Mixed-use properties may be trending in popularity across the country, but it’s nothing new to the industry. In fact, up until the early 1920’s, most of the commercial development in the United States was focused on urban locations where mixed-use properties enabled residents to live and work in walkable communities. It wasn’t until the advent of cars that this set-up started to shift. The invention of the automobile allowed workers to escape cramped cities for the roomier abodes of the suburbs and forcing urban real estate investors to abandon their mixed used concepts.
Like everything else, real estate trends come and go. Currently, the pendulum has reverted to favor urban areas where there is a concentration of job opportunities, vibrant social scenes, and in-demand amenities—making mixed-used development an increasingly popular option for real estate investors.
What is a Mixed-Use Commercial Property?
A mixed-use real estate development is a combination of both residential and non-residential structures ranging from single buildings to entire communities. When properly organized and developed, mixed-use plans connect various types of real estate assets in mutually beneficial ways. Mixed-use properties come in numerous iterations, but they all integrate multiple uses within a single property (e.g., a ground floor retail with housing units in the upper levels). It can also refer to horizontal mixed-use blocks, in which individual units contain only a singular use but are situated on a black with a wide variety of land uses (e.g., an apartment building with a pharmacy store next door).
Why Mixed-Use is a Smart Investment Move
The mid-2000’s saw an uptick in mixed-use development on a national scale, as developers sought new approaches in blending urban-style living with walkable communities. There has been a resurgence in their popularity, bringing in domestic and foreign investors alike. All signs point to this being a trend that will last for the foreseeable future. Here are a few reasons why:
Business Revenue: Mixed-use properties offer built-in customers for commercial outlets, opening multiple revenue streams for investors. In addition to generating both a residential and commercial client base, mixed-use properties draw considerable foot traffic compared to stand-alone structures.
Management Efficiency: Property managers are accustomed to handling issues of multiple property classes simultaneously, streamlining business operations in the form of higher quality tenants, shorter vacancy cycles, more efficient processes, and enhanced support.
Amenity Proximity: Mixed-use properties typically are situated near other amenities, making them desirable for residents. The modern homebuyer has a strong preference for central locations with convenient access to urban attractions, and mixed-use properties are aligned with this lifestyle.
Reduced Risk Profile: The inherent diversity of tenants (commercial, residential, etc.) can mitigate the aggregate risk for real estate investors. Diversification in general allows investors to reduce the collective impact of underperforming assets by counterbalancing any potential losses. Regardless of whether the commercial or residential market takes a downturn, mixed-use developments are regarded to be a relatively safe investment move. Additionally, this asset class offers higher income potential, increased cashflow, longer lease terms and reduced competition—all favorable qualities from an investor’s perspective.
Walkability & Transportation: Younger generations seek walkable communities, which could result in increased rental demand. A recent survey by the National Association of Realtors (NAR) surveyed over 3,000 adults residing in the 50 biggest urban markets to get a closer look at their transportation preferences. The study showed that the vast majority of Americans prefer walkable communities. Research also shows that more than 50% of Americans would either walk or bike instead of driving if they had the choice. Mixed use provides them with this chance. Dense, mixed-use developments enable people to lead more active lifestyles.
If you are looking for a loan on a mixed use property in California, Security Financial Services is here to help! Send us an email at lending@secfin.com to get started on the application process.