Commercial Zoning is Not a Winning Lottery Ticket

J Philip Faranda February 20, 2010

Not far from my home, adjacent to a popular shopping center and on a well traveled, visible street corner, there is the former home of Chase Bank. It is an all-brick building, with a parking lot and offices. It would be a turn key opportunity for another bank and a phenomenal location for any professional or retail business. If I had the means I'd move my company to that location in a heartbeat. Asking price when I inquired a 2 years ago was $1 million. Despite the great location and set up, it remains vacant for 2 years since Chase acquired Bank of New York and moved to the other side of the Chilmark Shopping Center. I am sure that when the economy recovers another business will be there. 

Across town, there is a medium sized private residence next to an industrial site on a less traveled road. It is a house; nothing about it would be turnkey for a business. However, it is located in an area zoned for general business, and is on the market for just under $1 million.

Great Location

Question: If the building by the shopping center can't get a taker, why would the house get one?

Every so often, I get contacted by a potential client in the second scenario who believes that their ship has come in because of their zoning. No matter that the site would need to be redone for business, or at the very least, rehabilitated ( I don't mean knock down a few walls; I mean add a parking lot). Sometimes, in the right locale, a chain will make an offer to a private residence that is gigantic. Those people should consider themselves as lucky as Powerball winners. But, by and large, a drab old house next to a rock quarry or bus depot is worth just what a drab house next to a quarry is worth. The zoning isn't an automatic premium.

How do I know this? I have listed these people before. I've gotten them higher offers than they would have gotten, and in each case I can recall, they have rejected their offer because they wanted more. One former client I listed in September of 2005 is still selling by himself. Moreover, he is still zoned residential! Commercial use would require a variance! He just thinks he'd be a good commercial opportunity! You know what the guy would get today? $200,000 less than what I brought in in 2006. He's asking double what he's worth, and that is why he's selling by owner. The local brokers have written him off. 

Commercial zoning is not without challenges. It may not qualify for conventional financing if the buyer is a business. There could be appraisal issues because the appraiser's job is the evaluate the property for it's best use, not the potential. A restaurant,  salon or professional office might not want to be next to an unattractive industrial site. Moreover, buyers of commercial property are savvy and conscious of overhead. They will not overpay unless there is a strong payoff. These things have to be taken into account for property that is commercial in zoning only.

If the owner will not listen to the advice of their agent and is instead advised by their own self interest, the outcome is often long, drawn out, and unhappy.  

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