Highest and Best Use – Property Potential

Every commercial property has an optimal use that maximizes its value.  We can figure this out with the Highest and Best Use Analysis.  This process involves four criteria:

1. Legally Permissible – Is the use allowed under the current zoning and land use regulations?

   
   

2. Physically Possible – Does the site’s size, shape, and topography support the use?

   
   

3. Financial Feasibility – Will the use result in a value that allows for an acceptable amount of profit?

   
   

4. Maximum Productivity – Considering all criteria and feasible uses, which one provides the highest value?

Example: 

A surface parking lot in a downtown area might be generating some income; however, this zone also allows for high density residential uses.  The site also offers an average rectangular shape, adequate exposure and access, and level topography.  If market conditions support a high-rise multifamily development, the highest and best use could shift, significantly increasing the site’s value.

It’s also possible in certain market conditions that the highest and best use might be to hold the property.  For example, during economic downturns or when construction costs are too high, waiting for more favorable timing or operating the property in its existing use could be the best strategy. 

The highest and best use analysis is essential for identifying underutilized assets and guiding strategic investment decisions.  Whether you’re appraising a property, acquiring a site, or advising on a redevelopment project, understanding this analysis can reveal the property’s potential and create long-term value.