Land and Development Market Took First Steps Toward Recovery

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The land and development market is starting to awaken from its recessionary slumber and show some exciting signs of life.

The “Commercial Real Estate Show” this week interviewed experts and analysts from the land and development sector to gain insights and strategies for this market. 

Development is still scant, but land deals are finally getting done and sales velocity is accelerating, say industry experts.

“The market turned on March 15th of this year, all the sudden the phone started to ring and we’ve had an incredible quarter this year, in terms of both contracting and closing properties,” said Harold Cunliffe, co-founder and partner of The Pacific Group Inc., a real estate investment and development company.

There is still a huge amount of product on the market, but at least buyers are coming back to the game. Banks are also becoming more willing to dispose of their assets acquired through foreclosures, said the panel.

Second quarter brought some long-awaited good news in terms of residential lot and land sales, according to SmartNumbers, an Atlanta-based provider of residential real estate information, analysis and forecasting.

“We’ve seen an uptick in closings,” said Steve Palm, president of SmartNumbers. “In the second quarter of 2011, there were more closings than in the previous three years.”

However, Palm cautions that volumes are still dropping, as the average price in Atlanta second quarter was about $14,000 lower than last year.

Across the board, these low prices are creating amazing opportunities for people to buy their dream home site or for business owners to become their own landlord.

“If you are a business owner, you love his current cycle,” said Rob Whitmire, partner and senior VP of special asset services at Bull Realty Inc. “You have an opportunity to buy that corner that you’ve always wanted or the building that you’ve always wanted.”

This real estate segment still faces many challenges, starting with the excess of product on the market and the valuation issues inherent in this cycle. During a recession and early rebound stages, it creates problems to use comps for an appraisal — and doing so depresses costs and hinders the recovery.

“We think it’s really a faulty methodology to use land and development lot comps,” said John Hunt of SmartNumbers. “You need to look at the end-product demand whether it’s an apartment or retail or housing and back into what that lot cost or land cost is going to be.”

Looking ahead, panelists said demand for land is going back to the basics.

“I think we are seeing a real trend back to real estate fundamentals of location, location and location,” said Bob Hughes, principal at HGOR. “Location in this case is defined by being near major transportation, near amenities and near employment centers.”

This means some of the planned developments in far outlying areas will probably languish.

“What happened is they developed and bought up so many lots and...now they’re sitting on hundreds of thousands lots in these rural areas where there is less demand now,” Palm explained. “We call it the ‘ring of death’ because they are just going to die out there.”

This show provided a very interesting update on the land and development market and its early stage of recovery. If you haven’t heard it already, the show is available for download here.

The next “Commercial Real Estate Show” will air July 30, providing an inside look at the always intriguing health-care real estate industry. Tune in for the latest update on the market for medical office buildings, leasing strategies for medical practices and the scoop on how health-care reform is affecting the real estate industry.

It will be available for download at www.commercialrealestateshow.com.

Michael Bull, CCIM
Show Host, Commercial Real Estate Show
RadioShow@BullRealty.com

President, Bull Realty, Inc
800-408-2855 ext 2001