Purchasing a piece of land for development requires a lot of due diligence.
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A big part of your planning process will involve sitting down with an architect to figure out what you could build on that piece of land. Each piece of land will have a zoning designation – for commercial pieces that zoning designation could be as simple as calling out the piece of land as a commercial piece. But there are more rules and restrictions within each type of zoning. For commercial properties, FAR is one of the most important restrictions.
What is FAR?
FAR stands for floor to area ratio. The concept of FAR is really one that helps to explain how much density you can build on a given site. In other words, the higher the FAR the larger the building you can build. The ratio itself is done by dividing the allowable floor space in a project by the space on the property itself.
A simple example of FAR can help demonstrate why this concept is important. Let's suppose you are considering the purchase of a commercial property that is exactly 1 acre, or 43,560 square feet. The property is zoned for a commercial use and you are preparing to build an office building on it. If the floor to area ratio (FAR) is 0.5, that means you can only build 21,780 of office space on that ground.
Height restrictions and FAR
In many cases, the FAR interacts with a height restriction to help determine what you can build. Let's take a more detailed example. Suppose you are looking at that same 1 acre (43,560 square foot) property. But now the FAR is 3.0 (which would be a very dense FAR and is likely to occur only in urban areas). With an FAR of 3.0 you are now allowed to build 130,680 square feet of office building.
With only 43,560 square feet of ground, you are obviously going to have to build several stories up if you want to maximize your allowed space. However, let's also suppose that the city has a height restriction of 120 feet. You now have to use the FAR and the height restriction to see what you can build. If each floor is 15 feet tall, you can build a total of 8 stories up (maximum) to achieve a total square footage of 130,680. That means that each floor would be about 16,335 square feet at most. Of course you could build a larger floor-plate and have less height as well. For instance, you could build 5 stories with each floor at 26,136 feet.
Not set in stone
Like all planning and zoning regulations, the FAR can be adjusted in certain circumstances. Make it a part of your conversation when you are in the due diligence process and visit city officials. If you are building something that adds a lot of value (read: tax income) to your local city, you may be able to successfully negotiate an increased FAR as well as loosened height restrictions. As a real estate entrepreneur this helps you maximize the value of your land purchase.