Commercial real estate success is dependent upon dozens of variables, but a mature understanding of commercial zoning ordinances is essential to serving clients and attracting new ones.
As any seasoned commercial real estate professional can attest, certain cities are more amenable to CRE success than others.
From local development tax incentives, to immutable geographic features, many factors come to bear upon a city’s CRE environment.
Foremost among them? The particulars of local commercial zoning.
What is Commercial Zoning?
The concept of zoning is fairly straightforward, and should be familiar to anyone who has ever developed or owned commercial property.
In short, by passing zoning legislation, local authorities segment the land under their jurisdiction into districts.
Each district is governed by specific ordinances that dictate what can be built on the land, how such buildings can be used, and how the aggregate of buildings within that district must relate to other districts.
Zoning codes are one of several characteristics that users can search/filter by when seeking new opportunities on the Reonomy platform.
Commercial Zoning Types
The most customary zoning regulations are equally applicable to every district type:
- Residential (single-family and multifamily homes)
- Commercial (retail and office)
- Agricultural (farming/farming-related activities)
- Industrial (manufacturing and production)
This mix generally creates a proper balance of land use in a district—from a functional standpoint, but also from an aesthetic standpoint.
Aesthetic regulations guarantee a baseline coherence of building color, materials, architecture, publicly-viewable landscaping, and anything else that contributes to the “visual feel” of a district.
Functional regulations determine where and when certain types of land uses can be implemented based on the impact and need for that use-type in the district.
Regulations like this determine how many similar businesses can and should be operating within a district (and it’s sub-areas).
For example, is it acceptable for a developer to build a structure that’s complementary-to but outside of a property’s primary intended use?
In such a case, zoning might restrict secondary structures being built on a property through accessory and ancillary use codes.
All in all…
These basic zoning regulations are powerful tools with which local governments are able to sculpt the appearance, atmosphere, and general character of their cities.
For CRE brokers, developers, appraisers, and other service providers, they are required knowledge for day one on the job.
Understanding aesthetic regulations and accessory codes doesn’t so much constitute a competitive advantage as much as the entry-fee for playing the game.
Commercial Zoning Codes
Zoning codes can go many layers deep.
While generally, the code for commercial parcels begins with a “C,” you’ll see different variations of those codes depending on where you are.
In New York, for example, parcels with commercial-specific use-cases can have codes for anything from C-1 up to C-8.
Each number represents a different commercial activity associated with the land and building.
Then, for parking and other requirements, additional numbers and/or letters are added to the end of the code.
You might see a zoning code of C4, or you might see a zoning code C4-7A.
And while New York is the most robust real estate market in the nation, these zoning codes can get very intricate in other markets, as well.
The many layers of coding point to different districts, buildings sizes, building density, and building use.
For example, in San Francisco, mixed-use buildings are marked very simply as follows:
- MUG – Mixed-use, general
- MUO – Mixed-use, office
- MUR – Mixed-use, residential
“MU” represents “mixed-use,” with a third letter that distinguishes what type of mixed-use the building is.
Another example: “Neighborhood commercial districts” are those that have business types that serve the nearby residential districts (in the form of retail and other needed commercial support).
In San Fran, such properties are categorized by use and size, as follows:
- NC-1 – Cluster (one commercial story)
- NC-2 – Small-scale (two commercial stories)
- NC-3 – Moderate-scale (three or more commercial stories)
- NC-S – Shopping center (two commercial stories)
In this case, instead of a third letter being added, a number is added to signify the amount of stories, since all of the “NC” delegations represent retail buildings.
In the end, this information is useful well-outside recording purposes. It’s also extremely useful for brokers and buyers trying to understand the available flexibility they have in buying a specific piece of land.
Importance of Understanding Zoning (for Brokers and Buyers)
A vast majority of the opportunities for CRE professionals to strategically leverage zoning expertise are found in regulatory grey areas.
For example, jurisdictions undergoing significant development or revitalization frequently create planned unit developments (PUD).
A PUD is a type of mixed-use development—usually incorporating residential, retail, and office elements—designed with a comprehensive and cohesive plan.
When intermixing residential and non-residential structures in a PUD, city planners have little choice but to compromise certain zoning regulations, as holding commercial tenants to residential standards would spell disaster for their project.
With PUDs, strict zoning adherence is sacrificed in the name of a cohesive living environment.
If, for whatever reason, a broker is having difficulty finding a property with zoning requirements with which his or her client can easily comply, a PUD might represent a solution that satisfies client, broker, and regulator alike.
But, for every hidden regulatory gem there is a regulatory pitfall of which CRE professionals must be wary.
For instance, as a jurisdiction expands and undergoes liminal development, the burden on local public infrastructure like water and sewer lines, roads, and green spaces experiences a corollary increase.
Oftentimes, communities will force developers to contribute to the expansion or refurbishment of such public infrastructure by inserting exaction clauses into zoning ordinances.
Especially in developing areas, brokers must make sure that the development of any given property will not trigger an exaction that will blindside their client.
The last thing a broker wants is to have a complex, extensively-negotiated deal fall apart because the buyer finds out that, in addition to paying the agreed upon purchase price and building according to aesthetic and usage ordinances, they will also have to help foot the bill for a new public infrastructure project.
Bending the Rules in Your Favor
No matter how motivated a CRE broker may be, not every client demand can be satisfied within prevailing zoning schemes.
That said, the savvy broker should not admit defeat and instead maneuver to change prevailing zoning schemes.
While infrequent, comprehensive rezoning occasionally occurs and is most often initiated by the government.
Landowners may petition to have their district rezoned, but such entreaties are typically only accepted in cases where the district has undergone a substantive change.
When a property originally on the outskirts of town is overrun by new development, for instance, local authorities may choose to grant the owner’s request to rezone his or her land (and the district encompassing it) from agricultural to residential or commercial.
In cases when a property owner is only concerned with their particular parcel and not their district at large, a landowner or potential buyer can request a zoning variance.
A zoning variance is a discretionary, limited waiver or modification of the zoning regulations on the books.
For the most part, variances are granted when strict application of zoning ordinances would result in practical difficulties or unnecessary hardships for the landowner.
Though most jurisdictions only allow variances on physical regulations like setbacks — that is, the distance left between a structure and a street, river, or other protected community feature — there are some exceptional circumstances where use variances may also be granted.
As a last resort, developers can apply for conditional use permits (CUP) when their plans run afoul of a district’s ordinances.
Provided a project satisfies agreed upon conditions and is demonstrably beneficial to the surrounding community, it may receive a CUP from the local authorities and proceed in authorized violation of standard zoning regulations.
Convenience stores, schools, and churches are some of the most common CUP recipients in residential zones, while restaurants, gas stations, and hardware stores are the most common recipients in industrial zones.
Mastering Nuances Helps You Master CRE
CRE investors, brokers, and developers who master the nuances of their area’s zoning ordinances are strategically positioned to capitalize on the opportunities that go unnoticed and avoid deals that are ostensibly attractive but actually riddled with regulatory complications.
Such mastery involves careful study of loopholes like PUDs and CUPs, but more fundamentally, it requires access to comprehensive information about every property under consideration.
At Reonomy, we understand the critical role that zoning plays in the CRE industry.
That’s why we’ve created a property intelligence platform that enables users to discover new opportunities in any market, with zoning codes fully integrated and searchable.
Search for properties not only by features such as location, sales history, debt load, and price range, but also by zoning code, building size, unit density, and land use restriction.
Even our vacant land listings are classified in granular detail, making it easy for a user with precise needs to search for, say, industrial vacant land as opposed to residential vacant land.
Use our zoning and other property data along with owner contact information to get in touch with decision-makers directly and own your market, starting today.