How to do mixed use valuation

Question

How do you value mixed use? Do you blend your target for residential and then cap rate for commercial to find the value? commercial space is vacant so have the pro forma numbers (yet not rented) and asked from my agent the rent it tomorrow rates. Obviously a big difference as to value it places on the property depending on where the rents actually come in at.

How do you evaluate?

2 commercial spaces (1 vacant for 11 months other about to go vacant), parking is street / driveway (no official spaces). Good location and nice building - just don't want to overpay

How do you evaluate?

2 commercial spaces (1 vacant for 11 months other about to go vacant), parking is street / driveway (no official spaces).  Good location and nice building - just don't want to overpay

Greg Dickerson · Answer

There should be some mixed use product in your market that you can benchmark but to answer your question the CAP rate will not be an average or a blend. It is what it is based on the asset itself in terms of Class, location etc.

Mixed use in good areas tend to trade on the higher end.

Lewis Christman · Answer

@Greg Dickerson so commercial / residential is unimportant?  NOI is still the magic number with estimates for the vacant space(s) and if I want an 8 cap (or any other number) then do the math for the value.

Is there a balance between the cap a commercial sells at and a residential sells at? Blend the two?  If commercials tend to sell at 5 and residential buildings sell at an 8 on average to be realistic do I pick between the 2 and say 6.5 (or any other number for example) since you may not be able to buy a commercial at an 8 cap?

Greg Dickerson · Answer

@Lewis Christman remember the buyer determines value. A property is worth whatever someone is willing to pay.

Banks and Appraisers look at income, comps and replacement.

That being said you would value this based on current NOI for the entire property. If there is vacancy you will need to project that income and the expenses associated with the space to determine what you are willing to pay. The bank will lend based on current income so you will need to fill in the gap there.

The only exception to NOI on certain properties is location. If it’s in a really  hot location with lots of competition some buyers will disregard income.