As a commercial real estate investor you need to know how to evaluate your asset. The strongest way to understand the potential of your property is by conducting a “highest and best-use analysis”.

This process is defined by The Appraisals Institute as: “The reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, and financially feasible and that results in the highest value.”

As leading commercial real estate specialists, our in-depth market analyses provides our clients with key insights pertaining to their investments.

Keep reading to learn more about how highest and best-use analysis influences how you invest in commercial real estate, and how it can be used to optimize your asset.

What is a “Highest and best-use analysis”?

Performed by our team, a highest and best-use analysis is conducted to understand the full potential of a commercial property. It will determine what is legally allowed, physically possible, financially attainable, and of the greatest value to the asset. This analysis provides you with an understanding of how to optimize your investment based on your existing goals and long-term aspirations.

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Why do you need to know this analysis?

When you own a commercial property, you’ll want to know what the current opportunities are, but also what future opportunities there are—as well as the limitations. Conducting a highest and best-use analysis will inform you of the potential use for your commercial property. With this understanding, you’ll be able to create added value from your investment.

Do all commercial properties need a highest and best-use analysis?

While it’s not legally required to conduct a highest and best-use analysis, it is highly recommended. At Intrust, we provide this service at no additional cost to our clients.

Having a complete understanding of your options—and limitations—is the most effective way to optimize ROI. It will also allow you to maximize your potential profits by helping you know exactly which strategies are possible and most optimal for improving your asset.

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How is the highest and best-use of a commercial property calculated?

There are four tests for analyzing commercial properties:

  • Legally permissible: Which use cases are permissible by law, zoning, and other land use regulations?
  • Physically possible: This step considers such attributes as the site’s size, shape, topography, soil type, water conditions and accessibility.
  • Financially feasible: Does the use case of the property suit the demographics and market of the area well?
  • Maximally productive: Does the intended use optimize the potential of the land?

Once all the tests are performed, we’ll help you determine the best application for the asset. Should the vacant building be turned into a multi-family residence or an office building? Should it be torn down and converted into a parking lot?

By considering all the important factors, a highest and best-use analysis will make it clear what your best options are.

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Conducting a highest and best-use analysis doesn’t only paint a clear picture of the asset’s current position, but also considers the future potential of the property.

Our team has years of Toronto market experience spent underwriting commercial real estate across a range of industries—from retail to industrial. When you partner with InTrust, we’ll provide a thorough market analysis that sets a clear framework for strategizing the growth of your investment.

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