Mixed Use Property Refinance

by Jeff Rauth
Owners considering a mixed use property refinance have excellent financing options as this is one of the favorite building types by lenders/banks. From the lenders perspective a combination of multifamily and either retail or office space is preferred as apartments are considered the most stable of all commercial building types. Mixed use buildings without a multi family component are still liked due to the tenant and income diversification.
Underwriting considers loan to value, debt coverage ratios, tenant strength, borrower credit worthiness as well as the building fundamentals. Below is a brief discussion of each as they relate to mixed use properties.

LTV

Loan to value restrictions on mixed use property refinances are normally capped at 80% on a rate and term refinance and 80% loan to value on cash out refinances. Higher LTV's are available, but depend largely on strong DSCR. Borrower should expect increased rates and fees for higher LTV's. Slightly lower loan to value requirements should be expected for mixed use properties that do not have a multifamily component.

DSCR

Debt Service Coverage Ratio restrictions are typically set at a relatively aggressive 1:1.15 for this building type. Meaning that for every $1.15 of net income (income after taxes, insurance, repairs etc) the property produces, the mortgage payment will not exceed $1.00. Said in another way, after all expenses and the mortgage have been paid, the owner will need to net $.15 to qualify for the refinance.

Exceptions can made with this rule on mixed use refinances. For example, stated income loans can be an outstanding option for owners that have low debt coverage ratios due to either overstated expenses, current high levels of vacancy, or understated income, etc.

Tenant Evaluation

Tenant evaluation is not as important within the mixed use property category as others (like single tenant NNN properties) but is still important. Lenders scrutinize the time left on the current leases and other relevant information.

Property Analysis

Market value and market rent is important and will be evaluated and compared to the subject property. Age, appearance, location, accessibility, and local market conditions, as well as other factors are considered.

Credit Worthiness

The personal credit worthiness of the borrower will be evaluated. 680 credit score is normally the minimum for the best finance options. Exceptions can be made on this as some conventional lenders will consider scores as low as 600. The overall strength of the property, tenants, net worth, DSCR, and LTV can offset concerns of low credit scores.


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