Even Though It's Zoned Commercial... - September 2005
by Bill Gladstone, CCIM, SIOR

Even though it's zoned commercial, it may not be worth as much as you think. In the boom period we are in right now, commercial land is being purchased at some of the highest prices ever. However, there are certain things to consider before thinking a property is worth well beyond what you ever thought you could get for it.

The biggest item with commercial real estate is location. If it's located at a signalized intersection on a busy highway, most likely it is a home run. If it's located on a secondary street mid-block, it will not be as valuable. Additionally, are the adjacent properties the most sought after neighbors for a commercial setting? If they are less desirable, they do not bring a lot of value to the block. If the neighbors' use and appearance is not desirable, your property might not be as valuable.

Another aspect is the amount of frontage. If it is less than 150 feet, value might be an issue. Many times the parcels are so small that buyers need to do an assemblage of two or three lots. By the time the cost is added together, it is about one acre and well over $1 million (in some instances). The land may not be worth it, but that is what the people need to motivate them to leave. Many times this occurs in assemblages for larger retail stores like Lowe's, Home Depot, and Target. In those cases, you are talking about commercial users with the money available to pay those prices. In instances where you are talking about small commercial uses that are too small for national buyers sometimes local or regional buyers do not have the money to pay that kind of price and the deal collapses.

There are other concerns too. Does it have public utilities? Will you get a highway occupancy permit relatively easy? Does the existing driveway comply with what is anticipated for the lot, especially if there's a change of use? Is the lot level? Does it have rock and if it does, is it a normal or extraordinary amount of it? Is there room to build a project on the land and comply with the DEP's new stormwater runoff regulations? Some forethought needs to go into these questions and an appraiser and perhaps a local real estate agent should evaluate it so that financial planning based on the income from the parcel is safe and accurate.

Recently, I spoke with an attorney who, based on a prior experience with an acre at a corner with a light, decided this new project in which I am involved should have a similar price – more than half a million dollars!

Unfortunately, the new property is mid-block on a tertiary road (not even a secondary road), is zoned industrial rather than commercial, and was a former gas station with underground tanks still in place that went out of business. The existing building is very old and has asbestos. The price placed on that property ended up being less than $100,000.

It would be prudent to take time to explore the above items, in addition to talking with a local real estate agent, appraiser, attorney and accountant in an effort to make a true assessment of whether or not your commercial property is worth what you think it is.

**Feature in the September 2005 edition of the "New Properties" email.

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