By Hemesh Patel, Debt Finance Director, OakNorth Bank 

Spend enough time underwriting real estate deals and you develop a healthy scepticism towards broad asset class labels. “Mixed-use” is one of the most persistent. It’s a term that can describe a £48m residential-led development in central London just as accurately as a £6.5m high street retail acquisition in the South East. The risk profiles, the income dynamics and the underwriting logic are almost entirely different. Yet both sit under the same label. 

That gap between description and reality is one of the more underappreciated problems in how mixed-use lending gets discussed. The label tells you very little about whether a deal is fundable. What matters is what sits underneath it. 

The risk profile varies more than most people acknowledge 

Mixed-use income can be genuinely resilient, with complementary uses, diversified tenants and assets that reflect how people actually live and work. Equally, it can be a collection of correlated risks presented as diversification. The difference is rarely obvious from the asset class description. It’s found in the mix of uses, the lease structures, the covenant strength, the location and the sponsor’s ability to manage the asset throughout the loan term. 

A well-located retail unit anchored by a strong operator in a supply-constrained market is fundamentally different from a speculative office-to-residential conversion in a town where occupier demand is softening. Both are mixed-use schemes. The underwriting looks almost nothing alike. 

The assets may differ, but the underwriting questions are remarkably consistent. Why does this combination of uses work in this location? What does local demand actually support, based on comparable evidence rather than theory? How resilient is the income if one component underperforms? What needs to happen to stabilise or improve the asset during the loan term, and is that plan realistic? Is the exit credible in today’s market, not the market from 18 months ago? 

Those questions can’t be answered by an asset class label. They require an assessment of the scheme, the sponsor and current market conditions together. That’s where underwriting actually happens. 

How the underwriting has shifted 

The environment has changed materially, and so has the scrutiny applied to individual assumptions. Three or four years ago, a credible sponsor and a well-located asset could carry significant weight. Today the margin for error is smaller, so the detail matters more. 

On development deals, we’re looking more closely at construction cost contingency. Not just the headline figure, but how it was derived and what has been stress-tested within it. Build budgets that looked conservative before the latest round of contractor repricing may no longer hold. Thin contingency on a long development programme is a structural risk, not a minor one. 

On investment and value-add transactions, exit assumptions face greater scrutiny than they did in a lower-rate environment. We want to see that the exit works in today’s market, supported by current comparable transactions rather than assumptions that existed when the deal was first originated. 

Income assumptions also deserve closer examination, particularly where retail or leisure forms part of the mix. Covenant strength and void scenarios matter more than they once did. The question isn’t whether the income looks attractive in year one. It’s whether it remains resilient if market conditions change during the loan term. 

None of this means mixed-use deals aren’t getting done. Across the transactions we’ve supported, spanning development, investment, value-add, acquisition and bridge-to-stabilisation, the common thread isn’t the asset class. It’s the strength of the underlying business plan and the sponsor behind it. 

What a well-prepared deal looks like 

For brokers and sponsors bringing mixed-use opportunities to market, the deals that progress quickly tend to share the same characteristics. 

The business plan is specific. It goes beyond describing the asset and its uses. It explains why this combination works in this location, what the demand evidence supports and what the asset should look like at the end of the loan term. Vague plans create underwriting uncertainty, and uncertainty slows decisions. 

The appraisal reflects today’s market. Sales assumptions, rental levels, yields and exit valuations all need to be grounded in current comparable evidence. If a deal only works on optimistic assumptions, that usually becomes apparent very quickly. 

The risks are acknowledged, not buried. Sponsors who present a clear-eyed view of what could go wrong, together with a credible plan for managing those risks, inspire more confidence than those who focus only on the upside. We’ll identify the risks either way. It’s far more constructive when they’ve already been considered. 

Mixed-use property will remain an important part of UK real estate as towns and cities continue to evolve. But lenders aren’t financing a label. They’re financing schemes that make commercial sense, sponsors with the capability to execute, and business plans that stand up to scrutiny. 

That’s what determines whether a deal gets done.