What Are Mixed-Use Properties?
Mixed-use properties integrate residential, commercial, and sometimes industrial spaces into a single building or development. What are the main benefits? These spaces allow residents to live, work, and enjoy leisure activities within one area.
For example, a high-rise building with retail stores and restaurants on the ground level, a hotel in the middle, and condos at the top stories exemplifies a vertical mixed-use property.
According to research, urban mixed-use districts are on the rise and account for 54% of the most expensive U.S. streets.
Types of Mixed-Use Properties
Vertical Mixed-Use: Different purposes stacked within a single structure. Picture a building with a café and shops on the first floor, office spaces above, and residential units on top.
Horizontal Mixed-Use: Multiple buildings within one complex, each serving distinct purposes. Think of a retail plaza with apartments or offices surrounding it.
Live-Work Spaces: Units where tenants both live and conduct business. For example, a ground-floor art studio with living quarters above.
Mixed-Use Urban Districts: Large-scale developments that blend homes, offices, parks, and shops into walkable neighborhoods.
Benefits of Mixed-Use Properties
Mixed-use properties offer more than just a practical design — they can greatly benefit residents, businesses, and communities.
1. With shops, restaurants, and offices close by, mixed-used properties and districts cut down on long commutes and make daily life more convenient.
2. Their versatility often boosts property values, as demand for live-work spaces drives prices up. Local businesses gain from steady foot traffic, which supports the local economy.
3. These developments also promote walkability and social connections, creating lively, close-knit neighborhoods.
4. Lastly, they’re good for the environment. They often reduce urban sprawl and use space better, supporting more sustainable, compact communities.
Property Tax Implications
Mixed-use properties often face tricky property tax assessments because of their combined residential and commercial uses.
Blended Assessments
Many local governments use a blended tax rate. They calculate taxes based on the percentage of the property used for residential versus commercial purposes. For example, if 60% of a building is residential and 40% is commercial, the property tax will have a mix of both rates.
Blended assessments can make tax bills more complex, so it’s important to understand how your property’s use is divided.
Valuation Methods for Mixed-Use Properties
For commercial real estate investors, understanding how mixed-use properties are valued is key to managing tax obligations and investment returns. Property assessors typically use three main valuation approaches:
Income Capitalization Approach
This method is commonly used for income-generating properties like office buildings, retail spaces, and mixed-use developments. It estimates a property’s value based on its ability to generate income. Assessors consider:
Net operating income (NOI): The total revenue a property generates minus operating expenses.
Capitalization rate (Cap Rate): The expected rate of return on investment based on market conditions.
Formula: Property Value = NOI / Cap Rate
For example, if a mixed-use property generates $100,000 in annual NOI and the market cap rate is 6%, the estimated value would be $1.67 million ($100,000 ÷ 0.06).
Sales Comparison Approach
This method evaluates the property’s value based on recent sales of similar properties. Assessors analyze comparable sales and adjust for differences in:
Location
Size and condition
Property type (e.g., mixed-use with retail vs. mixed-use with office spaces)
For example, if a similar mixed-use property recently sold for $2 million but had newer renovations, an older but similar property might be valued slightly lower.
Cost Approach
This approach estimates how much it would cost to replace the property if it were rebuilt today. It considers:
Land value
Construction costs
Depreciation (wear and tear over time)
For example, if it would cost $3 million to build a new version of the same property, but depreciation reduces the value by $500,000, the estimated value would be $2.5 million.
Importance of Accurate Property Classification
Misclassifying a mixed-use property can lead to higher property taxes or penalties. Review your property classification each year and confirm that it accurately reflects how the property is used. If the classification is incorrect, you can challenge it by filing a property tax appeal.
Even if the classification is correct, you can still protest because the assessment and valuations could be inaccurate.
Property Tax Appeals and Savings
Property tax appeals help owners lower their tax bills if they believe their property has been overassessed.
If you think your assessment is too high, you can file an appeal with evidence, such as prices of similar properties or rental income statements.
The appeal process often involves paperwork and discussions with local tax offices or an appraisal review board (ARB). Winning an appeal not only lowers your current tax bill but can also reduce your taxes in future years.
Challenges of Owning Mixed-Use Properties
Owning a mixed-use building has its perks, but it also comes with challenges.
Mixed-Use Zoning Regulations
Commercial properties often face complex mixed-use zoning rules that can restrict how you use or renovate your space. Always review local codes and permit requirements before investing in mixed-used properties or making changes.
Complicated Financing
Lenders may view mixed-use developments as riskier than single-use properties, leading to higher interest rates or stricter terms. Seek a lender experienced in financing mixed-use properties or districts.
Management Complexity
Balancing residential and commercial tenants in one building can be challenging, especially with different lease structures and responsibilities.
How To Lower Property Taxes on Mixed-Use Properties
Reducing your property tax bill starts with using the right strategies:
Apply for every eligible exemption: Research local tax breaks for commercial space improvements or energy-efficient upgrades.
Keep accurate property records: Maintain detailed property records of improvements and rental income to support appeals and correct overassessments.
Request a property tax review: Compare your assessment with similar commercial properties to identify overvaluations and request reassessments.
File appeals on time: Act quickly if you believe your assessment is too high because there are usually strict appeal deadlines.
How Ownwell Supports Mixed-Use Property Owners
Staying on top of your property tax options can lead to significant savings.
Ownwell offers expert help with appeals and classification reviews, making it easy to lower your taxes.
On average, our clients get 31% higher savings with Ownwell than competitors. Contact Ownwell today to find out how much you can save.