Commercial Loans and Fun Blog

What's the Difference Between a Mixed-Use Property and a Mixed-Commercial Property?

Posted by George Blackburne on Tue, Apr 30, 2019

Mixed UseA mixed use property is one that has both residential and commercial units, like three apartments over a storefront in an older, East Coast city.  The issue with mixed-use properties is either sound and/or odors.

Suppose you have been renting an apartment unit over the top of a bookstore for ten years, and you have been quite happy there.  You're of Italian descent, and your whole clan is congregated in the central business district of this small, New Jersey town.  Your mom lives just three buildings down the street, and your three aunts and uncles all live within walking distance.  You meet them regularly for breakfast and gossip at a coffee shop just block away, and you absolutely love the lifestyle.


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Then the bookstore closes, and the landlord leases out the former bookstore unit to an Artesian restaurant.  The Artesians create delicious dishes, but they spice their food with pooh-pooh spice.  Pooh-pooh spice?  Yup.  It's smells horrid, but it gives their food a unique and mysterious flavor.

The problem, however, is that the pooh-pooh spice smells exactly like, well, pooh-pooh.  The noxious odor wafting up from the floor below makes living in your unit unlivable.  Even your clothes are soaked with the smell of pooh-pooh, and people on buses go out of their way to avoid you.

What are your rights?  One of the rights you enjoy as a residential tenant is the right of quiet enjoyment.  As long as you pay your rent and follow the rules, you have the right to be free of obnoxious sounds and odors.  This Artesian restaurant is arguably a nuisance.


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You could move, but there is rent-control in Middleton, New Jersey.  Your rent is therefore 30% below market.  There is also the cost of moving and the fact that you will no longer be able to watch over your aging mother.

You therefore file suit against the property owner.  When the property owner goes bankrupt, you amend your complaint to add the lender who just foreclosed.  But what is the lender going to do?  The family with the Artesian restaurant recorded their lease, and they have fifteen years remaining on the lease.  They also spent $400,000 on tenant improvements for their restaurant.  Even worse for the lender, the Artesian family is making money hand-over-fist from their restaurant.  If they had to move their restaurant, it would cost them over $1 million.

How would this case come out in court?  I am an attorney, and I don't know.  The residential tenant has a strong case because he didn't come to nuisance.  He didn't move in after the restaurant.  The residential tenant was there first.


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This unfortunate mixed-use conflict happens even more often because of noise.  The landlord leases the ground floor storefront to a nightclub, and the loud music and pounding of the drums makes the residential units above unlivable.  

Whatever the outcome, you can bet that the poor commercial lender is going to have to shell out hundreds of thousands of dollars in legal fees, moving expenses, legal settlements, and new leasing commissions.  

As a result, during the 1980's it was almost impossible to convince a bank to finance a mixed use property.


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Over the years, this mixed-use issue seemed to subside, perhaps because of improved sound-proofing and odor venting.  In recent years, I have not heard of any banks having any reluctance to finance mixed-use properties.  In fact, both Fannie Mae and Freddie Mac will permit a few commercial units on the ground floor of the apartments that they finance.

Okay, so what is a mixed-commercial property?  A mixed-commercial property is one with two or more different types of commercial units.  By different types, I mean office over retail space, industrial space behind retail space, or even self-storage behind office space.


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Normally there is no problem financing mixed-commercial properties.  Most lenders are happy to finance the Four Major Food Groups - multifamily, office, retail, and industrial - or just about any combination of the later three property types.

Okay, so mixed-use properties refer to a combination of residential and commercial uses.  Mixed-commercial properties refer to a combination of office, retail, industrial, self-storage, or even business properties, like hospitality (hotels, motels, etc.) or even bowling alleys, amusement parks, etc.


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Topics: Mixed use