How to determine the value of land in order to get it sold or developed - by Jeanette Politano

Jeanette Politano, Coldwell Banker Commercial NRT

As a commercial real estate broker that specializes in land and real estate development, with Coldwell Banker Commercial NRT, I am often asked by clients that own land, what their land is worth.

One might think this is a simple answer, by just pulling “comps,” but if you have a reputable commercial broker that has experience in land development, they would perform a complex analysis to be able to answer your question professionally.

To start, the commercial broker would have to know the market to determine the highest and best use of the land, based on zoning of approved uses and special exception uses. They would need to know what size building can be constructed and what the largest potential income would be based on market analysis of the use. To determine the size of the building, they must first evaluate the topography, set backs and parking requirements based on the use. Further, one must understand the municipality and what they would want to see in their town/city. Is it a potential project that the town/city wants to see at this location? What can this project bring to the town/city? Is it a project that will be a burden on the tax base? Would the project bring jobs, tax revenue, convenience and opportunity to the people that reside in the town/city? Will the project potentially increase the value of the residential homes in the town/city? These are just some examples of the types of questions I would ask myself before doing an analysis of the property. There are many, many more matters to consider, that only an experienced commercial broker can assist you with.

Once there is an understanding of the highest and best use of the land, by way of a new project, the next analysis to determine the land’s value is to do an economic feasibility study. What are the construction costs to clear, grade and construct the building? Are there easements and utilities to the land? Will the municipality require a traffic study, certain landscaping, curb cuts or a traffic light? What are the costs and time of these potential requirements?

Lastly, to determine the value, one must do a financial analysis of the rental income, projected operating costs by determining the NOI, CAP rate to be able to reach the market value of the land. How long will this project take and how long will it be to break even? Based upon this analysis one can determine how much money can be spent to purchase the land, to determine if the project is economically feasible. 

Once the land has been given a value, the commercial broker could then assist with getting the land sold or developed. In some cases, my clients have determined their desire to “keep” the land and hire me to assist them in developing it themselves, by finding long term national or local tenants or to do land leases of same.

Jeanette Politano is a commercial sales agent for Coldwell Banker Commercial NRT, Trumbull, Conn.