Land Market Gains Traction

Article by Beth Mattson-Teig

Developers, owners and lenders who found themselves stuck holding land when the development spigot shut off are beginning to see a welcome return of buyers.

“Without a doubt, there are more land sales occurring in almost every single market in the nation as we are coming out of the recession,” says Davis Adams, a managing director at HFF in Houston.  During the worst of the recession in 2009 and the first half of 2010, there were virtually no land sales trading at all unless they were at very steep discounts related to distress, he adds.

As both the commercial and residential markets continue to improve, developers are increasingly shifting attention back to new construction, which is providing a much needed boost to land sales.  Approximately $6.4 billion in land sales occurred during the first half of the year, which is up 18% compared to the same period in 2012, according to Real Capital Analytics.

“What has changed in the last 12 months is a sense of optimism that we can rely on what little economic growth that we are feeling today as, not just a blip, but steady improvement,” says Thomas C. Kirschbraun, a managing director at Jones Lang LaSalle in Chicago. So, even though job growth is not as robust as some people would like, the 150,000 to 175,000 per month gains is enough to create optimism and spur demand for land that has been sitting untouched for some time, he adds.

Yet the climate for land sales is far different than the heyday that existed back in 2005 and 2006 when developers and investors were building up inventories of land with an eye on the future—banking land for future projects or speculating that values would rise. These days, land sales are largely motivated by immediate plans to put shovels in the ground.

The demand—and pricing—for land today it is all about location and how that land site can be quickly put to use. As such, it remains a highly bifurcated market that is split between land parcels that are selling quickly at a market rate and those that have been languishing on the market for years.

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