Hotels like the Four Seasons (or in the below rendering, the “Landing Hotel”) sell some units as condos to residents who share the building with hotel guests.
- Neighborhood Commercial: Mixed use buildings with a ground-floor convenience store, usually situated in residential neighborhoods.
- Shopping Mall Conversion: Residential units added adjacent to an existing shopping mall.
Types of Mixed Use Development
The typical sources of mixed use development financing are banks, conduits and private lenders. Government agencies can guarantee, and in some cases provide, funding for mixed use development as well.
Government-Backed Mixed Use Development Loans
Although several agencies back mixed use development loans, Assets America® typically works with Fannie Mae for permanent financing of mixed use projects. The Small Business Administration typically limits loan amounts below the range at which we operate ($5M+). Loans are also available from the USDA for mixed used development in USDA rural development areas.
Fannie Mae multi-family mortgages are available for mixed use properties in which the space is at least 80% residential. The terms for its fixed-rate mortgage loans are as follows:
- Term: 5 to 30 years, non-recourse fixed rate, for acquisition or refinance of existing properties.
- Amortization: Up to 30 years.
- Minimum DSCR: 1.25.
- Maximum LTV: 80%.
- Eligibility: Properties must have at least 90% occupancy a minimum period of 90 (aka 90 for 90) days prior to funding. Properties must have at least five units. Fannie prefers metropolitan properties but will consider secondary and tertiary markets if other aspects of the deal fall within certain parameters.
- Prepayment: Available with payment of yield maintenance or prepayment premium.
- Rate Lock: Commitments of 30 days to 180 days.
Assets America® uses its network of local, regional and national banks, as well as private commercial lending sources, to arrange short-term and long-term financing of mixed use development projects.
Short-term loans (construction and bridge loans) can have these average terms:
- Term: 6 to 18 months.
- Interest Rate: 4% to 12%.
- Lender Fees: 1% to 3% origination fee, 1% exit/extension fee, 1% prepayment penalty.
- Amortization: Typically none, interest only.
- Minimum DSCR: 1.05.
- Maximum LTV: 70% to 90%.
- Eligibility: Credit score 550+, no subordinated debt.
- Approval Time: 5 to 45 days.
Mixed use Development Loans from Assets America®
Assets America® has the experience and resources to provide full life cycle lending for mixed use development buildings. We can provide a mixed use property loan for the construction, rehabilitation, acquisition or refinancing of mixed use real estate, even if you don’t qualify for a bank loan.
Frequently Asked Questions – Mixed Use Development
Glossary of Mixed Use Development Terms
A-Grid A through-way (road or walkway) where foot traffic is of primary importance
Aging In Place An increasingly popular term, it refers to the ability of tenants to comfortably live in a single community for an extended period of time, regardless of age, race, or any other demographic
B-Grid A through-way (road or walkway) where foot traffic is of secondary importance
Buffer Zone A strip or region of land between two properties that mitigates the effect of the properties on each other; for example, a water treatment facility requires an appropriately spacious buffer zone from residential communities
Charrette A meeting between residents, architects, community planners, developers, etc. in order to ensure a common vision for construction and/or continued development
Easement An agreement that allows one property owner to use, have access to, or develop parts of an adjacent property, as when an electrical company builds power lines through a neighborhood
Highest and Best Use Refers to the optimal development of a land parcel in order to generate the most profit
Level of Service A rating system (from Level of Service A to Level of Service F) that designates the amount of traffic, both pedestrian and vehicular, that a particular thoroughfare can safely and smoothly accommodate
Tenant Improvements (TI) Allowance Changes made to a multifamily or mixed use property, by the owner, to accommodate the needs of the tenants; typically commercial leases include an allowance for TI
Variance An exception to zoning regulation granted in extenuating circumstances
Zero Lot Line (ZLL) A zoning approach in which an undeveloped parcel of land is sited on one or more lot lines, allowing for flexibility during the development/construction phases
Glossary of Mixed Use Development Terms
- The International Council of Shopping Centers has an excellent two-part series on redeveloping mixed-used spaces for optimal efficiency and profit. You can read Part I: The Economics of Place Making and Part II: Achieving Optimal Market Position.
- Read about the increasing role of technology in mixed used development from this Globe St. article.
- The JLL Retail Blog published the article, which describes the “halo effect” and other factors contributing to the continued rise of mixed-used developments.
- Read the Forbes article for a general overview of how mixed use developments drive up property values.
- For a collection of highly efficient mixed use developments brimming with innovative and community-fostering elements, check out 10 Urban Projects That Nail Mixed-Use Design.
We understand that each project is unique, which is why you will benefit from our customized service that gets you the best mixed use development financing package. We invite you to contact us today for a no-obligation consultation and proposal. Please call today at (206) 622-3000! We look forward to hearing from you!