There is a concept in real estate valuation that most property owners have never heard of, but it matters more today than it has in decades. It is called “highest and best use”, and it asks a simple question: What is this property actually worth when you consider every realistic use for it, not just the use it happens to be built for right now.
For most of the last fifty years, that question had an obvious answer for a commercial building. The building was the value. The land underneath it was almost an afterthought. That is no longer automatically true, especially for office properties sitting on well-located parcels.
Commercial real estate advisors across Chicagoland are now openly telling owners that a vacant or underperforming office building may be worth more torn down than left standing. One redevelopment firm working in the suburbs put it plainly…A single story suburban office on a deep site may be worth more as land than as an office building…Low ceilings, deferred maintenance and an outdated layout all push toward starting over rather than trying to lease it as is. Another firm active in the Chicago area goes further, calling full vacancy one of the most valuable conditions a building can have from a redevelopment standpoint because it means there is no tenant standing in the way of a fresh start.
This is where school districts come into the conversation, and it surprises people every time I bring it up. A vacant commercial building sitting in a highly rated school district is not just sitting on ordinary land. It is sitting on land with real potential for housing, and homes in a strong school district carry a premium that a half empty office building cannot compete with. The land's residential potential can genuinely outweigh what the existing building contributes to value, even though nothing about the building itself has physically changed.
When that is the case, an assessment that is still built around the property's old office use, rather than what the land itself is realistically worth today, is not measuring the right thing. It is erroneously valuing a building that may no longer represent the property's most valuable use.
That is the piece most owners never think to check. Not whether the building was assessed fairly, but whether the building is even the right thing being valued in the first place. We recently won a massive reduction in Lake County built entirely around this argument. We will be sharing the details separately, but it is a good real-world example of highest and best use actually changing an outcome.
Ron Kingsley
Attorney at Law
Master of Laws in Taxation
Lake County Appeal
About the author
Ron Kingsley leads Lake County Appeal, one of the most successful property tax appeal firms in Lake County. He earned his Juris Doctorate from Loyola University of Chicago in the early 1980s, his Master of Laws in Taxation from DePaul University in the late 1980s and has run Lake County Appeal since 2014, with a focus on commercial property tax appeals.