When developers or investors assess large commercial real estate (CRE) properties, particularly those that span multiple parcels, zoning compliance can pose significant development challenges. Properties that stretch across several parcels, often referred to as continuous properties, may have different zoning regulations, making a thorough parcel assessment essential.
Proper real estate due diligence ensures that these properties meet all zoning requirements, preventing costly legal and development issues down the line. Additionally, the rebuildability clause, a vital component of any zoning report, requires careful attention, as its implications can vary significantly for continuous properties.
What Are Continuous Properties?
A continuous property is any property that spans more than one parcel of land. For example, a shopping mall may sit on several adjacent parcels. While the property may function as a single unit, each parcel may have different zoning regulations. These regulations could impact the use, development, and future sale of the property.
The Hudson Yards development in Manhattan is an example of a large continuous property. The $25 billion project, located between 10th and 12th Avenues from West 30th to West 34th streets, spans multiple parcels of land, including air rights over active rail lines. Developers had to navigate complex zoning regulations to ensure each parcel complied, particularly when selling off portions of the development to different investors. Zoning regulations were critical to ensuring the project met legal requirements at each stage of development.
Why Each Parcel Matters
When assessing individual parcels of a continuous property for a zoning report, key factors to evaluate include zoning designations, permitted uses, height restrictions, and density limits, which can vary between parcels. Setback requirements, rebuild rights, and environmental restrictions may also differ. Additionally, infrastructure access, parking requirements, and ownership easements must be reviewed. Differences in legal non-conforming uses, special districts, and prior variances can impact development. Each parcel’s compliance with zoning regulations is crucial for avoiding future legal and development issues, even if they are part of the same continuous property.
If you own a hotel that spans two separate parcels—one for the building and another for the parking lot—zoning compliance must be checked for each parcel individually. Some might try to simplify this process by creating a single zoning report for the entire property, but this is not how careful lenders evaluate the risk tied to their collateral. Each parcel requires its own zoning report, which is especially important for properties that are “grandfathered” into the current zoning code. These properties, known as legal non-conforming, might not be allowed to be rebuilt to the same specifications if damaged. Understanding the rebuildability clauses in zoning regulations is crucial for both property owners and lenders to assess the property’s future value and potential risks.
The Apple development, for example, known as Apple Park in Cupertino, California, faced rezoning challenges primarily due to its vast scale, spanning over 175 acres and multiple parcels. The project, which includes office space, a visitor center, and green spaces, required careful coordination with local zoning and planning authorities to ensure that the development complied with land-use regulations. In addition to the rezoning hurdles, Apple had to address concerns related to environmental impact, traffic congestion, and community integration. The process involved multiple environmental impact assessments and negotiations with city officials to ensure the campus could meet Cupertino’s long-term infrastructure and sustainability goals while adhering to local zoning laws.
The Rebuildability Clause
A rebuildability clause, found in zoning regulations or a property’s title, defines the conditions for rebuilding after damage, especially for legal non-conforming or “grandfathered” properties. It clarifies whether a property can be restored to its original state or must follow new zoning rules, helping owners and lenders assess risks. For continuous properties, this clause may need to be evaluated per parcel, depending on how the development was approved.
If part of the property suffers damage—say, less than 25%—the rebuildability clause usually allows it to be restored without needing to conform to current zoning regulations. Michael Fraser, SVP of Risk and Due Diligence at LightBox noted that “This percentage can be calculated based either on the value of improvements of an individual parcel or on the value of improvements on the parcels in aggregate, again depending upon how they were approved for development,” said Fraser.
Miami, Florida has one of the strictest rebuildability clauses in the country, with a 50% damage rule, meaning if a building suffers 50% damage, then the property needs to be rebuilt to the current code, regardless of if the building was constructed 50 years ago or 5 years ago. This is a very common rebuild threshold. Some jurisdictions have a 25% threshold, while others have thresholds as high as 75% or even 100%, provided the rebuilt structures do not increase the degree of nonconforming or increase the building mass.
LightBox PZR Helps Avoid the Zoning Pitfalls and Traps
It is vital to understand if each individual parcel within a given property must be analyzed separately to avoid future zoning issues. Failing to follow this can lead to non-conformance problems, fines, or even forced redevelopment to meet zoning requirements.
“Our zoning reports review compliance for each parcel, no matter how many are part of the property. There aren’t shortcuts to this, as we have seen enough horror stories when folks get this wrong. These problems can be deal-killers, and our goal is to let you know if we think there is an issue. By creating individual zoning reports for each parcel, we provide a comprehensive understanding of the zoning regulations that apply to the entire property,” Fraser said.
Fraser emphasized the importance of accurate zoning reports, and the trust built with major lenders and investors. “By educating our clients and staying true to our goal of identifying any zoning risk, we protect property owners from potential pitfalls that can result from inadequate reporting,” he stated.
Investors who secure zoning reports for each parcel within a continuous property can effectively hedge their risk. These reports act as a reliable resource, ensuring that every parcel is independently evaluated, just as it should be.
LightBox PZR is accepted by every major lender and title company in the U.S. including Fannie Mae and Freddie Mac. PZR is the nation’s most trusted zoning due diligence solution delivering unmatched speed, accuracy, and efficiency, since 1993.
Subscribe To Insights
Be the first to get the latest news, updates and insights from LightBox.
