What Is a Highest and Best-Use Analysis?
2 min read.
Commercial real estate is a dynamic and complex field that demands thorough analysis to maximize its potential, and one essential tool is the Highest and Best-Use Analysis. This analytical process helps determine the most advantageous use of a property, ensuring optimal value and return on investment. Explore the key aspects of the analysis that you should consider below.
The Highest and Best-Use Analysis is a comprehensive evaluation of a property to identify the most financially lucrative and feasible use, considering both current and potential future uses, and any limitations. The analysis is based on these four criteria:
Legally Permissible: The use must comply with law, zoning and other land-use legal regulations.
Physically Possible: The property should be suitable for the intended use based on its physical characteristics, such as the site’s size, shape, topography, soil type, water conditions and accessibility.
Financially Feasible: The proposed use must generate sufficient revenue to cover costs and provide a reasonable return on investment, considering the demographics and market of the area.
Maximally Productive: The selected use should maximize the property's potential in value and utility.
A well-executed Highest and Best-Use Analysis is instrumental in making informed decisions about commercial real estate (CRE) investments. Although it is not legally required, it helps property owners understand their properties and how to maximize Return On Investment (ROI), contributing to sustainable and thriving urban development. It is a strategic process that goes beyond the surface of a property, delving into its potential to determine the most advantageous use.
Reference
How to determine the highest and best use of a property. PropertyMetrics. (2023, January 2). https://propertymetrics.com/blog/highest-and-best-use/
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