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Are We In The Zone? What You Need To Know About Zoning For Commercial Real Estate Deals.

In any real estate deal there are so many issues to consider and manage to make sure that every step of the transaction goes smoothly

In any real estate deal there are so many issues to consider and manage to make sure that every step of the transaction goes smoothly. You likely know about the larger aspects-performing your due diligence of the property, tenants, finances, title, etc.—but something as seemingly insignificant as zoning could play a major role in the viability of your deal.

What is Zoning?

Zoning is a set of rules and regulations that dictate how a parcel of land can be used. Zoning helps communities set and maintain property values and ensure proper and safe use of its real estate. Zoning can fall into a few categories—land use or ordinance-based requirements.

Land use categories include:

  • Commercial
  • Industrial
  • Residential
  • Agricultural

Bulk ordinance requirements can include:

  • Building type
  • Location of utility lines
  • Size/height of buildings
  • Parking considerations
  • Types of improvements allowed
  • Setback requirements

Existing zoning codes may affect the property’s value for both the seller and the buyer so the first step in any commercial deal should be conducting thorough due diligence on the property.

Why is Zoning Important to My Deal?

Zoning is a key element in all commercial real estate deals, both big and small. The zoning of your property can determine how you can use the existing building and land as well as the type and extent of improvements that can be made to the site.  It can also dictate whether, in the event of a catastrophic loss like a fire, the property can be built back to its existing use.  Adding stories or square footage to a building or changing its use from residential to commercial isn’t easy. Getting the zoning changed on a property is a very difficult and work intensive process and, in the end, your desired result isn’t guaranteed.

This is why a Zoning Report is often required in order to secure financing. A zoning report takes local zoning records, codes and other information into consideration as part of the overall pre-purchase review. Land surveys, such as ALTA surveys, boundary surveys, and topographic surveys may also be reviewed as part of a zoning report.

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