How do I underwrite mixed-use properties?

Underwrite a mixed-use property by splitting it into its parts. Underwrite the apartments, the retail and any office separately, each with its own market rents, vacancy, lease terms and expenses, then add the parts back together. One blended rent and one blended cap rate hide the risk, which usually sits in the commercial space. Step by step 1. Separate the rent roll by use. Residential units, ground-floor retail and any office or parking each get their own section. 2. Market rents by use. Apartment rents from nearby apartment comps; retail rents from retail leases in the same corridor. 3. Vacancy by use. Residential vacancy is usually lower and steadier; retail vacancy can swing with one tenant. 4. Lease terms. Residential leases roll every year; retail leases run for years and carry renewal options, reimbursements and tenant improvement costs. 5. Expenses. Split common costs fairly and check which tenants reimburse taxes, insurance and maintenance. 6. Value. Apply a cap rate by use, or a blended rate weighted by each part's NOI, and compare with sales of similar mixed-use buildings. What lenders look at Many lenders size the loan mainly on the residential income and give limited credit to the commercial part. Run DSCR with and without the retail income to see whether the deal still works. Common mistakes - Using the asking retail rents as market rents. - Ignoring the cost to re-lease a ground-floor space if the tenant leaves. - Applying a residential cap rate to the whole building. Titleman underwrites each use on its own comps and rents, then reconciles them in one model in your template. See how Deal Review works: https://titleman.ai/products/deal-review