Financing mixed-use properties
special to the daily
Here in the High Country we have many mixed-use properties. You ask yourself; just what is a mixed-use property? So here is the answer. A mixed-use property is one that has both residential and commercial spaces under one roof. This type of proprty is simple to explain, but sometimes difficult to finance.
Look around Breckenridge, Keystone, Copper Mountain, Vail and Beaver Creek and mixed-use properties are in abundance. Restaurants, ski shops, liquor stores, and T-shirt shops inhabit the first floors of these buildings. The second floors may have a few offices for architects, lawyers and dentists. The higher floors have residential condos. So what we have are multi-story buildings with businesses below and residential above, all so very simple. The design is simple, but depending upon the percentage of residential to commercial the financing of the residential units can be difficult.
As an example let us look at the buildings in River Run in Keystone. Most of these buildings are four to six stories tall. On the first floors there are the commercial businesses; On the upper floors the residential units are present.
If the building is four stories tall, and the top three are residential, only twenty percent is used for commercial businesses. This is an acceptable percentage to mortgage lenders that specialize in residential mortgages.
Twenty percent is magic number when it comes to mixed-use properties. Percentages of higher than twenty cause many residential mortgage lenders to simply say “no” when it comes to considering a mortgage application.
Now I know that some lenders make a living loaning out money to those people who have to have a residential condo in a high percent commercial building. Lenders who like to lend on these properties charge a higher interest rate than that of a plain condo building. Plus they generally require a down payment in higher amounts than regular residential mortgage lenders.
If you are looking to purchase a residential condo in a building that has a high percentage of commercial usage, be ready to jump through more hoops and expect to pay a higher interest rate.
Like most all things there are exceptions to the rule. Hard money lenders, such as local banks may be ready to lend on such properties. The banker takes your loan application and runs it past the loan committee, and if approved you get the loan. I have really oversimplified how the process goes but I would not count on many banks approving many mixed use loans.
The bottom line for those of you looking for a residential condo on the top floor of a two story building, with a pizza parlor on the first floor, get ready to get a shock. These units are generally harder to obtain financing, and just like deed-restricted properties, most lenders do not care to have them in their portfolio. Get with your mortgage professional well before you sign a contract on a property that is harder than normal to finance. Plus, keep in mind that if you have trouble getting the right financing, so may the guy who attempts to buy it from you down the road.
Bob Kieber can be reached at (970) 262-1199 or at firstname.lastname@example.org. He is a local mortgage lender and principal of Resort Lending.
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