Highest & Best Use - not in its current use

[phoebe33764]

Hello all. I have searched the forum and have not found similarities to my scenaro and would appreciate guidance.

I am appraising a SFR built in early 20's with a very busy street frontage and has rear parking accessed though an alley. The parcel is zoned corridor residential tradition but has a planned redevelopment to "planned development mixed use".

In the immediate area, there are SFR's like the subject and businesses that are of similar design (looking like a 1920's home) on the same road. I have never encountered a highest and best use to be other than existing and would like an opinion or suggestion on how to proceed. All my comparables are on busy streets, however no recent sales were on the same street in the past year.

In conducting the highest and best use tests, I am concluding the following. Am I on the right path?


Legally Permissable as improved-
In current use it is legally permissible for its existing residential use however, it would also be legally permissible for it to be commercial use.

Financially Feasible as improved-
In current use, the value of improvements exceed the land value (as there are not many vacant parcels sold in the area with the same use and the land value was developed through extraction). So in this case, the current use is financially feasible? However it is also, IMO more financially feasible for the use to be commercial.

Physically Possible as improved-
In current use it is physically possible for its existing residential use as there are residential properties that also front this busy street in the immediate market area. However, according to the City, the purpose of the CRT district is to encourage development of townhomes, condominims, apartment buildings and mixed use buildings that are appropriately scaled to the context of the corridor and to facilitate the conversion of remaining single family homes to offices or limited retail uses. So if the planned redevelopment is basically to convert to offices or limited retain use, the current use may be physically possible now, but not later?

Maximally Productive as Improved-
In the current use of residential occupancy, it is felt that it is not maximally productive as with a minimal converstion to commercial, it would be maximally productive. Because this one test is concluded its existing use is not maximally productive, the highest and best use would be a "no" to its present use and a comment on what the highest and best use should be?

Then analyzing the use as vacant:

Legally Permissable current use as Vacant - Yes it is legally permissable now however there is a chance that the zoning could be changed to squeeze out residential.

Physically Possible current use as Vacant - Yes, it has an adequate lot size for a residential home in the immediate area and this area has public utilities readily avalable.

Financially feasible current use Vacant - Yes in the current use as residential, it has value commensurate with it costs and conforms to the two tests above.

Maximally Productive as Vacant - No, not in its current use as residential, IMO. I feel that it would be maximally productive as an income producing property like similar law firms and accounting firms in the immediate market area.


Am I on the right path here? I am concluding that the highest and best use is not in its current use and plan on stating that the maximally productive use would be an office. Then after these tests, would I do the tests upon a commercial use though vacant and improved?

Could you please give me your input?

 

[stefan olafson]

As Vacant - Under current zoning ordinance what is the zoning? currently if a structure were to burn to the ground, could it be rebuilt? What could physically be built on the site? A similar building or a skyscraper? What use, using current ordinances provides the maximally productive use?

As Improved - Improvements still contribute to value, are currently zoned properly, and provide the maximal profit.

You mix what is currently allowed with what MAY BE allowed in the future. Your job is not gazing into the crystal ball and thinking what MAY HAPPEN, you have to be concerned with the here and now, the time you inspected the property.

 

[phoebe33764]

As Vacant - Under current zoning ordinance what is the zoning? currently if a structure were to burn to the ground, could it be rebuilt? What could physically be built on the site? A similar building or a skyscraper? What use, using current ordinances provides the maximally productive use?

As Improved - Improvements still contribute to value, are currently zoned properly, and provide the maximal profit.

You mix what is currently allowed with what MAY BE allowed in the future. Your job is not gazing into the crystal ball and thinking what MAY HAPPEN, you have to be concerned with the here and now, the time you inspected the property.

Thanks, Stefan. The current zoning is corridor residential tradition with the city, county, and land use as SFR. The property meets the legal setbacks of frontage and a similar residence can be rebuilt. IMO, I would say that the current zoning would be for the property to be an office as opposed to a residence due to the busy street frontage. I don't feel that the max profit would be obtained as residential.

My confusion lies with the future rezoning and the fact that the city is trying convert remaining sfrs to offices or limited retail use.

 

[George Hatch]

Putting aside the mechanics of performing an HBU analysis, the process is intended to yield an answer to this question:

Given the subject's current attributes, on what basis is it worth the most and what type of buyer would buy this property?

- Is it worth more in its existing use?

- It is worth more as vacant land less the costs of demolition?

- Is it worth more as conversion-bait? In other words, a buyer comes along to drop another $50,000 in costs to convert it to another legally permissible use that's more profitable. If I put $50k in, can I get at least $51k more out of it?

If a broker were going to seriously list this property to sell, how would they market it and what types of buyers do they think would have the most interest and pay the highest price for it, given its current attributes.

 

[c w d]

I hate HBU analysis in commercial/residential zones where there is a mix of use. Unless there is a noted shift to commercial in this area it is very difficult for me to determine whether HBU is residential or commercial. I generally side with existing use if there is no marked shift either way. Be aware that a comm/res zone with significant commercial occupancy may indicate a shift to commercial whereas if it is predominantly residential with no evidence of a shift then HBU would most likely be residential...at least in my opinion.

 

[phoebe33764]

My bold

Putting aside the mechanics of performing an HBU analysis, the process is intended to yield an answer to this question:

Given the subject's current attributes, on what basis is it worth the most and what type of buyer would buy this property?

Currently, my estimated market value is roughly 185k. If a law firm or an accounting co came purchased the building, I would think it would be worth more utilized as an office generating income.

- Is it worth more in its existing use?

I would not believe so

- It is worth more as vacant land less the costs of demolition?

No

- Is it worth more as conversion-bait? In other words, a buyer comes along to drop another $50,000 in costs to convert it to another legally permissible use that's more profitable. If I put $50k in, can I get at least $51k more out of it?

This, in fact, is my dilemma. If a lawyer or small business operation decided they wanted to buy the building, they would not need to convert it to a legally permitted use because it is on the corridor and currently the corridor allows residential and offices as legally permitable uses. I believe that if a small office was in place and they made some conversions, I believe they might get more out of it however, in the current market in Florida that is a big question. IMO busy street properties have "free advertising" as they are seen by many. Access to parking is an issure as in order for a business client or owner to enter property, they'd have to drive to the end of the block, turn around and enter through the alley to park which appears to be a nuisance.

If a broker were going to seriously list this property to sell, how would they market it and what types of buyers do they think would have the most interest and pay the highest price for it, given its current attributes.

I can't imagine that a residential buyer would pay $185k for a home on a busy street when they could get a renovated one two blocks away for the same money if not less. The location is also about 3 blocks down from an interstate. Small legal firms and accounting companies appear to look the same from the exterior of this busy street. I believe a broker would market it as an office as external obsolescence wouldn't be so...however, if residential, if would be external obsolescence due to the traffic. Given it's current attributes, it IMO would be a toss up. It wouldn't take much to plop down a receptionist desk in the middle of the LR and set up shop. There are two bedrooms with a bath in the center. The bedrooms could be turned into offices easily which makes this whole H&B use a toss up. Because of the busy street, I am leaning towards office.

 

[phoebe33764]

I hate HBU analysis in commercial/residential zones where there is a mix of use. Unless there is a noted shift to commercial in this area it is very difficult for me to determine whether HBU is residential or commercial. I generally side with existing use if there is no marked shift either way. Be aware that a comm/res zone with significant commercial occupancy may indicate a shift to commercial whereas if it is predominantly residential with no evidence of a shift then HBU would most likely be residential...at least in my opinion.

I agree and my concern is that the stated zoning for the subject states that this zoning "facilitates the conversion of remaining sf homes to offices or limited retail use." Maybe I wouldn't be racking my brain if the zoning was SFR with just a handful of offices in the immediate area.

 

[ZZGAMAZZ]

Somebody please enlighten me & phoebe (more alliterative than 'Phoebe and I') about the concept of "interim use."

 

[George Hatch]

It usually means the existing use is currently the HBU, but there's a trend afoot for redevelopment or conversion to a different use. It usually means that the remaining economic life of the existing use is very limited, like maybe a few years.

 

[phoebe33764]

It usually means the existing use is currently the HBU, but there's a trend afoot for redevelopment or conversion to a different use. It usually means that the remaining economic life of the existing use is very limited, like maybe a few years.

Thanks Z & George. So, because I have not come across this ever, if the HBU is current use, do I mention in the report that it is Interim. The house was built in 1923 and it has been updated- not restored but updated. Due to the upgrades to date, I would say that its effective age is 25.