When underwriting MF with retail on the bottom floor do most developers/owners incorporate the retail into their pro forma for the building? I was recently told that most times the retail is not written into the MF pro forma so they have the ability to be extremely flexible on rate and any revenue generated by the retail is just gravy.
Sorry if this is a stupid question but it struck me as strange.
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Each use should technically have it's own model, and I think for the most part they do. For smaller projects you can get away with just rolling it up into one cash flow. For larger projects, you definitely need both as you stated.
Something like this needs separate pro formas: http://www.cbre.us/o/washingtondcmarket/real-estate-news/Pages/Market-C…
Something like this tends to get rolled up: http://www.capitolhilltimes.com/Content/Business/Business/Article/Counc…
Agreed. Large amount of retail two different pro formas and two different valuations (then combine). If it's a small amount just have a small line item on the pro forma and one valuation is fine.
Depends on the size of the retail space. Ground-floor retail is pretty hard to lease, and very few groups have a core competency in it. If it is 20k SF I would give it its own worksheet and model it out separately with its own purchase price, entry cap, and exit cap. If it is only like $10-$50K a year in additional income I would just model it within the MF model as its two line items, assuming it is NNN, income and leasing costs, but wouldn't get too specific. I'm sure someone on here will tell you to model the whole thing out 100% of the time, but at a certain point it isn't a big needle mover. If it is super small and vacant we often will make sure the deal pencils even if it is vacant for the entirety of our hold.
This is pretty interesting. I work for a pretty big developer and we never separate the cash flows on mixed use projects, resi or office. everything gets blended to bottom line NOI and capped at the same rate.
Our team has done various mixed-use projects ranging from 10k-100k in ground floor retail. As most mentioned above, we have modeled both out separately and capped each of the mf/retail portions respectively to their asset/location, then we bifurcate the cap rate on the bottom line based on a percentage of income each asset class brings to the project.
Listen to the man, Jimmy.
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