Selling Guide

Published December 16, 2020

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How is commercial or mixed-use space in a project handled?

Commercial Space and Mixed-Use Allocation

Fannie Mae requires that no more than 35% of a condo or co-op project or 35% of the building in which the project is located be commercial space or allocated to mixed-use. This includes commercial space that is above and below grade. Note that projects located in flood zones with commercial space greater than 25% of the project’s square footage, including any commercial parking facilities, may need supplemental or private flood insurance policies to meet Fannie Mae’s requirements for flood insurance. Coverage under the National Flood Insurance Program may provide inadequate coverage for projects with commercial space in excess of 25%. See B7-3-07, Flood Insurance Coverage Requirements for additional information.

Any commercial space in the project or in the building in which the residential project is located must be compatible with the overall residential nature of the project.

Note: Rental apartments and hotels located within the project must be classified as commercial space even though these may be considered “residential” in nature. Commercial parking facilities can be excluded from the commercial space calculation.

Calculation of Commercial Space. Commercial space allocation is calculated by dividing the total non-residential square footage by the total square footage of the project or building. Lenders are responsible for determining the total square footage of the project, the square footage of the non-residential space, and the residential space square footage. This calculation includes the total square footage of commercial space even if the residential and commercial owners are represented by separate associations.

Non-residential square footage includes:

  • retail and commercial space, and
  • space that is non-residential in nature and owned by a private individual or entity outside of the HOA structure.

Examples include, but are not limited to:

  • rental apartments,
  • hotels,
  • restaurants, and
  • private membership-based fitness facilities.

Non-residential square footage excludes amenities that are:

  • residential in nature;
  • designated for the exclusive use of the residential unit owners (such as, but not limited to, a fitness facility, pool, community room, and laundry facility); and
  • owned by the unit owners or the HOA.

The following table shows which commercial or mixed-use space must be included in the calculation of the percentage of commercial space.

If the commercial or mixed-use space is… Then its square footage is included in the calculation of commercial space percentage
owned, controlled, or operated by the subject property’s HOA that is unrelated to the project-specific amenities offered for the exclusive use and enjoyment by the HOA members Yes
owned by the subject property’s HOA but controlled or operated by a separate private entity

Example: Office space owned by the HOA but leased to a private business.

Yes
owned and controlled by a project HOA other than the subject property’s HOA that shares the same master HOA with the subject property’s HOA AND the commercial space is co-located in the project’s building(s) that contain(s) the residential units Yes
owned, controlled, or operated by a private entity that is co-located in the building(s) that contain(s) the project’s residential units

Example:

  • floors 1 to 4 consist of hotel and retail,
  • floors 5 to 7 consist of privately-owned and -managed rental apartments, and
  • the remaining floors consist of the condo project units.
Yes
owned, controlled, or operated by a private entity that is NOT co-located in the building(s) or common elements as declared in the project legal documents that contain(s) the project’s residential units No
owned and controlled by a project HOA other than the subject property’s HOA that shares the same master HOA with the subject property’s HOA BUT the commercial space is located in a building that is separate from the building(s) containing the project’s residential units No

For additional information, see B4-2.1-03, Ineligible Projects.  

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