A. Highest & Best Use Analysis
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. The theoretical focus of highest and best use analysis is on the potential uses of the land as though vacant.
A property must be appraised in terms of its highest and best use. The definition of highest and best use is as follows: The reasonable, probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value.
Test of highest and best use – Principles
In order to determine the maximum potential of a Land, developers often have to embark on a three-step analysis involving property analysis, entitlement and constraint analysis, and market analysis. In order to be considered as the highest and best use of a property however, any potential use must pass a series of tests. The exact definition of highest and best use varies, but generally the use must be the following:
Legally Permissible
Only those uses that are, or may be, legally permitted are potential highest and best uses. This may exclude uses that are not, and unlikely to become, permitted by zoning, land use planning, uses forbidden by government regulations, and uses prohibited by deed restrictions or covenants. Properties with a use that predates existing zoning or other property regulations may be legally nonconforming. Such grandfathered uses are generally legal even though they do not meet current zoning or other regulations. Since their use predates these regulations, they are “grandfathered in”. However, some such uses may not be reproduced if the legally nonconforming improvement is destroyed or damaged beyond a certain point.
“Legally permissible” can be a tricky conceptual test, because even uses that are currently not permitted may be considered. This happens when there is a reasonable prospect (at least 50%) that the regulation, zoning, deed restriction, etc. can be changed to permit the proposed use.
Physically Possible
Any potential use must be physically possible given the size, shape, topography, and other characteristics of the site
Financial Feasibility
The highest and best use of a property must be financially feasible: the proposed use of a property must generate adequate revenue to justify the costs of construction plus a profit for the developer. In the case of an improved property, with obvious remaining economic life, the question of financial feasibility is somewhat irrelevant. In the case of an improved property with limited remaining economic life, the question of financial feasibility becomes a question of the maximally productive use of the site. If the value of the land as vacant exceeds the value of the property as improved less reversion/demolition costs, then redevelopment of the site becomes the maximally productive use of the property, and continued use of the existing improvements that do not represent the highest net value of the site is considered to be financially unfeasible.
Maximally Productive Use
Finally, the use must generate the highest net return (profit) to the developer. A property that could hypothetically be developed with residential, commercial or industrial development might only have one of those uses as its highest and best use. These three hypothetical development scenarios follow to illustrate the test of maximally productive use.
B. Project Monitoring
Monitoring is the regular observation and recording of activities taking place in a project or program. It is a process of routinely gathering information on all aspects of the project. To monitor is to check on how project activities are progressing. It is observation; ─ systematic and purposeful observation.
Monitoring and evaluation (M&E) is a process that helps improve performance and achieve results. Its goal is to improve current and future management of outputs, outcomes and impact.
Monitoring and evaluation are separate practices dedicated to the assessment of overall performance. Monitoring is a systematic and long-term process that gathers information in regards to the progress made by an implemented project.
C. Construction Finance Valuation
Our expertise team is duly engaged in the working with the different methods of construction finance valuations as required by the institutes. We have extensive experience in CF valuations /Quarterly monitoring project and offer a wide range of associated consulting services for our clients. Our opinions and reports meet or exceed all relevant professional standards and are subject to rigorous internal review