What is Special Purpose Real Estate?
A special purpose property is defined as a property that can’t be easily converted to other uses and whose value and location are closely connected to a company’s operations.
Due to their unique physical design and layout, special purpose properties may be one-of-a-kind, restricting the property’s use to the limited purpose for which it was created (thus the name “special purpose” or “limited market properties”).
What are Examples of Special Purpose Property?
The Small Business Administration (SBA) states a special purpose property is “a limited market property with a unique physical design, special construction materials, or a layout that restricts its utility to the specific use for which it was built.”
Following this definition, the SBA lists the following property types as examples of special purpose real estate:
- Amusement Parks
- Bowling Alleys
- Car wash properties
- Cold storage facilities where more than 50% of total square footage is equipped for refrigeration
- Farms, including dairy facilities
- Funeral homes with crematoriums
- Gas stations
- Golf courses
- Hospitals, surgery centers, urgent care centers, and other health or medical facilities
- Hotels and motels
- Nursing homes, including assisted living facilities
- Oil wells
- Quarries, including gravel pits
- Sanitary landfills
- Service centers (e.g., oil and lube, brake or transmission centers) with pits and in-ground lifts
- Sports arenas
- Storage Units
- Swimming pools
- Tennis clubs
What Are Special Purpose Properties Used For?
A special purpose property is used to serve the business needs it was designed for. As seen in the list above, special purpose properties support many different types of business operations.
Because of this, a special purpose property has limited use given its specific building features, design, equipment, and property requirements to support the business enterprise.
What is a typical characteristic of a special purpose property?
A typical characteristic of a special purpose property is that the real property requires special construction materials, specific building features, or property requirements in order for the business to operate and cannot easily be converted to other uses.
The unique properties within this real estate category have a design that is closely indicative of the company’s operations.
As a result, their remaining economic life or sale is typically limited to the purpose of the specific use or industry for which they were created.
For example, a bowling alley or a funeral home has limited uses for other types of businesses.
What Are the Different Classes of Special Purpose Real Estate?
Similar to other types of real estate—such as multifamily real estate, office real estate, retail real estate, hospitality real estate, and industrial real estate—investors and lenders need a way to determine and categorize the quality of the commercial property itself. Special Purpose property is categorized into three classes, Class A, B, and C, depending on its age, location, and quality.
What is Class A Special Purpose Space?
The newest, highest-quality Special Purpose properties on the market, with the greatest facilities in prominent locations, are classified as Class A Special Purpose real estate. Class A Special Purpose buildings are often occupied by higher-income tenants and have low vacancy rates in high-traffic areas.
What is Class B Special Purpose Space?
Class B Special Purpose properties are slightly older and in less desirable areas than Class A Special Purpose buildings. Class B assets are typically still excellent homes and investments; they simply need a little more work and aren’t in the best location.
Class B Special Purpose facilities are sometimes viewed as “value-add possibilities” by investors since they may be renovated to become closer to Class A establishments.
What is Class C Special Purpose Space?
Buildings in the Class C Special Purpose category are typically older, have delayed upkeep, and aren’t in a fantastic location.
If the property is still in a strong or expanding area, investors frequently see Class C Special Purpose facilities as more substantial “value-add prospects” than Class B Special Purpose space.
FAQs About Special Purpose Properties
Here are answeres to some commonly asked questions about special purpose real estate.
What are special purpose properties sometimes called?
Special purpose properties are sometimes called special use property, special design property, and limited market property.
Where can you find special purpose property for sale?
What is the most reliable approach to determine the value of special purpose buildings such as churches and schools?
The cost approach is best suited for appraising special-purpose buildings like schools, churches, and public buildings because there are few comparable sales, and these properties do not generate income, making it challenging to appraise them using other methods.
Special Purpose Real Estate Summary
Special Purpose real estate is a breed of its own because the properties are so unique and need to be evaluated more strictly on a case-by-case basis. That being said, here’s a quick rundown of Special Purpose real estate:
- Special purpose real estate is closely connected to a company’s operations and cannot easily be converted to other uses.
- Special purpose property may be one-of-a-kind, limiting the property’s use to the purpose for which it was created.
- Special purpose real estate supports a wide variety of businesses—some of which you may have visited yourself. These include:
- Amusement parks
- Bowling alleys
- Gas stations
- Oil change service centers
- And much more
- Special Purpose real estate is categorized by three asset classes including
- Class A Special Purpose
- Class B Special Purpose
- Class C Special Purpose