Highest and best use is the real estate appraisal term for the reasonably probable and legal use of land or a property that is physically possible, appropriately supported, financially feasible, and results in the highest value.
The definition comes from the Appraisal Institute, and appraisers apply it as four tests in sequence. A use must be legally permissible under zoning and other land-use regulations; physically possible given the site's size, shape, topography, and access; financially feasible, generating enough return to be viable; and maximally productive, producing the highest value among the uses that pass the first three tests. The standard requires a use to be reasonably probable, not merely possible or speculative, and it anchors estimates of market value.
In investment terms the phrase asks what construction on a given piece of real estate would, as forecasted, yield the highest return. It differs from current use: a parcel can be valued on the basis of a use it has not yet been put to, provided that use passes all four tests.
In a class I remember as "Real Estate" at Harvard Business School, we learned the phrase "highest and best use" meant what construction on this piece of real estate would, as forecasted, yield the highest cash-on-cash returns.