Highway Commercial Parcel with Floodplain and Sewer Constraint
Subject is a 5.2-acre parcel on the east side of a secondary highway, 1.8 miles from an interstate interchange. It is zoned C-2 highway commercial, but the current use is a grassed lot with a small 1,200-square-foot office built in 1978. About 1.4 acres lie in the FEMA AE floodplain; the remainder is upland. Access is by a 40-foot-wide recorded easement across the adjacent parcel; the easement is paved but not owned in fee. Public sewer is available, but the lift station serves a 10,000-gallon-per-day capacity; the utility says a new retail center would need 12,000 gpd. A 2.0-acre adjacent parcel is for sale at $425,000, and the owner of the subject has no interest in assembling. Market demand for small retail pads is strong; demand for a large single-user site is weak; the planning department will allow retail with a conditional use permit and a floodplain development permit. The owner asks whether to demolish the office, hold, or sell to a convenience-store developer.
1. State your highest and best use conclusion for the subject as vacant and as improved, and support it with the four tests.
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As vacant, the likely HBU is a small-scale retail pad or multi-tenant retail development concentrated on the upland acreage, with the floodplain used only for parking, detention, or open space if the ordinance allows it. Legally permissible: C-2 zoning allows retail, but a CUP and floodplain development permit are required, so the use is not as-of-right. Physically possible: about 3.8 acres are upland, access is by a 40-foot easement, and sewer capacity is short by about 2,000 gpd; the site can be developed only with an upgrade or a lower-flow design. Financially feasible: demand for small retail pads is strong, while demand for a large single-user site is weak; the adjacent 2-acre sale at $425,000 ($212,500/acre) is a data point but not a direct comparable. Maximally productive: a small-pad retail layout best matches demand and the site constraints; a large single-user sale is less likely. As improved, the 1978 office contributes little; the HBU is demolition and redevelopment or interim holding until permits and sewer are resolved. Assemblage with the adjacent 2-acre parcel could be physically possible, but there is no evidence of an assemblage premium and the large-user demand is weak, so I would not make assemblage the HBU without a supported market study.
2. How should the floodplain and the access easement affect your market analysis and value?
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The floodplain is a constraint, not an automatic disqualifier. I would separate the 1.4 acres of AE floodplain from the 3.8 upland acres, confirm the base flood elevation, and determine whether fill, elevation, floodproofing, or detention is required. The floodplain may have value for parking, stormwater, or open space, but it should not be valued as building land without permits. The 40-foot access easement is legally sufficient only if it provides permanent ingress/egress, utilities, fire access, and acceptable financing; because it is not owned in fee, I would review the easement language and adjust for any maintenance obligation or risk of interruption. In the sales comparison approach, I would adjust comparables for floodplain area, access quality, and any entitlement risk rather than deducting the same issue twice. If the easement or floodplain makes the project unfinanceable or requires a costly upgrade, that conclusion belongs in the financial feasibility test and in the HBU, not just in a lump-sum adjustment.
3. The sewer capacity is 2,000 gpd short and the CUP has not been issued. How would you test financial feasibility and report the result?
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I would obtain a written capacity determination and an engineer's cost to upgrade the lift station or to reduce flow through low-flow fixtures, greening, or a smaller tenant mix. Then I would build a residual land value test: projected retail rent or pad sale prices, absorption, construction cost, tenant improvements, permits, floodplain work, access improvements, and the sewer upgrade, discounted at a market rate. If the residual land value is below the value indicated by the adjacent land sale or by the current interim use, the retail scheme is not financially feasible. The CUP is also a timing and probability issue. If I value the property as though the CUP and sewer upgrade are in place, I must disclose that as a hypothetical condition or extraordinary assumption, depending on the facts, and state the cost and risk. I would not report an as-of-right value for a use that requires discretionary approvals. If the approvals are too uncertain, the HBU may revert to a lower-intensity use or interim holding.