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Mixed-use Townhouses with Commercial Space

By: Sonia Samuel and Emilia Ferrara
Published: 10/26/2011Source: The New York Observer

Any wise New Yorker knows that two heads is better than one. Any smart real estate investor knows that two renters are better than one. Mixed-use townhouses across New York are becoming hot commodities for many buyers.

“The townhouses split for commercial and residential use are rare,” says Louise Beit of Sotheby’s International Realty, “especially on side streets of prime avenues in top, sophisticated residential or re-tail areas.”

According to David Kornmeier, the Vice President and Director at Brown Harris Stevens, “Traditionally, a renovated single family house tends to garner a lot of interest.”Mixed-use townhouses aren’t typically what a family has in mind when interested in buying a new home.

“The West Village and Greenwich Village often consistently obtain the highest average price per foot for various types of homes, says Kornmeier though, suggesting that this has not always been the case. “What unites all buyers is that they are looking for a good deal and decent value. The key is understanding the dynamics of a particular market or submarket in order to appropriately define value and position a home to become the most sought after. That being said, it is easier to obtain$3,000 plus per square foot in the Village for a finished single family townhouse than almost any other neighborhood in the City.”

Still, buyers of all townhouses tend to have similarities. “Most townhouse owners value their privacy and enjoy having control over the entire building,” says Kornmeier. “Many [buyers] also appreciate having multiple outdoor gardens and terraces along with a large amount of space, and often for a lower price per square foot than in a similarly sized apartment.”

This brings the location of mixed-use townhouses into question. “There are many areas that have wonderful townhouse blocks and the houses are highly sought-after in those locations,” says Kornmeier. “Typically the Village, Upper East Side, Upper West Side and Gramercy Park areas tend to obtain the highest prices.”

“Top selling single family houses usually have elevators and full floor master bedroom suites,” says Kornmeier, making the amenities more interesting. “Another key factor is an appropriately large and generous kitchen positioned correctly within the house.”

The economy does not really seem to have a hold on the mixed-use townhouse apartment. “Although the economy is causing some unease,” continues Kornmeier. “Uniquely positioned townhouses still sell very well and in some cases, new sales price records have been set. Notable recent examples of this are the sales of multiple single family homes on the Upper West Side that sold recently for right around$19M when the previous record sales price for an UWS single family house was $15,750,000.”

But if you manage to stumble upon one of these diamonds in the rough the benefits can be quite re-warding. “An owner can do whatever they want, they can own the whole townhouse and rent out part of it for professional use,” says Mitchell Hall from Corcoran. They can take two or three floors as their own, they can take one apartment and rent out the others, there’s a lot of possibility in it. I had a buyer purchase a brown-stone in Brooklyn and it was mixed-use. The ground floor was set up for professional use, he was buying be-cause he wanted to live in it, but the rent [from the ground floor] helped cover his mortgage and expenses,” says Hall.

“These mixed-use townhouses are hot because the commercial space rents for higher price than a residential space and the property is a good investment since it is rare,” says Ms. Beit. Jimmy Choo was privy to this real estate secret, his shoe boutique located on east 51st street between Madison and Fifth avenues is part of a classic mixed-use New York town house. “Some clients are looking for income producing property,” says Olga Neulist of Sotheby’s International Realty, “and therefore rent out part of the house to a commercial tenant or residential tenant who could cover all the house’s expenses.”

However, mixed-use townhouses aren’t for retail alone, Mr. Hall told The Observer, “A doctor’s office in a brownstone that would be one of the best uses of it. It’s usually a ground floor apartment, ideally there’s a separate entrance. My dentist is in brownstone—I normally see professional use like doctors, dentists or psychiatrists, usually they have a floor and a separate entrance.” Hall continues with a chuckle, ‘You don’t really want to have to go through the building up-stairs to an office.” Mixed-houses, even if unprofitable, are still great self-sustaining properties, especially when held onto over time.

“Beyond paying the mortgage, a lot of times there is not a huge profit, but there is growth over the years. Rents are going to continue to go up, so the value of the whole property is going to continue to go up,” Hall continues. The Corcoran realtor suggests the absence of townhouses in the Upper East Side is a common misconception. “The Upper East Side, you don’t see them on main Avenues like Park or Madison because those are big buildings, but when you go on the side streets like Lexington, you’ll see brownstones, usually they’ll be ground floors below, you’ll have to go down the steps, a lot of those are businesses, doctors, dentists, law firms, even a little real estate firm.”

Ground floor real estate firms are an easy investment for a mogul looking to diversify their portfolio. “A property can be purchased by an owner or user, which makes it an excellent investment,” says Ms. Beit. “A 4,000-square-foot, three level commercial space of Madison Avenue in a prime Upper East Side location, in need of renovation, can rent for as much as $400,000 per year,” she says.

Still “in my experience,” Kornmeier says, “most people that purchase townhouses as a residence typically favor more residential locations, such as the charming tree-lined streets and uniform rows of townhouses.” There are many factors that will stay at play.

“Houses that are mixed-use are not usually on these types of blocks and tend to sell as an investment, or to a buyer that intends to occupy the commercial space. I have had a few clients who were quite interested in retail cash flow and did not mind living above commercial space in a busier location,” Kornmeier continue. “But, in these cases, they expected to pay a reduced price per square foot.”