We have a car wash place in my city. They built a big treadmill that moves cars through the car wash and then you can get detailing done after that. Not unusual, right? But that takes time and what do you do when your car is tied up? Probably not going to the mall. Guests have to wait, sans car, so why not build on a coffee shop attached to it? You can drink some tea and watch your car getting detailed. Or you can write a blog post, like this one.
It’s a mixed-use building (well, not exactly, it’s just retail with retail) but there are two different things that attract the same customer. When confronted with the decision whether to go to one car wash for detailing and have to stand awkwardly waiting outside your car, or being able to sit comfortably in a coffee shop, which would you choose? Wouldn’t that be worth a premium on the car wash? Maybe even on the coffee. At this place, the coffee shop’s prices seemed similar to other places, but the car wash did have a premium price. But it was worth it to me. Considering how much I spent there, this might seem a little bourgeois, but there were lots of other people there, too!
Why Mixed-Use?
This is a type of real estate that has different uses of the same building. Generally, mixed-use has residential attached to retail. Think of the downtown new construction or heavy remodel which has lofts on top and the main floor has a restaurant, bar, and a clothing store. I suppose you could have some office space in there as well. It’s a great way to lure in younger working-class people, who want to walk to work and have a drink after work before walking upstairs to their home.
This type of thing attracts tenants to live in your lofts because they want to live near whatever retail you have. It attracts retailers who want to have your tenants as customers. You get the upside on both types!
That’s synergy, and it’s what we shoot for when buying mixed-use. The synergy is critical, though. Put a niche store in there, like a hat shop, and your potential tenant customers drop off. They are not going to by a hat every day on the way home from work. With that model, you just have a retail store with some residential above. That can work, if there are plenty of people to by hats and there is a lot of foot traffic outside. But, what you are after, is the tenants who will patronize more than one thing (2 stores or a store and a home) on the same visit to the area. It’s a tough code to crack, and it varies by location, but once you do, you have a gold mine.
Here are my favorite types of commercial tenants for a mixed-use property in order:
10. Dry Cleaner – not the same as a laundromat. Not as much synergy as your tenants won’t use this regularly like the others on my list
9. Pharmacy – Similar to dry cleaner, probably not used regularly by your tenants, so less synergy
8. Salon/barber – Gets some regular use, but there’s going to be a gender barrier and isn’t as good as the others below
7. Bakery – This is a good one. Good smells, attractive for that loaf of bread or cookie when going home
6. Laundromat – only if not providing washer/dryer in-unit, or if others in the neighborhood don’t
5. Mid-priced casual restaurant – something people come to regularly because it’s good but not too expensive
4. Front end of a local brewery (not just a bar) – attracts tenants. Beware of possible noise. This is why I avoid straight-up bars
3. Gym – fitness studio, yoga place, et. cetera – fantastic for daily traffic for your tenants. Problem is that people don’t use gyms as much as they should
2. Mini-market – great for getting food for the home
1. Coffee shops – I personally prefer the mini-market, but coffee shops probably attract more tenants to live in your building
Start off with a small mixed-use building and move up from there. Make sure you know the location and your tenant market very well before attempting this.Once you crack the synergy code, you’ll be making huge money.
