As a director of commercial real estate, you may already be familiar with zoning regulations, but do you know how they can help add value to your portfolio? Zoning is the process of separating land into distinct zones, each of which allows for specific land uses. In some areas, zoning also regulates building characteristics such as height, density, and design.
There are four main types of zoning: residential, commercial, agricultural, and industrial. Zoning codes within each type point to different districts, building sizes, building density, and building use.
Applying zoning strategies may be helpful in certain situations or scenarios. An organization could be interested in developing commercial properties in residential zones, or a company’s next commercial property could be too close to an industrial zone. A single property could also have multiple zoning classifications, such as when a company has a parcel of land that is half commercial use and half residential, but it wants the entire parcel to be commercially zoned.
Below are a few ways zoning ordinances can be adjusted in your favor.
Understanding commercial zoning ordinances is vital to securing property in locations that best suit your business and customers. Additionally, failing to abide by zoning regulations can be expensive, time-consuming, and potentially disastrous.
Often, the opportunities for CRE owners to leverage zoning expertise and increase value are hidden in regulatory gray areas.
Rezoning involves reassigning property to a different category of use and development restrictions. Landowners usually need to petition to have their district rezoned. Requests are more likely to be successful in areas where the district has undergone significant change.
Accessory use codes control what elements a property may include, like a solar power collector, fuel tank, or storage area. Ancillary use codes permit uses of a property that may be outside of the exact zoning codes but align with the needs of the surrounding area.
A corporate real estate owner may obtain an accessory use code if adding an accessory structure. For example, a detached garage may be considered accessory to the greater property because it is part of the same land but is subordinate and incidental. It’s important to note that the accompanying principal structure must be established before accessory use is considered lawful.
A zoning variance is a discretionary, limited waiver that modifies the zoning regulations. This type of request concerns the owner’s land and not the district at large.
For example, if a corporate real estate owner wants to deviate from zoning laws by building an addition to an existing building or changing what a building is used for, they need to seek a variance.
A conditional use permit (CUP) may be granted given that the project is beneficial to the community. Upon receiving a CUP from local authorities, the project can proceed regardless of violating the known zoning violations. Some examples of CUP recipients in residential zones include convenience stores, schools, and churches. In industrial zones, CUP recipients include restaurants and gas stations.
An option for funding commercial development may include subdividing previously purchased property and selling part of it. Owners need permission from their local zoning board before proceeding with subdivisions.
A planned unit development, or PUD, is a property that has been zoned for both residential and commercial uses. PUDs may also make other zoning ordinances more flexible, including setback rules or maximum building size.
While it’s important to consider the costs and impacts to the surrounding area, using these strategies to adjust commercial zoning ordinances may offer an opportunity for you to add value to your CRE assets.
Zoning strategies aren’t the only way to increase the value of your CRE portfolio, of course. To uncover more ways to improve your portfolio, take the CRE Score.
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