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Highest and Best Use
Commercial Real Estate Feasibility Study Services

Highest and Best Use
Commercial Real Estate
Feasibility Study Services

For over 25 years, Wert-Berater, Inc. has been providing clients with expert commercial real estate feasibility studies.

 

We specialize in commercial real estate feasibility studies for: 

 

Our commercial real estate feasibility studies are designed to help developers and investors make informed decisions about projects.

 

Our expert team of professionals work closely with our clients every step of the way to ensure that our studies are based on accurate data and provide the information necessary to make informed decisions.

What is Highest and Best Use?

According to The Appraisal Institute the highest and best use of a property is defined as:

 

"The reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, and financially feasible and that results in the highest value."

 

The Appraisal Institute has also defined a set of tests, known as "The Four Tests", that comprise the factors an analysts must consider when determining the highest and best use of a property.

 

Each of these tests can potentially be a complex and detailed process,  The Four Tests are given below with brief explanations of each.

The Four Tests:

   A. Legally permissible: Which use cases are permissible by law, zoning, and other land use regulations.

   B. Physically possible: Constructing buildings on the side of a mountain or in a swamp probably aren’t possible

   C. Financially feasible: Does the use case of the property suit the demographics and market of the area well?

   D. Maximally productive: Does the intended use optimize the potential of the land?

A. Legally Permissibility

This simple questions involves identifying the zoning jurisdiction, understanding base zoning, zoning overlay districts, and future  district plans.

Normally, the jurisdiction is city or county.  However, local governments may has plans for annexation which could include your site. 

Zoning normally provides for the percentage of the site that can be used for structures and other improvements, yet is subject to engineering that must be approved by the jurisdiction planning and building department.  In the scope of a highest and best use study, unless an approved site plan is provided, then the analyst must compare similar parcels nearby to measure how they were allowed to be used.  

Zoning often allows for a large number of legal uses.  The process of elimination of all legal uses can be carried out which is a time consuming process of creating.

Thus, the client can instruct us as to which uses they prefer to test, thereby making the study customized.

B. Physical Attributes

If it is a parcel of land that is being evaluated for highest and best use, items such as Phase I or Phase II environmental reports are useful, title searches to uncover easements and land use restrictions,  land surveys and topographical maps. 

Establishing which parts of the land are useable, surplus or excess land can be difficult.  Observation does not always detect wetlands for instance.  Thus, tools are used to carefully estimate the useable site envelope for development. 

Moreover, the concern about utilities and their capacities and availabilities is crucial to the future development of a site.  

The highly trained and experienced staff at Wert-Berater, Inc. understand these challenges and implement critical review of each item and more.

C. Market Trends

Every land use has demand drivers.  Understanding unmet demand is the key to success when evaluating the market trends.

For instance, without new demand drivers, just because all of  the hotels in the market are at 75 percent occupancy, that does not mean introducing a new hotel will also achieve the same occupancy level.  Adding more rooms to the market, may only reduce the overall market occupancy, and the same can be said for rents.  

A careful well-developed market analysis is focused on unmet demand and demand drivers.

 

D. Current vs. Potential Performance

It’s also a good idea to analyze trends for multiple different property types to determine whether or not there’s divergence between them.

 

Market saturation is an important element of highest and best use. Historical performance alone is not the only indicator or potential performance.

Area economic factors including job and demographic trends, consumer spending patterns, competitive supply existing, in-planning and under construction must be paired to understand if a new project will be absorbed and in what time frame.

E. Competitive (or potentially competitive) sites

At Wert-Berater, Inc, we recognize the importance of conducting an accurate and detailed highest and best use analysis. It's crucial to not only consider existing properties in the market, but also to explore the potential of vacant land and existing properties for their highest and best use.

 

Our team of experienced professionals can assist you in making strategic decisions based on our findings.

F. Cost of Modification vs. Existing Use

The previous factors (with the exception of market trends) could require a significant monetary outlay for redevelopment or repositioning of a property.

An analyst will have to determine whether the potential increase in value would exceed the cost of the modifications necessary to achieve the highest and best use of a property.

 

In the case that the cost of modifications would exceed the increase in value, the current use would likely remain the highest and best use of the property.

G. Financial Pro Forma

At Wert-Berater, Inc. we help our clients analyze the highest and best use of their properties before making any significant decisions.

 

Our approach is to collect all relevant information about a property, including its physical characteristics, market conditions, and zoning regulations.

 

Our team of experts then constructs and analyzes discounted cash flows to determine the potential value of the property. By doing so, we can guide our clients to make informed decisions that align with their goals and objectives.

H. Conclusion

Ending normally with a Land Residual analysis, compared to land market values, is the final test of highest and best use analysis.

With over 25 years of experience in the industry, Wert-Berater, Inc. has developed a reputation for providing clients with the most accurate and reliable highest and best use analyses.

 

Our team of highly skilled analysts utilizes state-of-the-art technology and the latest industry trends to provide our clients with the most comprehensive analysis possible. We are committed to providing superior service and value to our clients and continuously strive to exceed their expectations.

Highest and Best Use Studies

Commercial Real Estate Feasibility Study

  • Executive Summary

  • Economic Feasibility

  • Market Feasibility

  • Technical Feasibility

  • Financial Feasibility

  • Management Feasibility

  • Depending on the project type, other sections may be required.  See specific project type pages for specific statement of work.

Popular Commercial Real Estate Types we provide Commercial Real Estate Feasibility Studies for:

Popular  Property Types

Commercial Real Estate Asset Classes

Commercial real estate is a complex industry, and investors need a partner they can trust to help navigate it.

 

Wert-Berater, Inc. is committed to providing our clients with expert advice and consultation by way of well developed and useful commercial real estate feasibility studies, ensuring that they have all the tools they need to make informed decisions.

 

We specialize in a variety of asset classes, including retail, office, hotel, industrial, and multifamily properties. With our extensive knowledge and experience, we are well-equipped to help our clients succeed in the competitive real estate market

The term multifamily real estate comprises all residential real estate, with the exception of single-family homes. This type of commercial real estate includes high-priority investments like apartments, co-ops, townhomes, and more.

 

Multifamily properties are often further subdivided into Class A, Class B, and Class C properties depending on their location, condition, and more.

Living spaces are essential, meaning multifamily buildings will always carry some degree of value, regardless of market conditions. Nonetheless, market factors influence the viability of opportunities across geographies. Investors also raise rent annually to balance net operating income with inflation.

Some of the most common types of buildings within the multifamily real estate asset class include:

  • Duplex, Triplex and Quadplex: Rental properties that are divided into two-unit, three-unit, and four-unit homes, respectively. These types of buildings are available in nearly every market.

  • Garden Apartments: Low-rise rental apartment buildings that typically offer tenants shared outdoor space, yards, or gardens. Garden apartments are typically located in the suburbs, but can be anywhere.

  • Mid-Rise Apartments: Multifamily rental apartment buildings with at least 5 or more stories and an elevator, which are generally located in urban areas.

  • High-Rise Apartments: Multifamily rental apartment buildings with at least 10 or more stories and an elevator, which are generally located in larger, more densely populated markets. Most high-rise apartments have over 100 units, with professional management overseeing leases and maintenance.

  • Walk-Up: An apartment building with 4-6 stories, and by definition, no elevator.

  • Student Housing: Properties built specifically for student use in areas close to colleges and corresponding downtown areas. Many have large common areas. 

  • Senior & Assisted Living: Properties built specifically for seniors, which are normally in neighborhoods where elderly populations reside.

Office buildings account for another major real estate asset class. Ranging from single-story suburban buildings to multi-story urban buildings, office buildings can be lucrative.

 

However, waning in-office attendance has created headwinds for office investors, even as companies prioritize quality space and employee experience.

Because most office buildings are developed for multiple tenants, investors can generate several revenue streams.

 

This structure provides a level of income diversity, helping investors to retain cash flow even in the event that a tenant terminates a lease. Compared to other types of commercial real estate properties, office leases tend to be longer, too.

 

As a result, office investors don’t take on as much risk. Preparing spaces for new tenants, though, can be capital-intensive. 

Office buildings are generally divided into three classes, based on the building’s age, condition, location, and more:

  • Class A Office Buildings: The highest quality office buildings available, with higher-than-average rents compared to neighboring buildings. Most are newly renovated, easily accessible in city areas, and offer tenants desirable amenities. Class A buildings are usually located in the central business district of the city.

  • Class B Office Buildings: Competitive buildings that are generally priced around standard market rates. While they tend not to be in highly sought-after locations, Class B buildings may be similar in quality to Class A buildings.

  • Class C Office Buildings: Less-than-ideal quality buildings that tend to be priced below average market rates. Class C office buildings may provide tenants with usable space, but without added perks like amenities and accessible locations. 

Industrial buildings are an attractive investment due to their long-term return and leases, as well as low overhead costs. 

Unlike other types of commercial real estate, industrial buildings are often located along interstate highways for added convenience in shipping and delivery. Especially as the eCommerce boom continues, and order fulfillment requires reimagined delivery infrastructure, industrial warehouses are in high demand.

There are a few different types of industrial buildings, which vary in size, layout, format, and in other ways:

  • Heavy Manufacturing: Buildings that have undergone significant transformation to cater to the manufacturer’s unique machinery and process, which can’t easily be occupied by another tenant.

  • Light Assembly: Buildings that are used for production and/or storage, but without tenant-specific floor plans. 

  • Bulk Warehouse: Large warehouses that are used for product distribution. Often, manufacturers will divide bulk warehouses by region, with strategic locations based on supply chains.

  • Flex Industrial: Buildings that contain industrial storage and/or production space, as well as office space for corporate personnel. 

In commercial real estate, the label retail applies to any buildings occupied by businesses offering products and services to customers, including stores, restaurants and more. The eCommerce boom has caused retail foot traffic to decline, but this type of commercial real estate still plays an important role in new ways within the retail business model.

Compared to other real estate asset classes, retail buildings tend to have longer leases. For investors, this means a stable source of cash flow, without questions about future income.

Retail properties are organized into several different categories, which vary significantly depending on the location, size, and other factors:

  • Strip Malls and Shopping Centers: Clusters of stores that are grouped together, often in one or several unified buildings, to provide a centralized shopping experience. Some may have anchor tenants, or more noteworthy businesses that drive customers in and lead them to other stores.

  • Community Retail Center: Complexes that generally have more than one anchor tenant and several smaller businesses, normally spanning 150,000-300,000 square feet. 

  • Power Center: A shopping center typically located near an interstate highway with at least one anchor tenant. Power centers typically have outparcels.

  • Regional Mall: A larger complex offering a variety of retail and restaurant options with several anchor tenants, such as big box retailers. Malls normally span 400,000 to 2,000,000 square feet, including higher-end shops, restaurants, and entertainment options.

  • Outparcel: Parcels of land within other larger plots leased to other tenants, such as shops, restaurants, fast food, chains, and more. Outparcels tend to rely on larger buildings for foot traffic.

The hotels and hospitality category comprises buildings offering both short-and long-term accommodations to travelers, both for leisure or business purposes.

 

Some hotels are owned by a corporation, operating as part of a chain.

 

Boutique hotels typically feature a unique and thematic design concept, and are typically privately owned.

 

These are some of the most common types of hotels:

  • Limited Service: Facilities where residents are left to their own devices, without room service, restaurants, or a concierge 

  • Full Service: Facilities offering residents both room service and a restaurant

  • Extended Stay: Hotels designed to accommodate guests for the long term, including service, a kitchen, and larger rooms 

  • Resort: Full-service facilities that generally include an entertainment element in addition to accommodations, such as an amusement park or beach 

Some properties fall into multiple real estate asset classes, making them mixed use properties.

 

Many downtown high-rises are considered mixed use, with retail stores located on the first few floors and apartments above.

Mixed use properties may include real estate asset classes like retail, industrial, office, and residential. 

Boasting low operating costs, minimal maintenance and high capacity, self storage has grown in popularity as people continue relocating in the pandemic’s wake. In the past ten years, spending on self-storage construction has increased by 926%

This simplicity also lends itself well to scale. Understanding migration patterns and job growth can allow investors to enter new markets with relative ease, while keeping maintenance and utility costs low. While market conditions influence migration, self storage is also relatively resistant to recession cycles.

Not all buildings align directly with the types of commercial real estate outlined above. Others are considered special-purpose real estate.

 

These buildings are typically more difficult to valuate, given that there normally aren’t comparable properties in the area:

 

Overall, any building that’s created for a highly specific activity or group of people fits under the umbrella of special purpose.

We have significant experience in Special Purpose Project Feasibility Studies.

Highest and Best Use Study
Cost and Completion Time

The cost of a Highest and Best Study generally starts at about $12,000 USD and up to $50,000 depending on the complexity of the project. 

The time to complete depends also on the complexity of the project yet from 20 to 30  business days. 

 

A highest and best use study must have the appropriate time to evaluate opportunities and cannot be rushed. 

Opportunity Zone Feasibility Study Consultants

Get in Touch

Book a Meeting to Interview us. 

 

Strongly recommended.

Always interview an Opportunity Zone Commercial Real Estate Feasibility Study Consultant!

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