I’ve seen commercial real estate lose half its value essentially over night thanks to changes in zoning.This seems to be especially true for automotive related properties. There’s a property a couple blocks down from me that sold a couple years back for 1.2 million. It was used for a car dealer in a prime area. They essentially had bidding wars for the leases. One big used car dealer went into contract with them. Eventually sometime halfway through the lease, zoning no longer allowed automotive related businesses but the current tenant was grandfathered in. A little after covid, the tenant went out of business.The property essentially became one big useless parking lot with a couple of offices. The owner tried leasing it out again but no one saw the value in it (for that price). He obviously tried fighting the zoning board, got signatures, hired good lawyers, etc. but wasn’t able to beat them. The property now sits for sale at 540,000.Another example is my dad buying a mechanic shop off the side of the highway in an industrial area. The zoning board didn’t change the allowed uses, they just require a SUP for essentially everything but one use, a nursery. Now if anyone wants to put a tire shop, mechanic shop, dental office, or whatever they have to wait 6 months in order to get approved for a SUP that’s not even guaranteed.I’ve seen the same thing happen to gas stations, grocery stores, car rental companies, and so on. Once that grandfathered in tenant leaves, you have to reevaluate the intrinsic value of the property.On the plus side for tenants, I see this as leverage to renegotiate their leases on these specific use properties.
Majeed Ekbal's Daily Blog 