Mixed-Use Development

Mixed-use development combines residential, commercial and sometimes office uses in one building or project. A common small version is a storefront with apartments above. The gross rent multiplier on such a building blends two kinds of rent that carry different risks and different lease structures.

Commercial leases are often longer and may pass expenses to the tenant. Residential leases usually run a year and leave expenses with the owner. A single GRM across both treats a stable ten-year retail lease and a month-to-month apartment as the same dollar of rent.

Split the rent roll and look at each part. The residential units can be compared with nearby apartment GRMs. The commercial space is usually better valued on net income and cap rate. If the storefront is vacant, a GRM built on the apartments alone shows how much of the price the housing supports.

Further reading: Mixed-Use Development on Wikipedia.