Highest
and Best Use Reflections
All
through our real estate markets, striking (and more incremental) changes
are taking place constantly. Many
of these changes, such as when vacant land is built up, are obvious.
Others, such as long term changes in building uses are less so.
Highest
and Best Use is the most cherished (and probably least understood) concept
among real estate appraisers and practitioners. It is how appraisers can understand the constancy of change
in the real estate market. It
is also how property can be appraised as if the current improvements do
not exist except as an impediment to development.
Highest
and best Use can be defined as follows:
-
The
reasonable and probable use that supports the highest present value of
vacant land or improved property, as defined, as of the date of the
appraisal, or,
-
The
reasonably probable and legal use of land or sites as though vacant,
foind to be physically possible, appropriately supported, financially
feasible, and that results in the highest present land value, or,
-
The
most profitable use.
Some
striking examples noted in Eastern Massachusetts include:
-
The
rapid changeover to office uses of industrial/R & D buildings
located at Exit 18 of Route 128.
Interestingly enough, though zoned for manufacturing densities,
current office space demand makes it feasible to redevelop these
low-use properties as first class office space.
Additionally, a number of buildings have been re-used as space
for support services such as day care, health and fitness, etc.
-
The
transformation of another formerly industrial area between Exits 26
and 27 of Route 128 has seen redevelopment of many former
electronics-related sites to office and retail/service uses.
While the most obvious and now relatively established
redevelopment first took place at Exit 27 with hotels and "big
box' retail uses, this area is now rapidly changing.
-
The
general dearth of small, low-cost industrial spaces within Route 128
suggests that there is tremendous pressure to upgrade properties to
achieve premium rent levels. As
a consequence, many small and low-cost space users are moving beyond
Route128 and indeed beyond Route 495.
In some cases, renters become buyers in these outlying
locations where proximity to Boston is not critical.
-
The
twin pressures of the Big Dig and the Seaport District development are
creating wholesale and radical transitions in South Boston and
neighboring areas. Most
evident are changes in the residential market.
However, premium prices and rents are being obtained for
industrial property. The expectation is that between the Big Dig and the Seaport
District, there will be several space demand generators over the near
term.
-
In
downtown Boston, a trend since about 1996 towards converting turn of
the century "mill" buildings into loft style residential
space is a market place reality.
Much of this originally artist "live-work" space has
now become a desirable and fashionable alternative for city dwellers
seeking more space for their urban housing dollars.
These
are but the most obvious examples. More
subtle examples will be examined at another time.
Where
does this leave real estate market analysts and participants?
While these events are not entirely unanticipated, the manner in
which they occur, their timing, and where they occur are somewhat less
predictable. These types of
changes and the kid of market responses the elicit provokes profound
thoughts about the nature of real estate value.
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