Evaluating Site Potential: Legality, Possibility, and Location

Evaluating Site Potential: Legality, Possibility, and Location

Introduction
This chapter delves into the critical initial stage of highest and best use analysis: evaluating the inherent potential of a site based on its legality, physical❓ possibilities, and location. This assessment acts as a filter, narrowing down the range of potential uses to those that warrant further investigation.

I. Legality: Permissible Uses
A. zoning ordinances❓❓❓❓ and Land Use Regulations
1. Definition: Zoning ordinances are local laws that dictate how land can be used within specific geographic areas. They are the primary mechanism for land use regulation, dividing municipalities into districts with specific rules regarding building types, density, setbacks, and other factors.
2. Scientific Basis: Zoning is rooted in the legal concept of police power, the inherent authority of governments to enact laws to protect the public health, safety, and welfare. These regulations are based on urban planning principles, aiming to create orderly and efficient land use patterns. Models such as the concentric zone model, the sector model, and the multiple nuclei model attempt to explain urban spatial structures and inform zoning decisions.
3. Practical Application:
a. Investigation: A thorough investigation of applicable zoning ordinances is essential. This includes consulting municipal websites, planning department documents, and potentially engaging with local officials.
b. Example: A site zoned for single-family residential use (R-1) cannot legally be used for a commercial retail store without a zoning change (rezoning) or a variance.
c. Experiment: Conduct a comparative analysis of permitted uses under different zoning classifications (e.g., R-1, R-2, C-1, I-1) in a specific municipality. Quantify the differences in allowable building heights, lot coverage, and parking requirements for each zone.
B. Other Legal Restrictions
1. Easements: Legal rights granted to another party to use a portion of the property for a specific purpose (e.g., utility easements, access easements).
2. Deed Restrictions (Covenants, Conditions, and Restrictions - CC&Rs): Private agreements that limit the use of property, often found in planned communities or subdivisions.
3. Environmental Regulations: Laws protecting air, water, and soil quality. These can significantly impact development potential, especially regarding wetlands, endangered species habitats, and contaminated sites. The Clean Water Act and the Endangered Species Act are prime examples of federal regulations.
4. Historical Preservation Laws: Regulations protecting historically significant buildings or districts.
5. Building Codes: Regulations concerning building design, materials, and construction standards, designed to ensure safety and structural integrity.
6. Example: A property with a conservation easement might have legal limits on use, leaving “continue the existing use unchanged” or “development to some limited degree as agreed upon by contract” as the only legally permissible use of the land.
C. Probability of Legal Change
1. Factors: Investigate the likelihood of obtaining zoning changes, variances, or other necessary legal approvals. This includes assessing community support, political climate, and economic demand for a particular use.
2. Analysis: Appraisers should investigate whether there is a reasonable probability of a change relative to the subject property along with economic demand for change and any timing and cost considerations related to a potential change.
3. Example: A site currently zoned for industrial use might be rezoned for residential development if there is a demonstrated need for housing in the area and the local government is supportive of such a change.
4. Experiment: Study past zoning changes in a specific area. Analyze the factors that contributed to the approval or denial of those changes.

II. Possibility: Physical Attributes
A. Site Characteristics
1. Size and Shape: Irregularly shaped parcels can be more costly to develop and may have less utility than regularly shaped parcels of the same size.
2. Topography: The slope and elevation of the land. Steep slopes can increase development costs due to grading and foundation requirements. Topographic maps are essential for assessing site suitability.
3. Soil Composition: The type and stability of the soil. Poor soil conditions (e.g., expansive clay, unstable fill) may require costly remediation or specialized foundation designs. Geotechnical investigations are necessary to determine soil properties.
4. Availability of Utilities: Access to water, sewer, electricity, gas, and telecommunications infrastructure. The cost of extending utilities to a site can be substantial.
5. Environmental Conditions: The presence of wetlands, floodplains, or contaminated soil. These conditions can restrict development or require costly remediation efforts.
6. Accessibility: Ease of access for vehicles and pedestrians.
B. Impact on Land Use
1. Site Constraints: Physical constraints limit the range of feasible uses.
2. Cost-Benefit Analysis: Evaluate the cost of overcoming physical constraints versus the potential returns from different development scenarios.
3. Mathematical Modeling: In some cases, mathematical models can be used to assess the impact of site characteristics on development costs. For example:

Total Development Cost = f(Site Size, Topography, Soil Conditions, Utility Extension Costs, Remediation Costs)
Where f represents a function that relates development costs to site characteristics. The specific form of the function will depend on the type of development being considered.
4. Example: For developers of commercial real estate, ease of access (e.g., number and placement of curb cuts) is the most important site factor, but others may consider visibility to be paramount.

III. Location: External Influences
A. Macro-Location Analysis
1. Regional Economic Factors: Analyze regional employment trends, population growth, and industry clusters.
2. Demographic Trends: Examine population density, age distribution, income levels, and household size.
3. Transportation Infrastructure: Assess access to major highways, airports, and public transportation.
4. Geographic Information Systems (GIS): GIS software can be used to map demographic data, traffic patterns, and other relevant information.
B. Micro-Location Analysis
1. Proximity to Amenities: Assess proximity to schools, parks, shopping centers, and other amenities.
2. Neighborhood Character: Evaluate the existing land uses and architectural styles in the surrounding area.
3. Traffic Patterns: Analyze traffic volume, speed, and congestion.
4. Linkages to Demand: Identify the sources of economic demand for the subject property.
C. Competitive Analysis
1. Identify Competitors: Identify existing and planned developments that compete with the subject property.
2. market❓ Share: Analyze the market share and performance of competitors.
3. Competitive Advantages: Assess the competitive advantages and disadvantages of the subject property.
D. Location and Economic Demand
1. The location of real estate determines the type of land uses with the greatest economic demand in an area.
2. Attributes of a location changes over time, those dynamic features, such as land use growth patterns and the direction and rate of this growth, also need to be addressed.
3. Location analysis addresses these major questions regarding the use potential and competitive position of the property:
a. Where does the subject property fit in the overall growth pattern?
b. Where does the market for the subject property come from (i.e., linkages to demand)?
c. How does the location of the subject property compare to the competition at the present time and in the future, and what are the future implications for the marketability of the subject property?

IV. Integrating Legality, Possibility, and Location
A. Initial Screening: The legality, possibility, and location assessments act as a preliminary screening process. Uses that are not legally permissible, physically possible, or economically viable based on location should be eliminated from further consideration.
B. Highest and Best Use: Those uses that are both legally permissible and physically possible make up the pool of alternative uses that can be analyzed for financial feasibility.
C. Example: A housing development for seniors might be a permissible use for a specific site but, if most residents of the market area that such a facility would serve are under 40 years old, this use is most likely not reasonably probable and would not be analyzed further for financial feasibility.

V. Distinguishing Use from Motivation

A. Use vs Motivation: The concept of highest and best use relates to what is done physically with real estate, and use of physical land should not be confused with the motivations of owners or users.
B. Examples
1. Conservation and preservation are not uses of land. Rather, they are the motivations of individuals or groups for acquiring certain properties. The physical uses in these cases could generally be characterized as “leave the land vacant” or “do not change the historic improvements.”
2. “Assemblage with an adjacent parcel” is not a meaningful description of a property’s highest and best use. While the process of assembling a site with other sites might make the most sense financially for the entity who would benefit from the combination of multiple parcels, assemblage is a motivation for acquiring a property, not a use of the real estate.
3. Land that is held primarily for future sale, with or without an interim use, may be regarded as a speculative investment. Speculation describes a motivation rather than a use.

Conclusion

By systematically evaluating a site’s legality, physical attributes, and location, appraisers can narrow the range of potential uses to those that are most likely to be economically viable and contribute to the highest and best use. This initial assessment forms the foundation for more detailed financial analysis and market studies.