Highest and best use

Highest and best use of prime London riverfront?

Mayor Rossing has used the term “highest and best use” in the context of several projects in recent weeks with the latest iteration applied to the proposed relocation of the old depot to the Q Block.  As in: “Would relocating the depot to the Q Block be the highest and best use of that property?”

“Highest and best use” is a term from real estate valuation and appraisal; it is a useful tool for considering land value and a developer’s possible return on investment.

Used casually, however, I’d suggest the term is aimed at defeating or at least questioning the desirability of a project.  “Highest” and “best” are absolute terms, after all, so any doubt about a project tends to create the impression that it is too low and not good enough.  Used in public policy, as when Northfield tries to determine the highest and best use of a piece of property, the immediate analogy would suggest the city is playing the same role as a private developer and maximizing the profit on that specific piece of land.  I’d argue, however, that city government usually needs to look beyond the parcel in question to determine value and that public use of property may not be the highest dollar value, but could be the highest community value.

But, let’s think about this in policy terms relative to current events in Northfield: Depot and public safety facilities.  Here’s a short definition of highest and best use:

The highest and best use generally is the use that is reasonably probable, physically possible, supported by the market, and returns the highest value to the land. The final estimate of highest and best use should be defensible, the logic internally consistent, and the conclusions well supported and documented by facts as well as opinions.

Physically possible:  I’d say this is more like “buildable at an acceptable cost.”  Physically imperfect sites can be made usable by extensive grading, soil correction, flood mitigation, etc. all of which cost money.  Take the Council’s public safety site selection process as an example.

The physical limitations of the current Safety Center site (small, floodplain, difficult highway access) make its reuse problematic at best.   Some have claimed reusing the current building for police would be the most cost effective.  Others have countered that the flood mitigation, renovation of the building, and other site related costs make it too expensive.

For those who wonder why the Council can’t seem to decide on another site for either a combined or separate facility, the physical limitations are the biggest issue.  Of the sites considered, size, topography, infrastructure location (where the pipes and wires are placed on the site), and highway access are issues in each of them.  The Council determined that central location was required; public policy has thus constrained the choice of site and raised the cost.

Supported by the market and returns the highest value: This does not fit neatly into a public sector analysis for a couple of reasons.  One thing governments do is provide public goods.  We levy taxes and use that revenue to provide services for which there is not or should not be a private market.  I’d throw public safety and transit (to a lesser extent) into the public goods basket.  If we have policy goals of providing fire and police protection for all Northfielders (24/7 without a charge per incident) and incentivizing transit use for a variety of reasons (reducing vehicle miles traveled, providing low cost transportation for those without cars, saving fuel, reducing pollution, etc.), using land for facilities for these purposes is unlikely to be either supported by the market or return the highest value.  For the Depot, there is the additional value of historic preservation to figure into the calculations.

Government should consider what market-driven use a public use of the land might displace.  If, for example, we decided to use The Crossings site for public safety (it’s on the list), this land is at a highly visible intersection on Highway 3, but proximate to Division Street and the heart of downtown along with a substantial amount of Cannon River frontage.  It’s well worth considering whether there is a private, revenue and tax producing use which might a higher and better use of this site.

The same question should be asked of the proposed Depot location on the Q-Block.  The Crossings project was supposed to redevelop the old Kump lumber yard site, but economics short-circuited it.  The Q-Block has been talked about as a redevelopment opportunity for decades, but nothing has jump started that process.  Would placing the Depot (which would be privately owned on publicly owned land) on the Q-Block be a useful catalyst for redevelopment or a deterrent?  What else might the City do with its Q Block property?

Defensible, consistent, supported, and documented:  For government, this is key.  We’re spending your money which we take via taxes without asking you whether you like it or not.    The latest Public Safety activity is to form groups to develop “shared facts” about the sites under consideration and about the reuse of the current building (Yes, we should have done this at least a year ago, but it took our newly elected Council members to articulate the need and Administrator Tim Madigan to construct the process).  The outcome, I hope, will be concise information about proposed sites and the current building which will make the Council’s decision making easier and inform the public about how that choice was made.

The Save the Northfield Depot group has done a lot of homework for the Council (see their report in the Council packet from March 15) in terms of documentation.  The Council now needs to use that plus our own research about costs, process, and alternative uses of the site to make a defensible, etc. decision.

And finally, government also has a role in determining the highest and best use of almost all property through our tax policy, zoning regulations, development fees and exactions which add to the cost of any development and create incentives and obstacles to what might be developed.  We should be keeping this fact of governing in mind as we make our decisions to ensure that the consequences are intended.

8 Replies to “Highest and best use”

  1. I agree, with Jane, Betsey; this is a very well written piece which clearly explores the use of the term.
    What struck me was the phrase ” … returns the highest value to the land”.

    Here’s where the City’s goals , and the strictly ‘real estate’ goals separate in my opinion.
    If the City is going to engage in any long term planning, and one must assume Northfield IS interested in that from the nature of the Comp Plan, the Land Development Code, even the BizPk Master Plan(which cost a quarter million dollars)… then one must gauge the “highest and best use” of the Q-block land and the Depot project as what will jump start some desired development in that block and leads to a longtime goal of having that block be an extension of the Downtown.

    I can’t imagine what would be a more ideal situation than to mix the public and private sector in that block, thereby having each ‘feed’ the other.
    The establishing of a public facility like the Depot Project says we value this as not an out-of-the-way spot, but as an integral component of our core. The proposed public greenspace in front of the building says this IS part of our city/institutional base core.
    And the presumed pleasant qualities of that greenspace makes whatever commercial surrounds it all the more attractive, while mitigating the negative effects of the highway.

    I am sorry to hear that some of the property owners ion that block are not gung-ho for this proposed plan; I can’t imagine that it would not be of eventual significant improvement to their properties, both in added traffic, and added ‘cache’.

    This is exactly the sort of Infill and Redevelopment project that should be a top of the list priority for the EDA; and the Council should direct that organization to view it as such, finding all available funds, grants, to facilitate it becoming a reality.

  2. I am a real estate appraiser and happened upon your article by chance– interesting take on Highest & Best Use. Highest & Best Use may have many meanings outside of real estate appraisal, but within the appraisal industry it implies a purely economic use that is site specific.

    The Appraisal of Real Estate (Appraisal Institute) states, “The benefit a real estate development produces for a community or the amenity contribution provided by a planned project (i.e., the public space in a park-like area) is not considered in the appraiser’s analysis of highest and best use. Highest and best use is driven by economic considerations and market forces, not by public interest.” Therefore, a non-economic highest and best use is not a proper basis for the estimate of market value.

    With that said, consider overall values within a small city— one having few to no public facilities and the other containing schools, parks, churches, firehouse, police stations, museums, etc. Which one is more desirable and likely to have higher real estate values overall? The highest & best use of community facilities are rarely if ever the public use, but without these uses values within the entire area are likely diminished.

    For what it’s worth,

    James Green

  3. My impression is that Mayor Rossing’s use of the term was neither informed by or intended to be used in the context Mr. Green discusses. More likely, it was a convenient term which came into her head to express her doubts as to about the project over all.

    1. I agree the Mayor probably did not intend a more specialized use of the term. My concern is about the pejorative connotation of the phrase – highest and best, being superlatives, set an apparently very high standard and I’ve heard the phrase used more than once as a way to undermine proposals. My planning commission past has made me suspicious that use of the term “highest and best use” usually means someone is interested in showing how a proposal is not. I hoped by unpacking the background of the use of the term we could see that 1) there’s more to it than the immediate reaction, and 2) the city can affect the highest and best use a great deal by how it regulates.

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