As institutional investors seek more diversification and downside protection in their returns, mixed use is becoming an increasingly desirable investment asset class in a changing world
Mixed-use is a catch-all term which refers to real estate assets that include a meaningful component of three or more land uses in the same or adjoining structures. The most common recent vintage mixed-use assets include residential, retail and parking. The most complex mixed-use assets will often include office and hospitality.
The primary case for investing in mixed-use assets is that the combining of uses generates revenue and value premiums that exceed the incremental cost of delivery or acquisition. Mixed-use assets are often valued more favourably than single-use assets, primarily because the long-term performance of the assets is more certain and the mix of uses can create some downside protection.
At the heart of the recent mixed-use real estate boom is the reflection of a basic cultural change. We now live in a world in which we want to live-work-play in one place. Tenants benefit from mixed-use developments because they offer easy access to modern conveniences, while businesses gain loyal customers from amongst the tenant base.
Historically, many real estate investors and lenders shied away from mixed-use, seeing complexity, risk and difficulty in underwriting, but as the asset class has grown in size, and a long-term track record has been better documented, the merits of this investment target are increasingly clear and compelling. Mixed-use investments offer strong valuations and outsized long-term performance prospects that translate into predictable income and attractive long-term total returns.
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