Mixed-Use Property Appraisals in San Diego and Across California

What is a mixed-use appraisal, and why is it different?

A mixed-use building is really two or more properties under one roof. The ground-floor tenants sign commercial leases with their own terms, expense structure, vacancy risk and buyer pool. The apartments upstairs have a residential rent roll, turnover and rent rules of their own. A buyer looks at both, and so does the appraisal.

We read every commercial lease and the full residential rent roll, then build the income for each part with market rent, vacancy and expenses that fit that part. The income approach, sales of comparable mixed-use buildings and, for newer or proposed buildings, the cost approach are weighed against each other, and the report explains which one carried the most weight and why. A vacant storefront, a below-market residential rent roll, a restaurant tenant with heavy improvements or a parking shortfall all show up in the numbers, not in a footnote.

Highest and best use matters more here than on most property types. An older one-story storefront on a busy corridor may be worth more as a housing site than as the building that is there today. Our land appraisal page explains how redevelopment value is tested.

Which San Diego rules change what a mixed-use property is worth?

Complete Communities Housing Solutions. The City of San Diego's optional incentive program in Municipal Code Chapter 14, Article 3, Division 10 applies to sites in a Sustainable Development Area whose zoning allows commercial, residential or mixed-use development at 20 dwelling units per acre or more. In exchange for affordable units and neighborhood amenities, a project gets a new floor area ratio: no maximum for residential development downtown, and 8.0, 6.5 or 4.0 in other tiers, according to the city's Information Bulletin 411. In a mixed-use project, the nonresidential floor area still cannot exceed the base zone's maximum. For a corridor storefront, eligibility can change the highest and best use of the land under it.

The 30-foot coastal height limit. Under Municipal Code Section 132.0505, the codification of Proposition D, effective December 7, 1972, no building or addition in the city's Coastal Zone may exceed 30 feet. That zone generally runs from the ocean inland to Interstate 5, with a few areas the code lists as exceptions, including downtown. A mixed-use building in Pacific Beach or Ocean Beach cannot simply add floors, and the appraisal reflects that.

Tenant protections on the residential floors. The City of San Diego's Residential Tenant Protections Ordinance, Municipal Code Sections 98.0701 through 98.0709, took effect June 24, 2023 and applies, with exceptions, to residential leases. How it applies to a building's units affects how quickly a new owner could change the residential income.

San Diego County has 18 cities, and each sets its own zoning. Mixed-use buildings in downtown Oceanside, Escondido or Vista, or on Third Avenue in Chula Vista, are read against that city's rules. See commercial appraisal in San Diego, North County San Diego, Escondido and Chula Vista.

General information, not legal or tax advice. Ask your land use attorney, your CPA or the city how these rules apply to a specific property.

Which California laws change mixed-use values statewide?

Housing on commercial land (AB 2011). The Affordable Housing and High Road Jobs Act of 2022, Government Code Sections 65912.100 through 65912.140, makes qualifying housing developments in commercial zones, and qualifying mixed-income projects along commercial corridors, a use by right with streamlined ministerial review when the statute's requirements are met. A commercial corridor is a street that is not a freeway with a right-of-way of 70 to 150 feet. The chapter became operative July 1, 2023 and is repealed January 1, 2033.

The Middle Class Housing Act (SB 6). Under Government Code Section 65852.24, a housing development is an allowable use on a parcel in a zone where office, retail or parking is a principally permitted use, if it meets the section's density, site size and other conditions. It also runs until January 1, 2033.

Parking near transit (AB 2097). Government Code Section 65863.2, effective January 1, 2023, generally bars a public agency from imposing minimum parking requirements on a residential, commercial or other project within one-half mile of a major transit stop, with exceptions in the statute. Parking that once limited what a mixed-use site could hold may not limit it anymore.

Rent caps. Civil Code Section 1947.12 generally limits residential rent increases over any 12-month period to 5 percent plus the change in the cost of living, or 10 percent, whichever is lower, with exemptions that include housing issued a certificate of occupancy within the previous 15 years. It runs until January 1, 2030. Cities with their own rent ordinances, such as Los Angeles, add another layer. The commercial floor is not covered by these residential rules.

These laws do not make every site worth more. Whether a project would pencil, and whether a buyer on the date of value would have paid for that potential, is what the appraisal tests.

What does a lender need from a mixed-use appraisal?

A clear split of the income: the commercial leases with their terms, options and expense recoveries, and the residential rent roll with in-place and market rents. Lenders want to know what happens if the ground-floor tenant leaves, how long the space would take to lease, and whether the residential income alone supports the loan. The report answers those questions with market support.

For new construction or a gut renovation, lenders usually need an as-complete value and sometimes an as-stabilized value as well. See as-complete appraisals for construction loans, bridge loan appraisals and private and hard money lending appraisals. You talk to the appraiser who inspected the property, so questions from your credit committee get answered by the person who wrote the report.

Who else orders a mixed-use appraisal?

Investors and owners buying, selling, refinancing or deciding whether to redevelop. Trustees, executors and estate attorneys who need a date-of-death value for a building that has been in the family for decades. Family law attorneys dividing a marital estate; see divorce appraisals and our San Diego divorce guide. Partners and co-owners in a buyout or a partition action. Owners facing a property tax appeal or an eminent domain taking. CPAs who need a supported value for a tax or reporting question.

Do you appraise only mixed-use property?

No. Mixed-use is one example. PM Appraisal is a family-owned California appraisal firm with about 40 years of work across the state, and our team appraises every commercial property type: office, retail, industrial and warehouse, multifamily, hotels and motels, gas stations, land, vineyards and agricultural property, medical, care facilities, religious facilities and special-use property. We write every kind of commercial appraisal: lending, purchase and refinance, construction, date of death, trust, divorce, retrospective, partition, litigation, eminent domain, tax appeal and consulting, in every California county. See all property types and our commercial property appraisal page.

How do I order a mixed-use appraisal?

Call or text (805) 990-9700. You talk to the appraiser who will inspect the property and write the report, not a coordinator. Have the address, the purpose (loan, sale, estate, divorce, dispute, tax), the date of value, the commercial leases, the residential rent roll and recent operating statements ready, and we will scope it on the first call. Rush commercial appraisals in 5 to 7 business days. Standard timing depends on the property and scope.

Talk to your appraiser: (805) 990-9700