1. Market Analysis, Highest and Best Use and Vacant Land
The Case Study of a 66 Acre Vacant Parcel of Land
Wayne Foss, DBA, MAI, CRE, FRICS
Foss Consulting Group

2. The Subject Property Size: 66 Acres Shape: Rectangular, almost square
Location: 0.75 miles west of a major north-south freeway that is lined with new multistory office and retail buildings, and 0.25 miles south of a proposed northbelt loop freeway.
Zoning: Office and Retail uses

3. The Purpose of the Assignment
The Highest and Best Use of the Site
Facts to Consider
Doubtful that most probable use is as zoned
Many nearby office and retail buildings standing vacant
Only comparable sales were to users
Subject is probably a long-term investment
Truly comparable land sales may be difficult to identify because the subject’s actual use is questionable
Must test financial feasibility. Subject’s potential use must be tested

4. Site Analysis Map

5. Property Productivity Analysis, Site Determinants of Use
Access
Three Sides, north, west and south
Two of the streets are major thoroughfares
Close to a major freeway, and will be near to a new freeway belt-loop, although there is no direct access to these freeways from the subject

6. Property Productivity Analysis, Site Determinants of Use
Physical Characteristics
66 Acres, gentle slope from northeast to southwest
Drainage is a consideration: creek on the property
Noise Pollution: a 65-decibel reading was taken on the southeasterly portion of the site. Source is a nearby airport.

7. Property Productivity Analysis, Site Determinants of Use
Physical Characteristics
Any site plan would be primarily geared to four factors:
Interior road connection to Virginia Avenue
A detention pond encompassing at least 2.5 acres
Channelization of leaving the remaining drainage area in the natural floodplain
A minimum number of curb cuts and major access cuts onto New York Avenue or St. James Place

8. Property Productivity Analysis, Site Determinants of Use
Immediately adjacent land uses
Southwest and Southeast are retail and garden type office developments
Further southeast are office and industrial uses
East is a major apartment project
West is low density residential area
Looking at adjacent land uses one could infer that the front part would be retail, and the back part would be apartments, or some other type of residential (or possibly industrial) use.

9. Property Productivity Analysis, Site Determinants of Use
Zoning and Legal Constraints
Front Part:
Approximately 16 acres is general retail use
Rear Part:
Multi-story offices
City Planning did not reveal any obstacle to rezoning the land to apartment use or to light industrial use.
Zoning does not appear to present any major constraints on the land use possibilities.

10. Property Productivity Analysis, Site Determinants of Use
Conclusions:
Site analysis indicates that land uses would include:
Retail and Garden Office on southern portion
Apartment or medium-use-density residential on the northern portion
Industrial uses would also be a possibility, although development constraints, slopes and floodplain, make this use less than ideal.

11. Property Productivity Analysis, Location Determinants of Use
City, Regional and Neighborhood Growth
Focus in terms of how it supports a mixed use development
Where will growth most likely occur, and how much?
Linkages and Land use associations
Economic concept; questions to be considered
Close to what? Far from what?
Access to/from what?
Competing with what? And where?
Influences by what?

12. Property Productivity Analysis, Location Determinants of Use
Area Accessibility (Linkages)
Streets:
New York Avenue & St. James Place
Major north-south and east-west arterial highways
0.75 miles from major north-south regional freeway
Air transportation
Good access to air transportation (southeast)
12 miles from major metro-area airport
Traffic Counts
currently 20,000 ADT, with forecast of 40,000 ADT in 10 to 15 yrs

13. Property Productivity Analysis, Location Determinants of Use
Area Accessibility (Linkages)
Future
Proposed east-west beltway (north)
Neighborhood characteristics
on periphery of a prestigious north metro office district
high income housing found within 5 miles
moderate income housing adjacent to subject
considered slightly inferior to areas east of the north-south freeway
Conclusions
access to the subject is very good
traffic congestion in area might be considered somewhat negative for residential uses in the near term. Highway improvements nearby may negate this problem.

14. Land Use Linkages Map

15. Property Productivity Analysis, Urban Growth Structure
Existing Growth Pattern
analyze overall growth pattern in the area
Intensity of Use (floor area ratio)
number of square feet of building area per unit of land area
High intensity uses along the north-south freeway, and at major intersections with neighborhood collector streets
Lower intensity uses farther from the freeway and bordering the high intensity uses
Conclusion
marginal transitional location between
more intense uses toward the north-south freeway
less intense uses to the west.

16. Existing Generalized Land Use Pattern

17. Property Productivity Analysis, Major Employment Nodes
Regional Nodes
Conclusion:
Existing nodes with remain dominant in the market
Subject not considered a part of any existing node

18. Property Productivity Analysis, Growth Patterns & Zoning
Apartment
Industrial - primarily toward the south
Neighborhood land Uses
Multi-family, local retail and office uses typical at major intersections
Low density housing to the west
Planned Development
major planned office park - south
park finished, but no sales of lots or project developments
Mall site at intersection of north-south freeway and proposed beltway

19. Property Productivity Analysis, Summary Subject Use Location Analysis

20. Projected Generalized Land Use Based on Location Characteristics

21. Market Determinants of Use, Demand and Supply - Retail
Fundamental Analysis:
Estimated Average Household Income (current) $ 38,750
Less taxes & non-retail 57% $ 22,080
Household effective retail buying power $ 16,670
Estimated households in four years x 32,945
Estimated total effective retail buying power (rd) $ 549,000,000
Divided by dollars per SF of sales $200
Estimated total supportable retail space in four years 2,745,000 sf
Economic Development Dept Estimate: 3,155,000 sf
Conclusion: 3,000,000 sf

22. Market Determinants of Use, Demand and Supply - Retail
Current Supply
Planning Dept. estimate: 2,746,230 sf
Real Estate Data Co. estimate: 2,306,150 sf
Acme Research study: 2,584,000 sf
Conclusion: 2,500,000 sf
Future supply
(planned within 4 years): 1,337,239 sf
Expected to be developed (67%) 890,966 sf

23. Market Determinants of Use, Demand and Supply - Retail
Retail Space Equilibrium Analysis
Estimated Demand 4 years: 3,000,000 sf
Less estimated Supply
Current Inventory: 2,500,000 sf
Planned Inventory: ,000 sf
Shortage (excess) of Supply: (390,000) sf

24. Market Determinants of Use, Demand and Supply - Office

25. Market Determinants of Use, Demand and Supply - Office
Current Supply
Planning Dept. estimate: 4,100,000 sf
Real Estate Data Co. estimate: 4,039,300 sf
Future supply
(planned, uncertain start): ,000 sf
Occupancy
Appraiser survey: %
Real Estate Data Co. estimate %

26. Market Determinants of Use, Demand and Supply - Office
Office Space Equilibrium Analysis
Current Demand: 2,987,105 sf
(Including 5% frictional vacancy)
Less estimated Supply: 4,100,000 sf
Shortage (excess) of Supply: (1,112,895) sf
Demand in 5 Years: 3,640,500 sf
Total Current Demand: 2,837,750 sf
Five year demand increment ,750 sf
Yearly demand increment ,550 sf

27. Market Determinants of Use, Demand and Supply - Office
Office Space Equilibrium Analysis
Current Supply: 4,100,000 sf
Less current demand: 2,987,105 sf
Current Oversupply: (1,112,895) sf
Divided by annual growth in demand:
1,112,895 sf ¸ 160,550 sf =
Approximate 7 year supply

28. Market Determinants of Use, Demand and Supply - Multi-family
Population Growth (4 years):
Estimated: 85,000
People per Household: (¸)
Total Household Demand: 32,945
Forecast Mix of Single Family to Multi-family housing units - 65% to 35%
Forecast 4 year demand for multi-family
32,945 units x 35% = 11,500 units

29. Market Determinants of Use, Demand and Supply - Multi-family
City estimates, existing units: 10,570
Under Construction units:
Planned within 4 years: 1,000
Area vacancy rates
General Area: 13% to 14%
Selected Competition: 5% to 10%

30. Market Determinants of Use, Demand and Supply - Multi-family
Equilibrium Analysis
Overall Market - Oversupplied
Competitive Market - In balance

31. Market Determinants of Use, Demand and Supply - Multi-family
Capture Rating
Competitive Corner Rating suggests
Five corners expected to absorb faster
Four corners expected to absorb slower
Pro rata Share
Acreage of competitive Corners: 600
Acreage of Subject
Total:
Subject pro rata Share: 10%

32. Financial Analysis of Land Use Mix
Procedure: To each type of land use
Assign relative user values
Assign absorption estimates
Judgement and Experience must be applied
Address Uncertainty and Risk
adjusting the discount rate
uncertain land uses can be revised along more conservative lines
reconcile different risks and values

33. Three Models Step One: Assign User Values Discount Rate: 12.0%
(identified through separate analysis)
Multifamily Use: $4.00 per Square Foot
Retail Use: $12.00 per Square Foot
Office Use: $20.00 per Square Foot

34. Three Models Step Two: Consider Development Cost
make adjustments if cost is significant
Step Three: Forecast site sales
or, average absorption over time
starts when demand exceeds supply

35. Market Determinants of Use, Demand and Supply - Conclusion
Retail Space: 4 to 5 Years
Office Space: 5 to 8 years
Multi-family Units: 2+ years
Annual demand: 587 Units
Average Density: 16 Units/Acre
Acreage take down: 37 Acres/year
Capture Rating: 10% of total demand
Acreage absorbed: apx. 4 acres/year

36. Three Suggested Models

37. Discussion Questions for Land Use Mix
Would the conclusion be different if market research revealed the following discount rates to be appropriate?
Multifamily Use %
Retail Use %
Office Use %
Any Use delayed 10 years or more 20.0%

39. Highest and Best Use Concept Plan

40. So That’s - - - A Case Study: Vacant Land
Are there any Questions?
Wayne Foss, DBA, MAI, CRE, FRICS
Fullerton, CA USA