What cap rate do I use to value a mixed-use building?

There is no single cap rate for mixed-use, you must value each component separately and sum them. Residential cash flow is typically valued at a residential cap rate (5-7% in most markets); commercial cash flow at the appropriate commercial rate for the specific use type (7-10%+ depending on tenant quality and lease terms). The blended cap rate emerges from this analysis rather than being assumed upfront.

Can I convert the commercial component of a mixed-use building to residential?

Potentially, depending on zoning and building code requirements. In many jurisdictions, expanding residential use in a building that already has residential occupancy is relatively straightforward from a zoning standpoint. Building code requirements (egress, fire separation, plumbing) for converting commercial space to residential are the primary technical hurdle. Engage a local architect for a preliminary conversion feasibility assessment before making this part of your acquisition thesis.

How do I handle existing commercial leases in a mixed-use acquisition?

Commercial leases typically survive a change of ownership, the buyer takes the property subject to existing leases. Review each commercial lease for: assignment provisions (some leases require landlord consent for assignment, which a sale triggers); operating covenants (some commercial leases have co-tenancy or continuous operation requirements that the new owner inherits); and renewal options (understand the mechanism and notice deadlines for each tenant's renewal rights).

Are ground-floor retail spaces in mixed-use buildings worth acquiring even if vacant?

Yes, in many cases. Vacant ground-floor retail in an urban mixed-use building represents an asset you are essentially getting at near zero value (the building's residential cash flow supports the acquisition economics), with the option value of successful activation adding significant upside. The downside is limited to the TIA and carrying cost of activation, provided you have underwritten the acquisition price to the existing residential cash flow without any commercial contribution.

What are the most common lenders for mixed-use commercial real estate financing?

Community banks with local commercial real estate lending programs (most comfortable with smaller mixed-use), portfolio lenders at regional banks with mixed-use experience, CMBS for larger ($5M+) mixed-use stabilized assets, and bridge lenders (debt funds, mortgage REITs) for acquisitions requiring reposition capital. Agency debt (Fannie/Freddie small balance) is available for the residential component if commercial space is under 35% of total square footage.

How to Find Off-Market Mixed-Use Commercial