Home > Market Updates, Uncategorized > Land – the way I saw it – and see it in 2011

Land – the way I saw it – and see it in 2011

In November of 2007 1 began to see the “Land Boom” slow down.
I had a couple deals not close because the financing vehicles that were available at the time the developers contracted the parcels were taken away from them during due diligence.
Then, the next month I closed an investor purchase to a buyer whose loan was snatched out from underneath him 2 weeks prior to closing.
I held that deal together by the skin of my teeth with owner financing.

 

Through 2008 we saw land move at a slower pace, but there were still deals (mostly investor deals (cash), owner financed deals, or user deals for a select few uses that were still active (mainly pad users following box developments).
In the middle of 2008 we saw the brakes come on, at least that is when I saw it really slow down.
In my opinion, some of the changes in the market were legitimate concerns; overbuilding, residential demand slowed down, and foreclosures began to be an issue, but the majority of the decrease in activity was due to the media filling people’s head’s with fear, not to mention the banks decided they were not in the business of loaning money anymore.

There were projections of foreclosures coming back to the market, which created a catfish mentality from investors who were going to wait the market out.
Seller’s may or may not have felt pressure to move properties, but were not going to sell for huge discounts in many cases because they were not distressed.
Obviously there were some foreclosures, some loans restructured, some deals done at reduced numbers, but overall, not much was happening in the land market.

 

And then came 2009 which offered more of the same as 2008, but in addition to the issues we were faced with on the banking side, we had proud sellers, cheap investors, and in general a lack of demand for land.
2009 was tough because the banks “didn’t control it yet”, the sellers couldn’t unload for what investors perceived to be the value, and we didn’t see much new development.

 

2010 was slightly better than 2009, because the stuff that the banks were going to get in the short run came
on the market, surprisingly at values greater than we had expected.
I sold a number of packages of lots in late 2009 and early 2010.
The “raw land stuff” typically wasn’t as leveraged and wasn’t as likely to become a bank asset.. yet.
Most of these loans have a balloon, which may come due soon or should have recently, and the banks are either restructuring or getting paid off.
Overall, although it made it a rough run for a land broker, in the long run the financial markets approach during this downturn in Houston has helped values stay somewhat stable.

 

If they had flooded the market with below market prices for a bunch of land we would have seen values drop significantly.
I do feel that overall they are lower now than in 2007, but not by much and it is not market wide.

 

I get calls almost daily from appraisers asking me for sales information on sales that are in some cases as much as 3 years old.
This tells me that what I have seen is correct…
I asked one of the appraisers,” why are you chasing such old camps” response was “nothing more recent to comp. against”

 

Overall, I think that the media instilled fear will subside in 2011, the banks will realize they are here to lend, sellers will have become more realistic (partially because they know nothing is moving, but also because they have just paid taxes and/or serviced debt for 3 years longer), and developers will begin to slowly develop again.

We will begin to see sales to users, investors, and developers increase slightly.
I think it will continue to increase into 2012.
The values will adjust and stabilize at slightly lower numbers than the 07/08 peak, but they will gradually begin to stabilize as well and will ultimately continue to increase.
We can’t, without extreme measures, create more dirt, and the value of the dollar continues to fall, so psf prices will increase ultimately.

By Joel  C.  English

NAI   Houston

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