How Zoning Laws Limit Redevelopment Of Existing Sites And Buildings

Office building owners have watched rents spike and values grow over the last six years. There are signs that the dramatic upward spikes in rent are slowing and, as a fundamental matter, rents cannot increase forever. With that plateau in rents, owners have started looking at other ways to increase the value of their real estate holdings, including making more use of the asset (densifying it); adding square footage (if they are improving a single building); and constructing more buildings (thus increasing square footage), if they are improving a project.

This is an appealing course; land basis is fixed, so more density brings a corresponding revenue opportunity for the owner as with the rest of the asset, with a very large cost component (land) excluded. However, this opportunity comes with other considerations and, if they are not properly addressed, traps, especially in any existing leases, that must be addressed at the front end of any densification. If not, an owner can risk substantial impairment of the asset.

However, zoning and land use laws will dictate what a developer can do with an existing, built out site. Thus, before undertaking any substantive steps to redevelop a site, examining the zoning and land use laws is an imperative first step.

Zoning and Land Use Restrictions

Zoning and land use restrictions must be fully understood before beginning a redevelopment project, as they could prevent or limit the scope of what may be done with the property, absent a time-consuming and costly effort to change such restrictions.

Current Zoning

The zoning classification under which the property was originally developed, assuming it is still in place, must first be considered. Often, the property's original zoning classification limits the type and intensity of uses. For example, the original zoning of suburban office parks may limit uses to office and some accessory retail or restaurant space but prohibit residential development, stand-alone retail, or full-service restaurant uses. Parking requirements may be excessive in light of current conditions or the ability to share parking between contemplated uses. The floor area ratio or other development standards also may reflect a past approach and not allow for the density typical of today's mixed-use developments, particularly in areas served by transit.

Accordingly, a mixed-use redevelopment plan may not be achievable under current zoning. Rezoning the property to an appropriate...

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