Mixed-use developments are becoming increasingly popular in growing metro areas. As the name implies, mixed-use developments combine residential homes, businesses or other commercial spaces into one property. For the right tenants, these mixed-use properties can be incredibly beneficial for both parties, but as you can imagine, there are some challenges and considerations that need to be carefully managed when overseeing a mixed-use property. Below, we explore some of the challenges and opportunities of mixed-use developments for commercial investors.
Mixed-Use Development Opportunities
Let’s start with the good and focus on the reasons why so many commercial investors are interested in mixed-use properties. In the right scenario, mixed-use development space can be in high demand for residential and commercial tenants.
For example, imagine a mixed-use building going up a couple blocks from a college campus. On the ground floor are commercial spaces for a health food store, a fitness center and a phone repair shop, while units above the main floor are reserved for tenant housing. Residents will be living close to businesses they may frequent with regularly, and the commercial entities are right below the people who may patronize their business the most. It’s a win-win for both sides, and it’s a win for you as an investor because these leasing spaces may command higher prices. The right mixed-use development can be an incredibly lucrative financial investment.
Mixed-Use Challenges
Of course, with great opportunity comes great responsibility, and that responsibility falls on you as the property owner. Some challenges you’ll want to be aware of when considering investing in commercial mixed-use property include:
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Zoning and Land Use Laws - Despite your vision, that land you hope to acquire may not be zoned for the type of mixed-use development you hope to bring to the area. Local zoning laws must be understood and followed, and if you end up entering a lease agreement with a business that cannot legally exist as the area is zoned, it will be your financial headache to unravel.
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Differing Priorities - While businesses and tenants may exist harmoniously at some times, their priorities may differ at other times, and that can cause problems for each. Businesses may take early morning deliveries or stay open late to attract customers, and tenants may not wish to deal with the subsequent noise at different times of the day. You’ll need to carefully draw out rules and regulations in lease agreements and make other parties aware of the stipulations provided to other tenants of the mixed-use space.
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Shared Access - Businesses and tenants oftentimes have shared spaces in a mixed-use development. Businesses may receive deliveries through entryways that are also used by residential tenants, or tenants may have to pass through a commercial parking lot in order to get to their parking spot. Drafting easements and shared access arrangements are a must for anyone hoping to pursue a mixed-use development.
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Differing Lease Terms - Going back to the above example where a business and residential tenants exist near a college campus, you will probably need to have different lease agreements for commercial and residential tenants. Drafting lease terms for parties with different interests and needs will need to be done in order to add the most value to your property.
We’ve helped countless clients find the right mixed-use development for their portfolio, and we can ensure your interests are protected if you are considering pursuing this type of commercial property. For more information, or for assistance with any aspect of commercial acquisition, reach out to the team at Commercial Partners today at (612) 337-2470.