Mixed Use Per Unit Price Misnomer

Mixed use development professionals should second guess their per unit valuations for residential product.  Combining the numerous components of a mixed use project always seems to become a custom fit solution, thereby, introducing multiple valuation factors into a fair analysis.  Per unit valuations have been driven by the industry’s commoditized approach of repetitive product, specifically the suburban single family lot, or multi-family land, which cannot be replicated in the mixed use category.  These construction costs were known quantities, so all you had to do was figure out the rent/sale price and absorption, punch it into a spreadsheet, and you knew what your per lot/unit price was.

So let’s do a quick comparison, suburban lot price vs. a price per unit of air from a retail developer?  The suburban lot is very simple, you get a defined land parcel with basic restrictions upon which you build within certain lines and that is it, and most likely, you can easily without substantial architectural and documentation define the basic product of what you are going to build.  However, take a mixed use unit pad for analysis.  You need to basically design the entire product, define exactly where specific lines are going to be drawn, determine at which point what utilities, access, parking are going to be delivered by what party, deal with use restrictions, venting, utilities, what type of platform and what type of weight intensities and spans must be delivered, etc.  All this before you can reasonably understand the true valuation of what that air rights lot should be valued at.  Most of this would be a deduct to whatever the standard suburban multi-family per unit price would be.  One of the most common issues we see with this is the need for structured parking, of which is usually a deduct to whatever the standard suburban multi-family lot would be, which in turn makes most suburban mixed used infeasible without government intervention, as this per unit parking cost exceeds the per unit value of the land.

However, this analysis isn’t all negative, as there are value enhancements that arise within a mixed use product as well.  Often times there is a premium price paid by end consumers to live within a mixed use projects, although I have yet to see a solid study that shows these real rental premiums that can be achieved.  In addition, the savings of shared maintenance and resources within the project are often substantial.  Lastly, you can never underestimate the savings that one experiences within the actual project from a construction standpoint, value to the retail shops, as proximity to the other uses as a savings efficiency.

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About taddmiller

Mixed Use and Urban Infill Real Estate Development
This entry was posted in Finance, Housing and tagged , . Bookmark the permalink.

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