Animation is Where Your Find It–Highest and Best Use
Imagine you own two duplexes, each of which is being used as a furnished travel apartment in the west end Ottawa in a subdivision of modest homes, most of which are old modular buildings. It cost over $500,000 to buy each lot, build the premises, and furnish them.
Each duplex has a 3-bedroom ground floor unit plus a 3-bedroom lower level apartment, both with their own entrances. They are legal units because Ottawa now allows in-home suites so long as the second “front” door does not face the street, a condition which obtains for these buildings.
They rent for $2,500 per month per unit, mostly to construction crews visiting Ottawa, which means each building generates $5,000 per month in income when full. Break even on each structure is $3,000 per month ($1,500 per unit) so when they are fully occupied, the owner does well.
What did they miss?
1. There is a creek behind their buildings with a walking path beside it
2. Even if visitors never have time for walking alongside the creek, the owners should use it in their advertising and marketing because it’s the thought of using it that matters
3. It’s similar to a pub with a patio v one without–the restaurant with a patio will (generally) see higher volume because folks will choose that one even if when they arrive there they find it’s too hot, too cold, too windy, too noisy, too wet to use… it’s the thought that counts
4. For the same reason, I would add
horseshoes, badminton, barbecue, croquet, bocce…
5. There is a ton of shopping (and new shopping being developed) within walking distance
6. There is a baseball diamond, soccer pitch, kid’s play area and club house nearby as well
All of this should have been added to their marketing material.
There is also an adjacent vacant lot. The program we came up with for that is different:
a) build a residential duplex on it that takes advantage of the lot’s slope to the creek, which means the lower level unit will have a walkout condition, which hugely improves the value of the basement flat
b) add an 800 sf separate garage that is insulated, has a w/c and office in it, has 14′ ceiling height, a person-door and an overhead door (12′ wide by 12′ high), which can be rented out separately to a Mr or Ms contractor of which they are many in the neighborhood.
This program will generate a 6.5 to 7% cap rate from development of the vacant lot.
The only way to determine highest and best use, and how to properly animate a site is by walking around, taking lots of photos, and seeing in your mind’s eye what’s right for the site and for the neighborhood. Once you align your gut feeling with what your head and heart are saying, you’ve got a winner.
@ profbruce @ quantum_enity
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