APPROVE THIS REZONING - IT’S THE HIGHEST AND BEST LAND USE!
By
Craig Hullinger, AICP and Chuck Eckenstahler, AICP
INTRODUCTION
It is common in today’s zoning administration to hear someone call upon the plan commission to recommend the rezoning of a parcel because the proposed use will be the “highest and best use” of the parcel of land. Typically, the statement is made by the applicant, their attorney or their real estate agent, in an effort to persuade the plan commission to approve their request.
In the public hearing process, planners hear a lot about highest and best land use. In common usage, highest and best land use is nothing more than an individuals’ personal opinion concerning how a parcel of land should be used. However, in real estate law and real property appraisal practice, the concept of highest and best land use is a technical analysis which can be used to determine the best use of land, subject to certain assumptions.
This article is designed to review the technical process of determining highest and best land use, as viewed by the legal profession and real estate appraisers. This review will provide background for community planners and local zoning officials to separate a petitioner’s personal opinion from judgements based on factual technical analysis about the potential use of a specific parcel of property.
HIGHEST AND BEST LAND USE - A DEFINITION
The concept of highest and best land use originates from the real estate appraisal field. Appraisers define of highest and best land use as:
The use, from among reasonably probable and legal alternative uses, found to be physically possible, appropriately supported, financially feasible, that results in the highest land value.
What this definition states is the highest and best land use is the use which meets a four part test demonstrating the use is (1) physically possible, (2) legally permissible, (3) financially feasible and (4) maximally productive.
Physically Possible - Not all parcels of land are created equal. In planning a use for the parcel of land, consideration must be given to the size of parcel, roadway access, subsurface conditions, presence of environmental concerns (wetland, endangered species) and even contamination from prior use or illegal dumping.
Many times the size of the parcel, physical shape, access or prior use prohibit the development or use of the parcel for specific uses. For example, a small parcel of land along a major roadway cannot be use for a fast food restaurant if it cannot obtain a “curb cut” allowing a safe driveway entry to the property.
Uses which pass this first test are the uses which in the judgement of the appraiser can be developed or built on the property. The appraiser may consult with a design team composed of land planners and engineers. More complicated cases can require the services of architects, land surveyors, traffic experts, geologists, and environmental consultants. Based on their combined expertise they can eliminate uses which cannot physically be developed on the parcel.
Legally Permissible - Local, state and federal government have laws and regulations which govern the use of land. In this test, the only permissible uses of the land are those which are permitted by these laws and regulations. In addition to local zoning, development of a parcel of land must adhere to stormwater management regulations, wetland protection, endangered species, “curb cut” access from roadways and many other rules. Each regulation may establish a rule which impacts what may or may not be legally permitted.
From the developers view, where the regulation prohibits development of the parcel of land as desired, an appeal to the local government or regulating agency to vary the strict terms of the regulations may be considered. The probability of receiving favorable consideration for the request must also be considered to determine whether the proposed use will pass this test.
Financially Feasible - With enough money you can develop any use on any site, assuming its size is adequate. With modern engineering techniques a developer can correct or mitigate many problems, including subsurface soil problems, wetlands and floodplain. The developer can construct parking garages to get more parking spaces per square foot of land area to meet applicable zoning regulations.
The test of financial feasibility, however, addresses the question of can a profit be made on the investment of funds in the development. Building a shopping center which requires rent of $12.00 per square foot of floor area in a market where shop keepers can only pay $7.00 per square foot would not be a financially feasible investment.
To pass this test, a proposed development is subjected to a financial feasibility analysis. This analysis projects the income generated from the development compared to the cost to develop the parcel of land. The profit (excess income) after payment for developing the parcel is compared to profit of comparative projects or other investments such as returns an investor would gain in a stock market portfolio. In the real world today, a developer of property seeks a 20-25% return on their invested funds for developing real estate.
Maximally Productive - Understanding this concept is rather easy. It suggests that a developer will seek to develop uses which provide the highest profit and largest amount of financial return.
DETERMINING HIGHEST AND BEST LAND USE
What this definition states is the highest and best land use is the use which meets a four part test demonstrating the use is (1) physically possible, (2) legally permissible, (3) financially feasible and (4) maximally productive.
Physically Possible - Not all parcels of land are created equal. In planning a use for the parcel of land, consideration must be given to the size of parcel, roadway access, subsurface conditions, presence of environmental concerns (wetland, endangered species) and even contamination from prior use or illegal dumping.
Many times the size of the parcel, physical shape, access or prior use prohibit the development or use of the parcel for specific uses. For example, a small parcel of land along a major roadway cannot be use for a fast food restaurant if it cannot obtain a “curb cut” allowing a safe driveway entry to the property.
Uses which pass this first test are the uses which in the judgement of the appraiser can be developed or built on the property. The appraiser may consult with a design team composed of land planners and engineers. More complicated cases can require the services of architects, land surveyors, traffic experts, geologists, and environmental consultants. Based on their combined expertise they can eliminate uses which cannot physically be developed on the parcel.
Legally Permissible - Local, state and federal government have laws and regulations which govern the use of land. In this test, the only permissible uses of the land are those which are permitted by these laws and regulations. In addition to local zoning, development of a parcel of land must adhere to stormwater management regulations, wetland protection, endangered species, “curb cut” access from roadways and many other rules. Each regulation may establish a rule which impacts what may or may not be legally permitted.
From the developers view, where the regulation prohibits development of the parcel of land as desired, an appeal to the local government or regulating agency to vary the strict terms of the regulations may be considered. The probability of receiving favorable consideration for the request must also be considered to determine whether the proposed use will pass this test.
Financially Feasible - With enough money you can develop any use on any site, assuming its size is adequate. With modern engineering techniques a developer can correct or mitigate many problems, including subsurface soil problems, wetlands and floodplain. The developer can construct parking garages to get more parking spaces per square foot of land area to meet applicable zoning regulations.
The test of financial feasibility, however, addresses the question of can a profit be made on the investment of funds in the development. Building a shopping center which requires rent of $12.00 per square foot of floor area in a market where shop keepers can only pay $7.00 per square foot would not be a financially feasible investment.
To pass this test, a proposed development is subjected to a financial feasibility analysis. This analysis projects the income generated from the development compared to the cost to develop the parcel of land. The profit (excess income) after payment for developing the parcel is compared to profit of comparative projects or other investments such as returns an investor would gain in a stock market portfolio. In the real world today, a developer of property seeks a 20-25% return on their invested funds for developing real estate.
Maximally Productive - Understanding this concept is rather easy. It suggests that a developer will seek to develop uses which provide the highest profit and largest amount of financial return.
DETERMINING HIGHEST AND BEST LAND USE
Highest and Best Land Use, by definition, is much more than a personal opinion. The uses which pass the four part test are those which meet the needs and are allowable by the local government, are physically possible, have development costs which can be supported by rents or sales prices offered in the current or future market and provide for a market rate financial return to the developer.
Local governments share the duty of determining the highest and best land use in their communities with property owners, realtors, developers and others. The process of determining the highest and best land use is embodied in the process of preparing the Comprehensive Plan for the community. Community-wide highest and best land use decisions are made as part of the land use planning process (especially the physically possible and legally permissible criteria) and subsequently identified and regulated in the zoning ordinance. Implicit in the process of preparing the plan and zoning ordinance map is designation of which areas of the community should be used for residential, commercial and industrial uses.
RULES TO CONSIDER FOR ADJUSTING THE PLAN AND ZONING MAP
Developers often use Highest and Best Land Use as a reason to change the plan and rezone a parcel of land to another use. Recognizing the community planning process does not truly consider each of the four parts of the Highest and Best Land Use test, there is good reason to listen to the claim and adjust the community plan and zoning when appropriate. Below is a list of questions to ask yourself when faced with the claim, approve this rezoing - it’s the highest and best land use!
1. Who is making the statement; does the opinion come from a independent third party?
Local governments share the duty of determining the highest and best land use in their communities with property owners, realtors, developers and others. The process of determining the highest and best land use is embodied in the process of preparing the Comprehensive Plan for the community. Community-wide highest and best land use decisions are made as part of the land use planning process (especially the physically possible and legally permissible criteria) and subsequently identified and regulated in the zoning ordinance. Implicit in the process of preparing the plan and zoning ordinance map is designation of which areas of the community should be used for residential, commercial and industrial uses.
RULES TO CONSIDER FOR ADJUSTING THE PLAN AND ZONING MAP
Developers often use Highest and Best Land Use as a reason to change the plan and rezone a parcel of land to another use. Recognizing the community planning process does not truly consider each of the four parts of the Highest and Best Land Use test, there is good reason to listen to the claim and adjust the community plan and zoning when appropriate. Below is a list of questions to ask yourself when faced with the claim, approve this rezoing - it’s the highest and best land use!
1. Who is making the statement; does the opinion come from a independent third party?
2. Is the proposed use a complete change of use (residential to commercial) or a refinement to a designated use (single family residential to multi-family residential)?
3. Does the proposed use of the land conform to the intent of the community land use plan?
4. Is there other land easily available, designated in the community land use plan where this proposed use can be located?
5. Does the use physically “fit” the parcel of land?
6. Are the existing uses and zoning of abutting and nearby properties comparable with the proposed use?
7. Would a change of land use at this location have a detrimental impact on abutting properties?
8. What is the length of time the property has been vacant as currently zoned in context of land development in the immediate vicinity?
9. Is there a community need for the proposed land use?
10. How much care was taken by the community to identify the specific use of this property and the surrounding vicinity during preparation of the community land use plan?
CONCLUSIONS
3. Does the proposed use of the land conform to the intent of the community land use plan?
4. Is there other land easily available, designated in the community land use plan where this proposed use can be located?
5. Does the use physically “fit” the parcel of land?
6. Are the existing uses and zoning of abutting and nearby properties comparable with the proposed use?
7. Would a change of land use at this location have a detrimental impact on abutting properties?
8. What is the length of time the property has been vacant as currently zoned in context of land development in the immediate vicinity?
9. Is there a community need for the proposed land use?
10. How much care was taken by the community to identify the specific use of this property and the surrounding vicinity during preparation of the community land use plan?
CONCLUSIONS
Local communities hold the “key” to the determination of the highest and best use of any property under their planning and zoning control, since they establish what is legally permissible. Typically, the comprehensive planning process analyzes the physically possibility for development of the land and may consider (although slightly) the financial feasibility of development.
Claims made by developers should be given due consideration, especially when the claim is based on technical information, data and analysis prepared by a professional development team organized by the developer using the four part test. When a claim is based on the four part Highest and Best Land Use test it will provide detailed information concerning the physical development of the parcel, an analysis of why it cannot/should not be developed under the terms of the current plan and zoning ordinance, and why it is necessary to change the plan and ordinance to meet current real estate development investment expectations.
Planners and local officials serve their communities best when they listen to all claims that a property should be rezoned because the proposed use it is the highest and best land use of the parcel of land. They serve the community well when they disregard the impassioned personal opinion plea and seriously consider the well prepared and documented claim substantiated by independent third parties, even if engaged by the applicant, based on the four part test.
Claims made by developers should be given due consideration, especially when the claim is based on technical information, data and analysis prepared by a professional development team organized by the developer using the four part test. When a claim is based on the four part Highest and Best Land Use test it will provide detailed information concerning the physical development of the parcel, an analysis of why it cannot/should not be developed under the terms of the current plan and zoning ordinance, and why it is necessary to change the plan and ordinance to meet current real estate development investment expectations.
Planners and local officials serve their communities best when they listen to all claims that a property should be rezoned because the proposed use it is the highest and best land use of the parcel of land. They serve the community well when they disregard the impassioned personal opinion plea and seriously consider the well prepared and documented claim substantiated by independent third parties, even if engaged by the applicant, based on the four part test.
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