REALTOR: FOR THE LAND AT ITS… HIGHEST AND BEST USE

Foundation, Legacy and Continouity of Pioneers in Philippine Real Estate Services: Co-Founder, Incorporator, Past Presidents and Members of the Manila Board of Realtors, Inc.

Foundation, Legacy and Continuity of Pioneers in Philippine Real Estate Services: Co-Founders, Incorporators, Past Presidents and Members of the Manila Board of Realtors, Inc.

As we celebrate today, November 7, 2013, the 75th Diamond Anniversary of the Manila Board of Realtors, I am overjoyed and thankful for the legacy left behind by our first diamond realtors.

We take time and reflect the meaning and significance of what our founders have began 75 years ago in building a foundation is solid base that has proven its strength in withstanding 75 years. The Manila Board of Realtors has survived the early times of the American Commonwealth the 2nd World War and all other obstacles and difficulties in intrinsically created by natural forces and personal differences.

The foundational grace brought about the continuity of our co-founders, past presidents, officers and members who have been responsible and committed to the vision of our great founders.

Therefore, in this 75th year will resolve with solidarity and unity that the Manila Board of Realtors the first and premier real estate board in Asia and the Pacific shall continue to expand its presence as an institution that will make a difference.

As we move on to our centennial year, I urged the Manila Board of Realtors to make a quantum leap into the global market where members of the Manila Board of Realtors shall conquer new territories, nations and people by establishing Manila as the center of real estate service, internationally competitive being exemplary, prestigious and  leaders of the real estate industry.

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Yesterdays write -up, we mentioned and stated the essence of the  Realtors Motto, that “Under All is the LAND..” We saw the importance of Land Economics. This is basic  knowledge , needed and proper  for the understanding of Real Estate, were Land,is the basic component.

Land Economics is dedicated to the study of land use , natural resources, urban & rural settlements, housing and all other factors that affect land as a limited valuable  resource.

THREE GENERATIONS OF QUALITY REAL ESTATE SERVICES, A TRUSTED LEGACY, PILLARS OF THE REAL ESTATE INDUSTRY IN THE PHILIPPINES

THREE GENERATIONS OF QUALITY REAL ESTATE SERVICES, A TRUSTED LEGACY, PILLARS OF THE REAL ESTATE INDUSTRY IN THE PHILIPPINES

In Economics, we study, how to allocate scarce resources for good use. Economics of Land, whose supply is inherently fixed, needs proper attention and study, as to its Best Use. Therefore, on this 2nd part, we shall continue, with the REALTORS Motto: ” Under All is the Land.. In its Highest and Best Use… “

In the real estate arena, the highest and best use, of a specific parcel of land is not determined through subjective analysis, by a property owner, developer, real estate agent, or appraiser; but rather, in its use, shaped by the competitive forces within the market where the property is located.

In a real sense, the definition of highest and best use encompasses four tests. It is:

1. the most probable use of land or improved property that is legally possible,

2. physically possible,

3. financially feasible (and appropriately supportable) from the market, and

4. which results in maximum profitability.

PILLARS OF THE REAL ESTATE INDUSTRY, MANILA BOARD OF REALTORS Their LEGACY is a GIFT  and a PRIVILEGE that we ought to Treasure, Nurture and Protect

PILLARS OF THE REAL ESTATE INDUSTRY, MANILA BOARD OF REALTORS Their LEGACY is a GIFT
and a PRIVILEGE that we ought to Treasure, Nurture and Protect

An attempted analysis of  highest and best use, involves two considerations:
[1] the most likely and profitable use of the site “as if vacant” under the requirements set forth above and,

[2] if a property is “already improved”, it is the use that should be made of the property to maximize value for non-income producing properties or, maximize net operating income on a long range basis for investment properties. In cases where capital expenditure is necessary to renovate or improve an income producing property, these costs must provide a sufficient rate of return (to the owner) for the total amount invested in the site and building improvements.

Basic highest and best use assumptions include:

  • If the property is located in an area “zoned” for commercial use, the maximum productivity of the land as though vacant will likely be based on commercial use. If, however, the competitive level of demand is greater for say, residential or multi-family use, then the highest and best use of the property as improved would be for residential use. If market preference conflicts with zoning (and consequently violates the legal permissibility test), a developer will consider if there is sufficient profit incentive to justify the added legal costs, extended time frame, and potential neighborhood opposition before obtaining a zoning change and developing the site.
  • As long as the value of the property “as improved” is greater than the value of the site as “if vacant”, the highest and best use is usually the “improved” property. Once the value of the vacant land exceeds the value of the improved property (including demolition costs), highest and best use will usually dictate that improvements be demolished.
OUR Scarce Urban Land, must also have Parks, Playgrounds , Open Spaces and Football Fields..
Scarce Urban Land, must also have Parks, Playgrounds , Open Spaces and Football Fields..

The following are examples of narratives from appraisal reports outlining the primary criteria in estimating highest and best use:

LEGALLY PERMISSIBLE USE
  •  The present zoning classification of Highway Business encourages the use of the subject property for retail —clearly a definition consonant with the present use of the subject property and surrounding properties. Environmental conditions and urban infrastructure are adequate to support the present use and it’s current use appears to legally conform with the current zoning ordinance.
  • The present lack of zoning would allow for a wide variety of residential and/or commercial/industrial uses. As vacant, the proposed improvements would be legally permissible subject to the same land use regulations that apply to all property types such as erosion control measures, environmental safety, watershed implementation, and EPA compliance. There were no apparent adverse easements or encroachments which would adversely impact subject and there are no known private deed restrictions which would prohibit full utilization of the site.
  • Lack of zoning in the county and no known restrictions concerning the property would permit virtually any use. Even though new zoning regulations may be imminent in the near future, it is probable that current use patterns (retail and offices – a supermarket, insurance office, restaurant, bank branch, convenience store, and so forth) would entail similar zoning.
MANILA RELATORS STUDY THE BEST LAND USE FOR MANILA
MANILA REALTORS STUDY THE BEST LAND USE FOR MANILA

PHYSICALLY POSSIBLE USE

  •  The vacant site is near level, highly visible from the highway, and is considered suitable for “low rise” improvements. Although no soil report has been reviewed, it is the appraiser’s opinion that the soil has sufficient load bearing capacity to support construction. All public utilities are available at the street and capacity for utilities does not appear to be a limitation.
  • If vacant, the site appears to be of sufficient size to accommodate many types of commercial buildings and parking requirements for those buildings. Likely uses would include office or retail. As improved, the existing retail building adapts well, still has significant remaining economic life, and therefore should not be demolished. On the other hand, the roof should be replaced and exterior painted to sustain the condition of the building.
  • The subject site is mildly sloping at its most visible/usable portion. Improvements are possible but construction would be limited by the size, shape, and topography of the site as well as the ability of the vacant site to accommodate on-site well and septic placements. In January, 2002 hopes for a new sewer line to the area were diminished after local officials decided against building a sewer line through the valley. Instead, they elected to spend $150,000 for a small treatment sewage plant.  Further, the recent construction of a nearby Food Lion Center in this rural location required construction of an on-site waste treatment facility that cost in excess of $500,000 and required the acquisition of  four additional acres. These examples, and the prices paid for raw land, are reflective of the difficulty, additional development risk,  and increased costs necessary to develop marginal sites for commercial use.
FAMILY OF REALTORS, CALERO - CUERVO & Co. ONE OF THE ORIGINAL REALTORS OF MANILA

FAMILY OF REALTORS, CALERO – CUERVO & Co. ONE OF THE ORIGINAL REALTORS OF MANILA

FEASIBLE AND MARKETABLE USES

  •  The current market value of the subject is driven by its current use. A general shortage of develop-able sites in this mountainous region has sustained land prices, encouraged development of marginal sites, and demolition of those buildings that no longer produce economic return. Case in point, rapid development along the Highway corridor. The advent of growth along the corridor has driven prices out of reach for most uses except those catering to brand name retailers, fast food/restaurant chains, and/or strip centers. Outdated buildings are being acquired and demolished to make way for more modern structures that can produce greater economic return.
  • For the subject, it is fairly new and the cost to demolish would appear to make this property too costly as raw land. The location has high traffic volume – a requirement for retail use, but it has only marginal visibility (due to it’s elevation above the highway) and limited access – also requirements for retail. It’s present use as retail is constrained by the following: a lack of road frontage, excessive above-the-road elevation, small site size, and poor access – factors that would likely discourage brand retailers from acquiring the site if vacant. Although access may be cured at some cost, the elevation of the site, limited visibility, and blocked signage cannot be financially overcome. Market data suggests office and “secondary” retail pricing are competitive.  Given these limitations, probable uses would include: [1] the continued retail use or, conversion to office use if conversion costs can be sufficiently amortized.
  • The subject site is 15 acres located off a growing corridor just a short distance from a new regional mall and corporate business center. Commercial retail growth is migrating south along this corridor with secondary commercial uses spilling over to available off-highway parcels. The site is located within a mile of the Interstate and Hwy 10 interchange and within 2 miles of the Interstate/Hwy 101 interchange – important access/convergence points for the city and western North Carolina. The site is of sufficient size to accommodate large trucks and turning radii for those vehicles. The site has no highway visibility from the state road but does have potential visibility from the Interstate which runs parallel to the eastern boundary. Limited access form the state road, a lack of visibility from passing traffic, and low traffic counts would discourage most all types of retail use. Adjoining land uses are a blend of older residences and varying commercial uses. Changing land use patterns would not favor residential development of this parcel if vacant. Assuming the site were vacant, likely use would include some type of commercial use. The advent of growth near the Mall area has driven prices out of reach for most uses except those catering to expensive name retailers, fast food, and/or hotel/motels. Lack of road frontage would preclude development of the first two uses and hotel/motels already saturate the interchange location so it is not likely the market would bear further competition at this location which is more removed from the highway. The proposed use of the site for a regional warehouse/distribution center is considered a likely, viable use. The location of the subject lends itself to the intended purpose for several primary reasons: [1] reasonably good access to a convergence of two Interstate arteries – a major hub for western North Carolina, [2] visibility from the Interstate, [3] affordable land prices and, [4] an expanding employment/population base. Analysis of market data suggests that an 8 to 15 acre cleared, leveled site is optimal for this use. A general shortage of developable sites of this size in this mountainous region has sustained land prices. Further, the advent of nearby commercial development has driven the market value of “as vacant” land to the point where many lots have more value vacant than older, “as improved” properties. The proposed improvements appear functionally well designed and potential rent rates can likely amortize building and land costs and provide a return to the property owner.  Highest and best use is therefore deemed to be the proposed use as a warehouses/distribution facility.
  • The subject site is a corner lot located along Hwy 10 at the intersection of  WalkDontWalk Street. It has limited depth but is graded level with street grade, has considerable frontage, and appears to have good visibility from passing traffic. Such benefits typically encourage retail development although lack of sewer availability along most of the highway limits commercial development to only the best parcels. The limited depth of the site and a steeply climbing embankment at the rear would dictate that only a smaller structure can be built.  The moderate growth of residential construction in the general area indicates a need for retail services to meet the needs of the growing population therefore, assuming the site were vacant, highest and best use of the site would most likely be for commercial use where frontage along a primary road and traffic volume are essential. Thus, if the subject property were vacant, it is considered best suited for some type of commercial usage to utilize it’s primary road location. Market data suggests that  a higher and better commercial use of a site (such as a strip center) can be obtained by combining multiple parcels.
  • The property is presently improved with a one-story 2000 sq. ft branch bank facility.  The structure is reasonably well designed and in good condition however, it does not have the modern appearance of more recently constructed facilities. On the other hand, there are no other branch bank facilities in this section of the County and the present use as a branch bank is felt to command a competitive advantage due to the lack of competition of other banks in the market. Further, it is the appraiser’s opinion that use of this location for this purpose may command a premium in the market.

A land site should be made available to the users who can make the highest and best effective use of the site and maximize the site benefits for all people. The proper system of assessment and taxation of land can provide for the proper economic use of the land. A high land tax on an improperly improved site tends to cause the site holder to either better improve his site to obtain greater return with which to pay the land tax, or to look for someone else with the means to properly improve the site. A land tax can also provide the source of public revenue which the local governing body could use for the benefit of all people. Before an assessment can proceed, the highest and best use must be determined for each site.

Professional Regulatory Board for Real Estate Service, Board Member, Ramon C.F. Cuervo III, shares his ideas on Land & Real Estate Economics during a Ramon C. Cuervo III

Professional Regulatory Board for Real Estate Service, Board Member, Ramon C.F. Cuervo III, shares his ideas on Land & Real Estate Economics

The economics of production should provide the atmosphere for the most efficient use to be made of all land. The assessment process is based on the highest, best and most profitable use of land. The highest and best use considers only the uses that are legally permissible (meeting zoning, health, and public restrictions), physically possible (has adequate size, soil conditions, and accessibility), and is economically feasible (income is anticipated). The use that meets these criteria and produces the greatest net earnings (best returns) is the highest and best use.

Valuation of the land involves first determining the highest and best use of the site, estimating the value by current appraisal theory, and reconciling to a final estimate of value.

The first step in the valuation of land is determining the highest and best use of the site. The four criteria that highest and best use must meet are: physically possible, legally permissible, financially feasible, and maximally productive. Two types of analyzes are made in determining the highest and best use. The first is the highest and best use of the site, if vacant; the second is the highest and best use of the site as improved, or if undeveloped as proposed to be improved.

There are three standard approaches to estimating market value that form the foundation for current appraisal theory: the cost approach, the sales comparison approach and the income approach.

The cost approach is based upon the principle that the informed purchaser would pay no more than the cost to produce a substitute property with the same utility as the subject property. It is particularly applicable when the property being appraised involves relatively new improvements which represent the highest and best use of the land or when relatively unique or specialized improvements are located on the site and for which there exists no comparable properties on the market.

In a write-up on The Philippine Star last June 5, 2013 entitled “Property Developers seed review of Land Use Bill”, Philippine Star stated “A national organization of real estate developers has called on lawmakers for a thorough review of the National Land Use Act (NLUA) now pending in Senate before it is finally passed into law.”

Certified as urgent by President Aquino back in February, SB 3091—along with its counterpart bill at the Lower House (HB 6545)—provides for the creation of a National Land Use Commission to oversee all matters concerning the management, assignment and disposition of the country’s available land.

CREBA CHARLIE GORAYEB & PRBRES Board Member, Ramon C.F. Cuervo III

National President of CREBA CHARLIE GORAYEB & PRBRES Board Member, Ramon C.F. Cuervo III

“We are calling on our honorable senators to make the necessary changes to certain provisions of the bill which, if left unchecked, will result in a slowdown of growth in the areas of infrastructure, tourism and real estate development,” Charlie A.V. Gorayeb, national president of the Chamber of Real Estate and Builders’ Associations, Inc. (CREBA) said in an interview. He expressed the private real estate and housing development sector’s concern on the negative effects that the proposed bill may bring to the industry and the economy.

The CREBA executive cited provisions in Senate Bill 3091 which “defines all agricultural lands as protected areas and leaves very little of the land pie for other use in housing, infrastructure and other non-agricultural use.”

 “Certain provisions under Sec. 4 and Sec. 29 of the bill render almost every piece of land unavailable for housing, infrastructure and other non-agricultural developments.  While the bill itself provides for ‘protection of the rights of basic sectors to equitable access of the country’s land’, it fails to clarify how these other sectors can have access to the same.” Gorayeb pointed out.

In the process, this abrogates the zoning and reclassification powers of the local government units in determining the highest and best use of lands in their localities which needs to be constantly updated to respond to market demands.

“Land use policy affects many sectors and we believe that ample consultation and thoughtful debates will be a key factor in ensuring its benefits for all concerned,” he further said.

Chairman EG Ong, with Father of the RESA LAW Congressman Rod RGV Valencia and Officers and Members of the MANILA BOARD OF REALTORS

Chairman EG Ong, with Father of the RESA LAW Congressman Rod RGV Valencia and Officers and Members of the MANILA BOARD OF REALTORS

CREBA is not opposed to the policy, but the group believes that it must be based on the principles of fairness and equity and must not be done hastily at the expense of the rest of the nation.

“We have nothing against the enactment of NLUA, the protection of our agri lands, or the advancement of the farming sector. We just want certain provisions ironed out to provide all other sectors, not only housing and real estate, equal access to the nation’s land and other natural resources.”

Gorayeb said that during the last session before the Senate adjourned last February, at least three senators placed on record that they will introduce amendments to the bill.

URBAN Land use... Requires wise allocation of Building density and Distribution of Space

URBAN Land use… Requires wise allocation of Building density and Distribution of Space

Source:

http://www.philstar.com/business/2013/06/05/950138/property-developers-seek-review-land-use-bill

http://www.propex.com/C_g_hbu0.htm

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