Mixed-use development has recently gained popularity in maximizing land use and creating vibrant, walkable communities. These projects combine commercial, residential, and often even industrial spaces in one development, providing a one-stop destination for people to live, work, and play. For investors, mixed-use development offers several benefits, including potential higher returns and the ability to diversify their portfolio. This blog post will explore mixed-use development investing and how it works.
What is mixed-use development?
A mix of residential and non-residential buildings that are planned and built within a city, municipality, and state is known as a mixed-use development. These real estate investments can be as little as a single building or as large as an entire neighborhood, and they are often created to respond to a particular environment. These initiatives provide several benefits, including increased housing affordability, improved walkability between residences, workplaces, and other amenities, stronger neighborhoods, and commercial and industrial development integration with residential living. When done correctly, mixed-use developments combine and complement diverse real estate types.
Types of Mixed-Use Development
As the name suggests, mixed-use developments incorporate a variety of property types. The combinations are almost endless, but a few patterns emerge. Residential and office space or residential and other types of business space are the two most typical mixed-use development types. These buildings have amenities on the ground floor and apartments or condos on the upper floors. In addition, office buildings may be blended with residential sections in other developments of this type to create a “main street” layout.
Another well-liked type of construction involves hotels surrounded by other businesses like restaurants, gyms, and specialty shops. These complexes are frequently found close to airports or other transportation hubs, hospitals, historical sites, and tourist destinations. They offer a range of amenities to accommodate the demands of guests in the area. These are some of the most typical arrangements. However, there are many different kinds of mixed-use developments.
Why invest in mixed-use development?
Investing in mixed-use development can offer several advantages. For one, it allows investors to diversify their portfolios by investing in multiple asset classes. This can reduce risk and provide a more stable return on investment. Additionally, mixed-use developments are often located in prime locations, such as urban centers or near transportation hubs, which can help to drive up demand and increase the potential for higher returns.
Mixed-use development also offers investors the opportunity to participate in the revitalization of urban areas. By investing in mixed-use development, investors can create more vibrant, walkable communities that are attractive to residents and businesses. This can drive up property values and increase the potential for long-term growth.
Advantages For Investors Of Mixed-Use Development
- Increased Customer Exposure
The proximity of mixed-use developments to potential new customers is one compelling feature. Compared to standalone stores, mixed-use development projects can generate far more attention and foot traffic while catering to both a residential and commercial audience. Also, occupants, including those within the mixed-use building, frequently spend money at mixed-use retail businesses.
- More effective property management
The advantages of better property management are another factor contributing to expanding mixed-use developments. Real estate that combines residential, commercial, and industrial uses is called mixed-use. So, to meet the different needs of the entire community, a skilled management service firm is typically required. These advantages often include better processes, fewer vacancies between renters, higher-quality tenants, and better assistance.
- Current Amenities
The location of mixed-use developments is their most attractive feature. These homes are generally located close to existing facilities like parks, libraries, and densely-populated regions. Mixed-use buildings take advantage of the strong preference for central locations with quick access to city amenities among today’s homeowners to build inclusive and linked neighborhoods.
- Lower Risk
Although mixed-use complexes typically help homebuyers, there are various benefits for residential redevelopers, with diversification being the most prevalent. Investors can lower the risk their real estate portfolio is exposed to because these developments offer the best of both worlds (residential and commercial real estate). Nonetheless, diversification can aid investors in reducing the overall effect of hard assets on their investment portfolio, including the capacity to offset the loss. Mixed-use developments are considered a generally safe bet during economic downturns, whether commercial or residential. Mixed-use developments offer lower risk, better revenue, cash flow, longer leases, and less competition, making them perfect for diversifying your portfolio.
- Pedestrian & Transportation
Walkability is another advantage of mixed-use complexes. To learn more about their preferred modes of transportation, the NAR polled 3,000 adult Americans who resided in the 50 largest metropolitan regions last year. According to the report, People want walkable neighborhoods more than ever before. When asked if they would prefer to live in areas with homes with modest yards but proximity to community amenities, 48% of respondents replied yes.
How does mixed-use development investing work?
Investing in mixed-use development typically involves partnering with a developer or real estate company with experience in this type of project. Investors can either provide equity or debt financing to the project, depending on their preference and risk tolerance. Equity financing typically involves investing in the project in exchange for a share of ownership and a portion of the profits. Debt financing, on the other hand, consists in providing a loan to the project and receiving interest payments in return.
When investing in mixed-use development, it’s essential to do your due diligence and assess the potential risks and rewards. This may involve researching the developer’s track record, analyzing the local real estate market, and evaluating the demand for mixed-use development in the area.
Conclusion
Mixed-use development allows investors to participate in revitalizing urban areas while diversifying their portfolio and potentially generating higher returns. However, investing in mixed-use development requires careful research and due diligence to assess the potential risks and rewards. By partnering with an experienced developer and analyzing the local real estate market, investors can make informed decisions and take advantage of mixed-use development’s benefits.
Also read: Understanding CAP rate: The key to evaluating Real Estate Investments
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Author
Shravan Parsi
CEO & Founder | American Ventures
