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Cost Segregation for Mixed-Use Property
Mixed-use is the asset class where the allocation itself is part of the deliverable. Nonresidential space depreciates over 39 years, residential rental property over 27.5, and the shared structure, amenities and site work have to be split on a defensible basis before any short-life analysis begins.
Where the value is in mixed-use property
Engineering has completed studies for every commercial property type, from hotels to lumber mills, and a mixed-use building often combines several of them.
- Residential over retail
- Office over retail
- Apartment buildings with ground-floor commercial
- Multi-building mixed-use developments
The classification and the split come first
Whether a building is residential rental property turns on the 80% residential rental income test, which is your CPA's determination. The study supports whichever answer the facts produce, and allocates shell, core, structured parking, amenity space and site work using the engineering and cost detail rather than square footage alone.
Amenity space is equipment dense
Fitness rooms, lounges, co-working areas, package rooms and rooftop amenity spaces carry equipment, appliances, decorative lighting and finishes that are generally 5-year property.
Streetscape and plaza work is a land improvement
Public-facing paving, plaza hardscape, planters, bollards, site lighting and landscaping required by entitlement are generally 15-year land improvements, and on an urban infill project they are substantial.
Commonly reclassified components
Representative of what an engineered study identifies in this asset class. Actual components and recovery periods depend on the property and are documented individually in your report.
What would a study find on your property?
Send the property details. Engineering prepares the estimate, and you receive a written, fixed-fee proposal within 24 to 48 hours.
Mixed-Use cost segregation questions
Still have a question? Ask Engineering.
How do you allocate between the commercial and residential portions?
With the cost documentation, not a rule of thumb. Drawings, the schedule of values and the site tour let us assign shell, core, parking, amenity and site costs to each use on a supportable basis, and the method is shown in the report.
Does the 80% residential rental income test matter here?
It matters to your CPA when determining the building's classification and recovery period. Our job is to give them a component-level schedule that supports whichever conclusion the facts require.
Can retail build-out in a mixed-use building be qualified improvement property?
Interior improvements to nonresidential space, placed in service after the building itself, can be qualified improvement property, which carries a 15-year recovery period and is bonus eligible. QIP rules apply to nonresidential real property, so residential space is analyzed under different rules.
The ground-floor retail is still vacant. Does that change the study?
Not materially for the shell and site work. Unbuilt tenant space simply has less to segregate today, and the build-out becomes a study population of its own when it happens.
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