Total Land Area

Understanding Total Land Area in Commercial Mortgages

Total Land Area refers to the entire two-dimensional surface area contained within the legal boundary lines of a property as described in a deed or survey. In the context of a commercial mortgage, this represents the full physical footprint of the collateral securing the debt. It is a fundamental metric used by lenders, appraisers, and underwriters to determine the intrinsic value and utility of a commercial real estate asset. This measurement is typically expressed in square feet for urban properties or acres for larger suburban and industrial sites.

For commercial lending purposes, the total land area encompasses several distinct components that affect the property's risk profile and marketability:

• Buildable Land: The portion of the site that can legally and physically support structures, such as office buildings, warehouses, or retail centers.
• Non-Buildable Land: Areas that cannot be developed due to environmental restrictions (such as wetlands or floodplains), steep topography, or soil instability.
• Setbacks and Easements: Areas reserved for public utilities, municipal access, or mandatory distances from property lines and roads required by local zoning codes.
• Improved Surfaces: Land utilized for necessary infrastructure, including parking lots, loading docks, private access roads, and designated green spaces.

The Importance of Total Land Area in Underwriting

Lenders scrutinize the total land area to assess the long-term viability of the loan. Detailed analysis of the land area influences several key aspects of the commercial mortgage process:

• Valuation and LTV: The total land area provides a baseline value for the Loan-to-Value (LTV) calculation. Even if the building on the site is aged, a significant land area in a prime location provides a "floor" for the collateral value.
• Floor Area Ratio (FAR): This is the relationship between the total land area and the amount of building floor space allowed. Lenders use this to understand if the site is "under-improved" or if there is potential for further densification and increased income.
• Zoning Compliance: Underwriters must ensure that the total land area meets the minimum lot size requirements for the specific commercial zoning class to prevent legal issues with the municipality.
• Excess vs. Surplus Land: Lenders distinguish between excess land (land that can be sold off separately) and surplus land (land that cannot be sold separately but adds value to the existing use). Excess land can sometimes be used as additional leverage or sold to pay down the principal of the mortgage.

It is essential to distinguish Total Land Area from Gross Leasable Area (GLA). While the land area measures the horizontal footprint of the site, GLA measures the interior space available for rent. A property with a massive total land area but a small GLA might indicate a low-intensity use, such as a self-storage facility or a car dealership, whereas a small land area with a high GLA typically indicates a high-rise development.