Land CCIM Q&A

Optimism in the Lone Star State

Q&A with Russell Webb, CCIM

Webb

When you hear everything’s bigger in Texas, it’s easy to assume that’s just a bit of local pride. But anyone who has driven across the plains of West Texas understands there’s a bit of truth in that aphorism. When it comes to land — and its associated farmland and ranch real estate markets — it doesn’t get much bigger than the Lone Star State.

While some commercial real estate sectors can count on a steady supply of new assets, land is inherently constrained. Considering this physical limitation, increasing demand can mean more people looking to scoop up similar assets. COVID-19 greatly impacted interest in land for farming, leisure, and speculation, so understanding the temporary and fundamental changes to the land market is essential to survive and thrive in a competitive space. Russell Webb, CCIM, managing partner with Silver Oak Commercial Realty in Southlake, Texas, outside of Dallas, has put together 20-plus years in commercial real estate, specializing in land, among other sectors. Additionally, before turning his attention to CRE, he spent his early career in the gas and oil business, which is not surprising considering how essential the energy industry is to his home state. Commercial Investment Real Estate spoke with Webb about COVID-19’s impact on CRE, how demographic changes may impact the land market, and opportunities in energy for CRE professionals.

CIRE: In the wake of COVID-19, people have talked a lot about returning to the office or retail’s return. What has been the situation in ranch and farmland? How has the pandemic impacted the sector?

Russell Webb, CCIM: We’ve seen a real increase of interest in farm and ranch land since COVID-19. There was also a rush in demand for recreational properties outside Dallas and Fort Worth, with potential buyers looking towards Abilene and Wichita Falls. People were looking for space and vacation properties in lower-density areas. These trends also led to a huge increase of interest in land for RV parks. 

In the last two years, I’ve seen a lot of activity by commercial real estate investors looking to buy large tracts of land to subdivide them to meet this rising demand. There are a lot of people in big metropolitan areas like Dallas, Fort Worth, Houston, and Austin who are looking for ways to escape the hustle and bustle. Considering the growth in working from home or working remotely, people are not tied to an office like they were before COVID-19. It’s possible to live farther and farther away from a central office location — and that can change the importance of being in a city or nearby suburb.

The land market in Texas has been pushed to new heights during COVID. You can go to some counties in South Texas where folks are asking anywhere from $10,000 to $50,000 an acre. If you’d have gotten some investors together and bought a bunch of contiguous land before the pandemic, held it, and sold it today, that rate of return would be huge. But I still think there’s room to grow in this market because we have so many people moving to Texas or looking at our state for investment opportunities. 

If you own a ranch in West Texas with mineral rights, you can pick up both the basis on the land and income off royalties from any future production.

CIRE: Outside of the pandemic, what about farmland and ranches draws interest from investors? What aspects of the sector are unique when comparing them to other sectors of CRE? 

Webb: It is an especially appealing investment opportunity if you can keep the mineral and executive rights. If you own a ranch in West Texas with mineral rights, you can pick up both the basis on the land and income off royalties from any future production.  

When looking at larger ranches — say, 1,000 acres or larger — a key component in any deal is a portion of the mineral rights to be conveyed to the new owner, because they are going to want as much control over their land as possible. It’s also a potentially major source of revenue. When it comes to negotiating these aspects of a deal, you need a savvy commercial real estate broker and attorney who understands the complexity. Many families who sell large tracts of ranch or farmland will be reluctant to part with the mineral rights, but in those cases, I try to negotiate a portion of them. If we can buy 50 percent, for example, that keeps both parties involved. But a lot of times, when dealing with these big ranches, if the price tag gets large enough with full rights to the land, deals can get done.

Land is a limited resource, but there are opportunities when family-owned ranches pass hands and maybe the kids or grandkids aren’t interested in operating it. COVID-19 has led some people to reevaluate what they want to do with land.

Whether it’s because there’s no income tax or any number of factors that attract new populations, Texas will continue to be a major destination for incoming residents, just like Florida and other states in the South and Southeast.

CIRE: What other areas of CRE look promising in Texas? Are there any surprising markets that could be hot in five or 10 years from now? 

Webb: RV parks, recreational lake properties, farm, and ranch all will continue to play a major role in the next decade. As far as factors specific to Texas, we have seen an influx of people coming from out of state to relocate into Texas. Whether it’s because there’s no income tax or any number of factors that attract new populations, Texas will continue to be a major destination for incoming residents, just like Florida and other states in the South and Southeast. Similarly, with changes to shopping habits and struggles in retail, along with growing cities and suburbs, the industrial sector will continue to expand in the coming years. Today’s supply chain challenges can’t slow such growing demand for open farm and ranch land and prospective industrial land sites. 

Another thing about the Dallas-Fort Worth area, the airport is right in the middle of the metroplex, so the opportunities for industrial and warehouse extend in all directions. Even if you go an hour to the south, southeast, or southwest, there are a lot of pockets for opportunity. The growth in the entire area has been strong, so the changes to how people shop online and how things get delivered mean warehouse is a strong sector. Additionally, with people moving into the area, you’ll see office and retail projects tick up to deal with that growth.

Nicholas Leider

Nicholas Leider is senior content editor for Commercial Investment Real Estate. Contact him at nleider@ccim.com.

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