Any watch outs for first mixed use deal?

Question

Hello all!

Working on closing a mix use deal in NJ. 2 commercial space on first floor and 4 apartments above it. Comps are looking good. I know the potential of this location for residential rentals, as I have other units in the area. This is my first mix use deal (and commercial) though. Since the meters are separate for each units, I’d pursue NNN for commercial space.

My question - any key watch outs from commercial real-estate pros out there? Anything on permits or special taxes or occupancy requirements I should be aware of?

Also, both commercial spaces are equipped with restrooms. I’m planning to have plumbing and gas line in place, but not sure if I should customize any further for any specific type of use (wasn’t planning on, but I’m open to ideas).

Thanks!

Tiffany Colvert · Answer

I agree with the other comments but will add that you should definitely verify the zoning on the two commercial units to ensure you will be able to get good tenants in. You'll also want to limit tenants with a lot of noise or odors. One property I worked on had a restaurant below the apartments and we always had complaints from the residential tenants. Ideally, you might find someone that wants a live/work situation and can occupy both - could be a marketing angle you can take. Best of luck!

Neil Cronkrite · Answer

Two thoughts: make sure you account for a 6% leasing fee to lease out the commercial space. Also account for a healthy tenant improvements budget. Think like a resident: what type of retail business would you want to have as a neighbor? That might limit the opportunities.

Brock Mogensen · Answer

The biggest risk in a deal like this, is you are not able to lease up the retail units.  Are the units currently vacant?  How long have they been vacant?  Has a good broker been marketing thos spaces? For how long?  If it's occupied..how much term is left on the lease?  Are the rents at or below market rate?  Is it true NNN?  These are great questions to ask yourself as you go through DD