What is a special purpose property?
A special purpose property is a property that has limited options for use. A special use property may be designed and built for only one specific purpose. A few examples of special purpose properties: religious buildings, public and private schools, hospitals, and railways for a transportation system.
What do investors need to know about a special use property?
Investing in a special use property is a long and difficult process as convincing a city to approve a proposal and acquisition is challenging. Investors should be aware that a special use property could require a significant amount of investment to adjust the property to the investor’s intent. This could decrease the return on investment, the profitability of the project and increase the project’s duration and risk. Lenders view these projects as high-risk deals and demand a higher interest rate.
Pricing the property
Special use properties don’t typically have any comparables to accurately price the property. The appraiser will have to approach the project with a unique strategy to try and give the most accurate price possible. The appraiser will value the land, building, equipment on the property, and intangible assets separately.
Eminent Domain
Investors should also be aware of the government’s right to seize private property for public use. Investors run the risk of the city demanding the previously special use space back. Historically, the government has paid owners below market value prices when exercising their right to eminent a property.
For example, let’s say your home is in an area where the city needs to put a metro system. The city can eminent domain the property and purchase your home to build the metro system.
Additional Examples of Special Purpose Properties
Amusement parks, car wash properties, cemeteries, sports arenas, wineries, marinas, golf courses, gas stations, funeral homes with crematoriums, all types of health or medical facilities, farms, dormitories, railroads, and cold storage facilities.
