Commercial Real Estate Zoning Considerations
November 14, 2023
What is Zoning for Commercial Real Estate?
Zoning is a regulatory tool that city planners and local governments use to control land development and use within their jurisdictions. By categorizing different zones (in this case commercial) authorities ensure that cities and towns develop in an organized, purposeful, and efficient manner.
Every piece of land, every plot, every acre within a city or municipality, gets a specific 'zone' designation. This designation dictates what the land can and cannot be used for.
What is the Commercial Zoning Process
Zoning doesn't happen overnight. It involves a meticulous process that includes research, public hearings, and considerations about the best land use for community & commercial growth and sustainability. It takes into account the city's long-term plan, transportation avenues, accessibility, and the needs of the community. Over time, as communities evolve, zones might be readjusted, which means properties can be rezoned to better fit the city's current vision.
Zonings Impact on Commercial Real Estate Investors
We’re especially concerned with what zoning means for commercial real estate investors. We put together a list of the areas within zoning that impact CRE investors most.
- Property Value A piece of land's value is closely tied to its zoning designation. For instance, a parcel zoned for commercial use in a bustling city center can be significantly more valuable than one with an industrial zoning in the same location. Understanding this helps investors gauge the potential return on investment.
- Future Development An investor eyeing a plot for a shopping center needs to ensure that the zoning allows for such a use. Purchasing a plot without checking the zoning can lead to costly mistakes. Furthermore, understanding future zoning changes can give investors a competitive advantage. If an area is projected to be rezoned for commercial use, acquiring property there ahead of time could lead to significant appreciation.
- Loan Criteria Financial institutions often scrutinize the zoning of a property before sanctioning loans. If the intended use of a property doesn't align with its zoning, the chances of loan denial increase.
- Potential for Rezoning While zoning designations tend to be stable, they aren't set in stone. An investor can apply for rezoning if they feel a different designation would be more appropriate. However, this is a lengthy process and doesn't guarantee success.
- Environmental Zoning Considerations Some zones, especially those near water bodies or in ecologically sensitive areas, may have stringent environmental regulations. Investors should be aware of these, as they could impact the type and scale of development allowed.
- Rentability & Market Demand The demand for leasing spaces in a commercial building can also be influenced by zoning. A commercial property in a predominantly residential zone might not fetch as many lessees or generate as much footfall as one in a purely commercial zone.
Mitigating Zoning Hurdles
While zoning can seem like a maze, working with an experienced CRE Fund like ours can help you navigate the intricacies and avoid them altogether. We maintain up-to-date zoning maps, have insights into potential future rezoning, and can guide you through the rezoning application process if needed.
For the most part zoning is straightforward and our team takes care of all of that in our process for acquiring, managing & exiting properties.
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