Investing in Mixed-Use Developments

Mixed-use developments can make smart investments for savvy investors that understand the real estate industry and market. Investing in mixed-use developments can be good as these properties tend to be pedestrian-friendly areas that blend commercial, industrial, institutional, residential, and/or cultural uses. In this way, mixed-use developments foster community and the economy. 

What is a mixed-use commercial property?

Most mixed-use properties are multi-story developments that designate the first floor for commercial use while the upper floors are reserved for residential use. In technical terms, mixed-use developments follow three tenets:

  1. They provide at least three revenue-producing uses, including (but not limited to) residential, office, hotel, retail, and cultural.
  2. They foster compatibility of land use.
  3. They create a pedestrian-friendly community with uninterrupted pedestrian connections.

The benefit of a mixed-use commercial property is that people can live, work, and play all in one place. With this type of density and integration, mixed-use properties also attract people from other neighborhoods due to the multiple functions within one development.

What is mixed-use zoning?

Mixed-use zoning allows land to be used in both horizontal and vertical ways within a specific area. Another option for mixed zoning is a pure mixed-use walkable area, that includes both horizontal and vertical spaces along with other expenses that encompass various other needs of everyday life. 

Vertical mixed-use means that:

  • Different uses (residential, retail, or industrial) are combined within the same building.
  • The lower floor serves is reserved for public use, such as restaurants, commercial businesses, or retail.
  • The upper floors serve more private purposes, such as hotel rooms, residential units, or offices.

Horizontal mixed-use is slightly different.

  • It is made up of multiple buildings within a mixed-use zoning parcel. This means that multiple land uses can occur within a single development project. 
  • It includes integrated uses that tend to be complementary. These developments are often walkable and occur within a specific parcel of land, development project, or neighborhood. 

Pure mixed-use walkable areas usually offer vertical and horizontal spaces:

  • They may be surrounded by large market spaces, restaurant chains, recreational areas, libraries, schools, and other essentials.
  • They tend to holistically offer to fulfill a resident’s personal living and professional needs. 

What is meant by mixed land use?

Mixed land use is the way that land is allocated within a mixed-use development. Investing in mixed-use developments is highly preferred as the mixed land use makes these developments prone to a higher return on investment. 

When retail and commercial sectors are not doing as well, developers can still bring in revenue and vice versa. Since commercial leases tend to bring in a bulk of revenue, it is a boon to be able to serve that sector in addition to residential leases. 

Mixed land use is good for both the developer and for the lessees of the space. Retail tenants in mixed-use developments employ people and bring others into the community. 

Residents will also be interested in shopping in nearby stores, which are highly convenient. Residents will prefer getting coffee, enjoying a haircut, and seeing a movie in their own mixed-use development where they will not have to travel far. 

Does the FHA allow mixed-use property?

FHA loans may have a diverse set of applications. While an FHA single-family home loan cannot be used for commercial property, mixed-use purchases fall into a different category. 

An FHA mortgage may be permitted for a mixed-use property if the property is the borrower’s primary residence and if the home meets FHA standards. One scenario where a borrower may consider an FHA loan for a mixed-use property is if they are looking to purchase a home in an area zoned as mixed-use. This may be a mixed commercial and residential development and the borrower may have an interest in owning both a home and a small storefront. 

To be approved for an FHA loan in a mixed-use development purchase, the borrower should consider both state and local ordinances and other regulations that may factor into approval. The primary residency requirement is non-negotiable. At least one person listed on the mortgage must live in the property as the primary residence as a condition to be approved for the loan. 

What is mixed-use retail?

Mixed-use retail is part of a mixed-use development. Many choose to invest in mixed-use developments for the retail element alone. Millennials, in particular, tend to be drawn to mixed-use developments, which offer a walking commute opposed to driving. These communities are appealing because of their recreational areas and parks, urban lifestyles, and retail shops, like artisanal bakeries and movie theaters. 

By appealing to Millennial homebuyers, those investing in mixed-use developments can also build a solid base for retail. The residential aspect will likely feed into the retail aspect of any mixed-use development.

Mixed-use retail often serves as the center of a larger mixed-use development. The retail portion can unify communities built around retail. Additionally, these mixed-use retail developments may offer offices, hotels, residential, medical offices, or other spaces. 

Urban high-rises are good examples of a mixed-use retail building. The ground floor is used for retail, followed by office spaces on the floors above. The highest floors are reserved for residential use, though the residents often utilize the retail and office spaces offered on the lower levels. 

Overall, investing in mixed-use developments is a smart choice. Even in years when retail is suffering and storefronts are closing, mixed-use developments can succeed. With higher returns on investment and attractive market segments that combine retail and residential, mixed-use properties have high appeal for investors and property managers.