An Introduction To NNN Investing
Retail Categories
The Investment
Types of Sellers
The Buying Process
Market Analysis
Highest and Best Use Explained
Location and Site Analysis
Financial Feasibility
Industry Trends
Due Diligence
Financing
Low Risks of Default
Sample Lease Agreement
Sample Letter of Intent
Sample Commercial Inspection Report
Highest and Best Use
The value of commercial property is closely related to its use. If it is being used for its “highest and best use”, it will maximize value. The process to determine highest and best use will answer four essential questions.
Is the use “legal?
Is the use “physically possible”?
Will the use be “financially feasible”?
Is it the “most productive”?
Legal
The legal requirement addresses the zoning and whether the intended use will be allowed by local, state and federal regulations.
Physically Possible
The size of the intended building and its associated activities will require a certain amount of square footage and acreage. The property must be able to accommodate the intended use. Property slope, road access and available utilities are examples that must be considered.
Financial Feasibility
In the final analysis, the minimum acceptable return on investment must be realized. The total costs of development weighed against potential revenue will determine if the site will be financially feasible.
Most Productive
This is the use that that produces the highest price, or value consistent with the rate of return warranted by the market. Locating a retail store on a site best suited for a hotel would not be the most productive use of a site.
Market Analysis (the overall process)
Once highest and best use criteria has been answered the decision to move forward will lead to a “market analysis”. The market analysis model will result in a Go or No-go decision pertaining to the investment. The three-part analysis will include the results from the following studies.
The market feasibility
The location/site feasibility
The financial feasibility