The Rise of Mixed-Use Land: A Paradigm Shift in Urban Planning
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When you think of commercial real estate investing, you probably envision purchasing single-use property, like an industrial warehouse, an office building, or a piece of agricultural farmland.
Yet, mixed-use property types exist that not only provide property owners with both residential and commercial tenants but may also act as portfolio hedges against economic decline, protecting portfolio profitability.
Mixed use land, a subcategory of mixed-use property types, provides a great opportunity for commercial real estate investors looking to diversify their portfolios and draw income from both residential and commercial tenants.
Here, we'll cover what investors should know about investing in mixed use land developments and how mixed use land is changing the national conversation around urban planning.
Let's get started.
What Is Mixed Use Land?
Mixed use land is property that's zoned to allow a combination of permits for residential, commercial, industrial, and cultural properties to be built in the same vicinity.
An example of a mixed use development may include an apartment complex, an office building, and a retail strip all in the same city block.
In that sense, mixed use zoning allows land to be used for several different functions, eliminating the need to divide commercial land from residential.
Horizontal vs. Vertical Mixed Use Land
Mixed use developments typically fall into two main types: vertical and horizontal.
A common example of a vertical mixed use development is a building that's half commercial real estate and half residential; in other words, a retail storefront might be on the first floor of the building while residential units are on the second and third floors.
Horizontal mixed use developments, however, consist of separate, single-use buildings built on the same plot of land or city block.
What Are Examples of Mixed Use Land?
Mixed use developments combine a wide range of residential properties, commercial properties, and land use designations, so it's difficult to provide a comprehensive account of what mixed use developments include.
Below, we've provided a handful of examples of mixed use developments from around the country to clarify how mixed use development can work.
#1 – Lincoln Yards, Chicago
Lincoln Yards in Chicago is currently under construction and will feature 320,000 square feet of biotech lab space, 6,000 residential units, and an 18,000-square-foot soccer stadium.
#2 – The Wharf, Washington, D.C.
Built on a mile-long stretch of the Potomac, the Wharf in D.C. features a bustling waterfront, multiple apartment complexes/condominiums, over 50 restaurants, and 50 acres of water for residential and commercial boating.
#3 – City Point Brooklyn, NYC
City Point is a massive residential and commercial multi-use development in Brooklyn. The complex consists of three main towers that contain over 900 units of housing and over 500,000 square feet of commercial space.
#4 – Waterline, Austin
Waterline is a 74-story development in Austin, TX that will incorporate over 700,000 square feet of office space, 24,000 square feet of restaurant space, and over 350 residential units.
What's the Purpose of Mixed Use Land?
The purpose of mixed use development is to use land as efficiently as possible while promoting walkable and sustainable urban environments.
There's a great deal of research that shows how dense, mixed use development can stimulate local business activity, provide lower costs of living, promote environmental sustainability, and significantly reduce fatal pedestrian traffic accidents.
Mixed Use Land and Urban Development
You might think that mixed use land zoning is a relatively new urban planning development, but you'd actually be wrong—single-use zoning is a relatively recent urban planning phenomenon.
Mixed use development was overwhelmingly the norm in urban centers in the US throughout the 1800s and 1900s.
As society transitioned into vehicular dependency and suburban living in the years following World War 2, the rise of single-use zoning followed suit.
Many existing urban centers were torn down and rebuilt throughout the mid-20th century to accommodate divisions between commercial, residential, and industrial-zoned lands.
Critics of single-use zoning policies argue that they distort property markets, promote racial discrimination, and create perverse incentives to restrict real estate development. To that end, there has been renewed interest in using mixed use properties for urban revitalization efforts.
What Are the Disadvantages of Mixed Use Land?
Mixed use land development carries incredible potential for urban planning and revitalization, but, like with any type of real estate, it's not without its disadvantages.
#1 – Legal Issues
Mixed use developments are zoned for many different uses, further complicating the picture of legal compliance.
For example, a mixed use facility that has a commercial and residential component might require separate licenses, permits, and environmental reports for each component.
#2 – Maintenance Complications
Because they may contain different types of facilities, mixed use properties may require a wide range of maintenance and upkeep. Scheduling maintenance can be tricky as different parts of the property may be occupied at different times.
#3 – Financing
Although mixed use development has become much more popular in recent years, many lenders still consider them risky assets, so financing options for mixed use development and construction might be relatively limited.
Buying Mixed Use Land
Because mixed use properties can vary so significantly in their structure, prices can vary heavily depending on the state, location, and development amenities.
A small, mixed use apartment/office building may cost a few hundred thousand dollars, but a large mixed use complex can cost hundreds of millions.
The main benefit of buying mixed use land, from an investor's perspective, is the potential for passive income. Mixed use spaces cater to both residential and commercial tenants, so owners of mixed use space will be able to draw from several streams of income.
If you're in the market for mixed use land and properties, we highly recommend working with a commercial real estate broker. Brokers are experts inr scoping out properties with the best investment potential and can handle the finer details of negotiating with sellers and landlords.
A good agent on your investment team can spell the difference between a lucrative investment and a money pit.
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