Mixed-Use Properties: Financing Retail Below and Units Above
Shops downstairs and apartments upstairs can be a strong combination. Here's how lenders look at mixed-use buildings and how to make yours financeable.
Short answer
Mixed-use properties combine commercial space, often retail or office, with residential units. Lenders look closely at the split between commercial and residential income, the quality and length of the commercial leases, and the building's NOI. Properties where most income comes from apartments are usually easier to finance than those that lean on retail.
Key points
- The commercial share of income matters.
- Commercial lease quality and length are key.
- Underwriting centers on the building's NOI.
How lenders look at the mix
The more of the building's income that comes from residential units, the more it looks like a multifamily loan. As the commercial share grows, lenders lean on commercial underwriting, with more attention to tenant strength and lease terms.
What makes commercial space financeable
- Signed leases with time remaining
- Tenants with steady businesses and a history of paying
- Market rents for the space, supported by comparables
- Clear responsibility for taxes, insurance and maintenance in each lease
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What to prepare
- A rent roll covering both commercial and residential units
- Every commercial lease, with amendments
- Trailing 12-month operating statements
- Your plan for any vacant commercial space
For how the income turns into a loan size, see NOI, cap rate and DSCR.
Frequently asked questions
Can I get a loan on a mixed-use building?
Yes. Lenders finance mixed-use properties, with terms that depend on the mix of commercial and residential income and the strength of the leases.
Is mixed-use harder to finance than apartments?
It can be, especially when retail provides most of the income or commercial space is vacant. Buildings driven mainly by residential income tend to finance more easily.
What do lenders want for the commercial space?
Signed leases with time remaining, tenants with a payment history and rents supported by the local market.
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