Lots of Land

The housing recovery is boosting values for parcels in many markets.

Land prices in many areas of the U.S. are on the rise amid increasing demand, but the level of demand and the reasons behind it vary from market to market. Land values increased an average of 13 percent in 2012, the first annual gain since 2005, according to housing research firm Zelman & Associates. Improvements in the housing market, modest employment growth, and population expansion in some markets are making land more attractive to investors than it has been since the housing market crashed more than four years ago. Housing demand in some markets is the single most important factor influencing land prices.

Who Is Buying?

The greatest demand is for well-located land that is ready or near-ready for residential development. Most sought after are finished lots for single-family or multifamily sites that already have roads, sewer, electric, and other infrastructure in place. Builders often find these properties to be in short supply as home construction increases.

As the housing market improves, retirement markets in the southern U.S. are heating up as many retirees — who deferred their plans due to the poor economy — can now sell their homes and relocate to new areas for retirement. For example, in Hilton Head, S.C., Stratford Land is on track to sell twice as many lots in 2013 as compared to 2012 — and at higher prices.

The U.S. Census Bureau reported in April that builders were on pace to sell 417,000 homes in 2013 and new-home construction rose 13.1 percent in the past year. The housing market has been in a slow recovery since spring 2012, but the level of recovery depends on the market.

Land investors today are combing through inventory looking for off-market opportunities with infill land for residential and commercial development. These opportunities often allow for the purchaser to have shorter hold periods and quicker returns. The Canyon in Oak Cliff, a mixed-use development in the Dallas area, is a prime example of fast-selling infill land. By proving market demand in nearby surrounding areas, Stratford Land quickly recruited multifamily, retail, hospitality, medical, and entertainment developers to serve the needs of the fast-growing local community.

In addition to a rise in homebuilding activity, land prices are being driven up in some markets by large equity funds and foreign investors. Many foreign and sovereign funds from Europe, Canada, and China are buying large U.S. land portfolios.

Farm and timber land prices are also increasing due to renewed investor activity, and Timber Investment Management Organization groups are emerging to aid institutional investors in managing their timberland investments. Timber funds are actively buying up land, particularly in southeastern states such as Georgia, Alabama, South Carolina, and Arkansas, in anticipation of rising timber prices as homebuilding continues to increase.

Demand for farmland has been strong in the last year, as high crop prices attract institutional investors. Buyers are especially interested in midwestern land: Global financial services company UBS bought 9,000 acres in Wisconsin, and financial services firm TIAA-CREF now owns 600 farms in a $4 billion fund.

Resort properties are also getting a fresh look from investors, boosting those land values, albeit more slowly than other real estate. Resort markets continue to lag behind major population centers, and land values typically remain well below their boom market peaks, but sales are picking up. The lack of new resort development over the past few years is helping to aid the more recent increase.

Hot Land Markets

The greatest factor influencing rising land prices is housing demand, which is favoring U.S. Sun Belt cities such as Dallas, Houston, and Austin, Texas, and secondary markets with strong economies such as Orlando, Fla., Nashville, Tenn., and Charlotte, N.C.

The Texas economy has remained stronger than most of the U.S. throughout the downturn, and the prospects for land investment offer compelling opportunities in all the major markets. For example, national homebuilder Lennar is building in a number of Texas and southeastern markets.

Austin continues to be a winner in all real estate categories, and home building remains strong. For land buyers who want to hold, well-priced deals are hard to come by.

Dallas-Fort Worth is experiencing strong demand for well-located land, with 44 commercial land sales of up to 25 acres during the first two months of 2013. As demand for single-family housing is strengthening, Dallas has less than three months of finished home inventory, while Fort Worth has only four months of inventory.

In the glow of an energy boom, Houston land prices are high and heading higher, due to both apartment and single-family home construction in many areas, as well as the highest rate of 2012 housing starts in the U.S., according to the Real Estate Center at Texas A&M University. While less robust than other Texas cities, San Antonio is projected to see significant employment growth.

Several regional homebuilders, such as Ashton Woods, Taylor Morrison, NVR/Ryan Homes, and Ryland Homes are active in the Southeast markets of Nashville, Raleigh, N.C., Charlotte, Orlando, and Atlanta, focusing on major cities that have stable economies and strong employment. Orlando’s economy is benefiting from a tourism rebound and the retirement market. For example, Hamlin, a 600-acre residential development located just north of Walt Disney World, is experiencing strong sales due, in large part, to a new tollway that provides a gateway into western Orange County, Fla., for builders and developers.

Interest in the Charlotte market has grown with its improving economy and job growth. In the past two years, 37 companies have relocated to the city, bringing 8,000 new jobs. This trend is expected to continue as the city plans to add as many as 30,000 new jobs through 2014.

Atlanta, where the economy has historically been heavily focused on development, is just now recovering from job losses and a glut of residential inventory. Although metro Atlanta home prices continue to rise, they have yet to recover to their pre-2008 levels, creating a strong affordability index for companies choosing to relocate. In comparison to other cities of its size, Atlanta has not bounced back as quickly, and more accelerated job growth will be required to absorb the large supply of lot inventory that remains on the ground.

Elsewhere in the U.S., reports of surging housing prices don’t necessarily signal strong markets. Cities such as Detroit, Las Vegas, and Phoenix are rebounding from huge declines but still face challenges with large foreclosure inventories, high vacancy rates, and slow-to-no growth economies.

However, even in some of these weaker markets, discerning investors can find pockets of land value. For example, while the overall statistics show Phoenix as a lagging housing market, Vistancia, a 7,100-acre development located just north of Phoenix, opened an additional 3,450-acre section in response to pent-up demand. Potential buyers are anxious to view new-to-market lots in high-quality developments that had suspended growth during the bust.

In Southern California, good opportunities for longer-term land investments are possible, but they are rare and require equity positions. For example, Stratford is the lender for the Blue Sky development, a 440-unit multifamily project that recently broke ground in downtown San Diego on land the developer has owned since 2004. In 2011, Stratford became an equity partner with the developer of Millenia, located south of San Diego, to develop the $4 billion, 210-acre master-planned community over the next 20 years.

Closing Land Deals

Unless investors are cash buyers, closing land deals is challenging. Few traditional capital sources want to fund land investment, and many banks are still trying to offload land loans from their balance sheets. Some hedge funds, sovereign funds, and other institutional buyers are able to buy with all cash. Timing and availability of capital has been — and continues to be — the best way to acquire land. The ability to close quickly remains key to purchasing the best deals.

While large groups with cash are able to purchase significant tracts of land and portfolios, local purchasers looking to acquire smaller tracts have a harder time finding capital. With the absence of adequate capital to finance land transactions, smaller buyers continue to turn to private debt to close the gap. Stratford has been able to close this lending gap by providing nonrecourse land financing to a number of groups that fit this profile.

Land investing in 2013 will be active primarily for those who intend to begin construction on single-family residential or multifamily developments. The demand for these asset classes is strong in most markets, particularly those that exhibit clear signs of recovery. Land investors who are able to close sizable acquisitions during 2013 are likely to be cash buyers or the few well-capitalized investors who can secure financing.

David Moore, CCIM, is senior investment manager for Stratford Land in the southeastern U.S. and based in Atlanta. Contact him at


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