First of all, the mix definition for mixed use development refers to buildings that have multiple units zoned for different uses. This is usually residential (multifamily) and commercial (retail shopping centers and office building space. Additionally, it can include a mixed use of industrial, institutional and cultural units.
Furthermore, a mixed use building might consist of residential units above several ground-floor retail stores. Also, some government-backed loans require at least 80% mixed use residential use. Correspondingly, Assets America® funds mixed use development for medium and large properties, starting at $5 million.
Loans for Mixed Use Development
Hence, loans for mixed use property include both short-term and long-term financing. Equally important, 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. As a matter of fact, they commonly have terms from 6 to 18 months. However they 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. On the whole, these loans have terms of up to five (5) years. They are eventually replaced by permanent, commercial takeout loans, or mortgages, with amortization terms up to 30 years.
Furthermore, these loans 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. To that end, to investors and business owners nationwide are assured of funding continuity. Moreover, 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
Real estate investors and business owners are the primary two users of mixed use development loans. The investor will build/buy the mixed use building. Then, he will 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. Commercial tenants usually pay more in rental income than do the residents. Consequently, 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 purchase one or more mixed use buildings. Subsequently, he could run the business in the commercial area while living in one of the residential units. Or he could 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 Building Types
Previously stated, most mixed use buildings consist of a residential component occupying at least 80% of the net leasable area. Consequently, the remainder would be devoted to non-residential space. This would typically be 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.
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.
This is a property 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. This elegant high-rise property is situated in a tertiary market. The property consists of a “commercial component” on floors 1-5, and a residential component. The residential portion consists of for sale, luxury condominiums. The condos reside on the 20 stories above the first five (5) floors of retail and office.
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.
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 Financing
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. Additionally, The Small Business Administration typically limits loan amounts below the range at which we operate ($5M+). In fact, 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: First of all, properties must have at least 90% occupancy a minimum period of 90 (aka 90 for 90) days prior to funding. Next, properties must have at least five units. Also, Fannie prefers metropolitan properties but will consider secondary and tertiary markets if other aspects of the deal fall within certain parameters.
- Prepayment: Likewise, this option is available with payment of yield maintenance or prepayment premium.
- Rate Lock: Certainly, most commitments are written for 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 projects. Additionally, we can provide a mixed use property loan for the construction. Furthermore, we can do financing for rehabs, acquisition or refinancing of mixed use real estate, even if you don’t qualify for a standard institutional loan.
Frequently Asked Questions – Mixed Use Development
There are numerous benefits to developing spaces with both residential, community, and commercial properties, including but not limited to: It is mixed-use space that combines different uses within the same building, often seen in cities where an apartment building has a storefront or a cafe′ on the ground floor. It is mixed-use space that combines different uses across the same parcel of land, often anchored around a particular commercial building, such as a community center. In the United States, the most popular kinds of mixed use developments are residential areas with commercial zoning for grocery stores and convenience stores, Main Street areas where the majority of buildings employ vertical mixed use development, and office convenience spaces that provide residential space close to business parks or other commercial activity. It refers to mixed-use development, centered on a “live-work-visit” trifecta of community development. Two established schools of thought, New Urbanism and Intelligent Urbanism, are overlapping theories of urban design often used by mixed use developers to ensure the highest and best use of developable land. Though less well-known, you may also want to check out the design principles of Smart Growth.
There are numerous benefits to developing spaces with both residential, community, and commercial properties, including but not limited to:
It is mixed-use space that combines different uses within the same building, often seen in cities where an apartment building has a storefront or a cafe′ on the ground floor.
It is mixed-use space that combines different uses across the same parcel of land, often anchored around a particular commercial building, such as a community center.
In the United States, the most popular kinds of mixed use developments are residential areas with commercial zoning for grocery stores and convenience stores, Main Street areas where the majority of buildings employ vertical mixed use development, and office convenience spaces that provide residential space close to business parks or other commercial activity.
It refers to mixed-use development, centered on a “live-work-visit” trifecta of community development.
Two established schools of thought, New Urbanism and Intelligent Urbanism, are overlapping theories of urban design often used by mixed use developers to ensure the highest and best use of developable land. Though less well-known, you may also want to check out the design principles of Smart Growth.
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.
Henceforth, we understand that each project is unique. Consequently, you will benefit from our customized service. Our financial services can provide the best mixed use development financing package. And finally, we invite you to contact us today for a no-obligation consultation and proposal. We strongly urge you to call today at (206) 622-3000! We look forward to hearing from you!