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Should I Pursue a Change of Use?

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Posted by Pete Evering on May 9, 2022
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Should I Pursue a Change of Use?

In a rapidly changing time, adaptation is key. With the unexpected twists and turns thrown at us since the start of the pandemic, many property owners may be considering a change of use for their property. As the nature of real estate demand changes, it may be a smart investment to change the purpose of your property. For example, an extended-stay hotel can be the grounds for a new apartment complex, big box retail could be better off as a warehouse and distribution facility, and office space may better accommodate life science demand as lab space.

Of course, pursuing a change of use isn’t as simple as declaring it. Experts advise that when it comes to a property change of use, the first consideration to make is zoning. If you’re considering changing the main purpose of your property, you must find out if this change would require re-zoning or another form of approval from a governmental agency. Property zoning laws are rules and regulations determining how a property can and can’t be used, in order to protect the relationship between consumers and landowners. Common zoning types include residential, commercial, industrial, rural, historical, and agricultural properties. Rezoning a property can be a time-consuming process, but a successful rezoning is often beneficial for everyone involved.

Often times, your desired change of use may not require a governmental rezoning. The existing zoning laws may allow a change from hotel to multifamily, since these are both similar residential uses. Alternatively, the change of use may only require an abbreviated or expedited approval process. These types of change of use are the most affordable and efficient.

If you do have to apply for rezoning, undergoing the change of use may still be an advantageous choice. Consider the local market dynamics and the leanings of the current zoning board or city council. When applying for rezoning approval, investors should engage a land-use counsel with experience and a positive history with the zoning board.

In addition to addressing official rezoning, you’ll need to decide if the current configuration of the property is suitable for the new purpose. Consider what layout changes need to be made, and the construction challenges involved in remodeling. When making dramatic layout alterations, it’s important to consult ADA and other building code requirements. For those looking to put their properties on the market, the details of such a change need to be laid out before a PSA is even negotiated, as additional time for a property approval process will need to be included. Additionally, the added complications and risks of a change of use approval need to be considered as well.

In terms of financing, working with a lender that has experience with the change-of-use process is imperative. The lender must understand the delays and approvals involved with a change of use, and that there may be an interim period from closing to when the property is fully functioning in the new use. Many change-of-use loans will also feature a construction component to fund alterations and renovations.

Pursuing a conversion deal inherently comes with additional challenges and hoops to jump through compared to a standard deal or a redevelopment project. Making the necessary considerations and planning in full is absolutely key to carrying out a change of use on your property. If done correctly, the conversion could be more profitable for you and beneficial to the property and surrounding area in the long run.

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