7.7.12.9 Commercial Income

A. Where commercial facilities are included in a mixed-use project, a separate analysis must be made of the effect that the commercial operation will have on the project. The appraiser must calculate income, vacancy and collection loss, operating expenses, and replacement reserves attributable to commercial space separately from the residential space. Project-paid tenant improvements must be accounted for as a leasing expense, and if applicable, a separate commercial-space operating deficit must be calculated in addition to the required residential operating deficit.

B. The term "Commercial" is applied to any space or facility permitted and acceptable for "Nonresidential Use" from which income is derived or anticipated. Income from residents for the use of facilities such as community rooms and parking are not considered commercial even though fees may be collected. This income is considered ancillary income and is treated separately from commercial income. However, income from non-residents related to parking or other community facilities must be treated as commercial income and is subject to the restrictions on the underwritten occupancy rate as noted in Chapter 3.

C. The space occupied by parking and community facilities is not included in the calculation for allowable commercial space. Non-tenant parking income from commercial parking spaces reserved for use by motorists who are not project residents or are not parking to use the on-site commercial tenant’s facilities must be included in the Commercial Space and Income limitations. The income and space attributable to parking spaces reserved for non-residential or non-commercial tenants must be included in the limitations, based on applying the percentage of the total spaces that are reserved for non-tenant use. For existing properties that provide parking for a monthly fee and are to be acquired, refinanced, or will undergo substantial rehabilitation, the Lender must identify the percentage of monthly parkers who are non-tenants so as to include these in the commercial income limitations. The maximum occupancy factor to be applied to the parking income attributable to parkers who are not associated with either the project’s residential or commercial tenants shall be the lower of:

1. The amount indicated by the market and by the historic performance of the subject; or

2. 50 percent.

NOTE: For proposed construction, or where new commercial parking facilities are to be constructed, the demand for this parking must be addressed in the appraisal and Underwriter’s narrative. If the Borrower operates a parking facility that provides parking for residential or commercial tenants of the project, the Lender must determine underwritten parking income based on an analysis of the past 3 years of operation and the trailing 12-month period prior to application. If the parking facility is operated by a third party, the Lender may use the amount of

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Chapter 7 Valuation & Market Analysis 7.7 Estimating Project Income

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