Development Land

[MNRural]

My subject is 150 acres of unimproved development land next to city services. The developer has received final plat approval and has incurred engineering costs. This is an underperforming loan.

The market is dead. There is no plan to develop the land. Builders that have bought in other subdivisions have walked away. There are no sales of similar development land since 2004 or 2005. I've even checked bordering counties. I've looked in other markets to see if there are any sale/resales.

I'm sure this is a common assignment these days as the feds ask banks to reevaluate their land loans. I'm brainstorming to think of some creative analysis to understand how much the market has declined since my most recent sales.

I think a potential purchaser would look at how soon the existing supply would be absorbed into the market and discount the value back for time.

I dont think a subdivision analysis would be credible, being that there is no data to base an absorption on. There is nothing but speculation to determine how many more years it will take for this market to stabilize. There are land parcels listed for sale all over the area like this; the developer can't make his interest payments for the raw land and there are no buyers.

I'm sure we will start to see the sales show up as bank owned or distressed sales as the developers give their land to the bank.

Also, what are your two cents regarding the engineering costs and the 'entitlement' that goes with the land. When the market recovers, a potential developer can just step in and start building the infrastructure?

 

[Scott Lanz]

Paul,

Shoot me a call this weekend and I will let you know how I am going about it.

 

[Vernon Martin]

Perhaps the H&BU has changed. Last year I saw a rural market where homebuilders and speculators had bid up the prices of former cattle pastureland from $400 per acre to $4000 per acre. Then the residential market collapsed and H&BU reverted back to cattle grazing and prices went back down to $400 per acre.

 

[Michigan CG]

Perhaps the H&BU has changed. Last year I saw a rural market where homebuilders and speculators had bid up the prices of former cattle pastureland from $400 per acre to $4000 per acre. Then the residential market collapsed and H&BU reverted back to cattle grazing and prices went back down to $400 per acre.

What is the Highest and Best Use of a subdivision that has streets and utilities that won't see a house built for 5 or 8 years??....Guess you could let the cows roam on the streets and grow hay on the lots for them to eat. That would be an interesting sight!

I cannot count the number of subdivisions here that have a spec home or two (or none) that are sitting there. 10-year supply is not an outrageous thought.

I hope the OP lets us know how this turns out and how he does it.

 

[murray stroupe]

Re; No Home Sales Since 2004,2005

What is the Highest and Best Use of a subdivision that has streets and utilities that won't see a house built for 5 or 8 years??....Guess you could let the cows roam on the streets and grow hay on the lots for them to eat. That would be an interesting sight!

I cannot count the number of subdivisions here that have a spec home or two (or none) that are sitting there. 10-year supple is not an outrageous thought.

I hope the OP lets us know how this turns out and how he does it.

=============================================

Sounds like that would work,Timothy;
& not paving the streets in a cow pasture would also.

Cows like a dirt trail also, much more hay,
that way.
LOL

 

[murray stroupe]

Re; No Subdivision Sales Since 2004,2005

What is the Highest and Best Use of a subdivision that has streets and utilities that won't see a house built for 5 or 8 years??....Guess you could let the cows roam on the streets and grow hay on the lots for them to eat. That would be an interesting sight!

I cannot count the number of subdivisions here that have a spec home or two (or none) that are sitting there. 10-year supple is not an outrageous thought.

I hope the OP lets us know how this turns out and how he does it.

=============================================

Sounds like that would work,Timothy;
& not paving the streets in a cow pasture would also.

Cows like a dirt trail also, much more hay,
that way.
LOL

 

[stefan olafson]

Paul,

From your disclosures I believe what you may have is agricultural land. It sounds like the market has backed off and what once was going to be the next hot subdivision is now back to being corn ground near city services.

Engineering costs are a part of doing business, it's not part of an appraisal or should be included in an appraised value.

Your comments that there are no sales means the property has more than likely reverted to its prior highest and best use.

 

[josephdifranco]

Deals are tough to find right now, there could be some sales out there you don't know about, do you know any firms doing a lot of subdivision analysis? I think if the firm I work for did not do a lot of this, we would not have enough comparables for some of the reports.

Builders in our area do see a return on the time and dollars spent on obtaining entitlements, which includes carrying costs while the process drags on. I could not see a reversion of HBU in my area, but it would seem to be more likely in a rural area.

Maybe you can find some sales of acreage comparables without entitlements and make adjustments, or possibly say the entitlements are contributing no value. Sometimes an acreage comparable turns out to have some entitlements in place, but the data source such as public records or co-star don't reflect that fact. In that case, you can try with the village or county to see if a parcel had some entitlements in place or not.

We are struggling in my area for comparables too, let us know how it turns out.

 

[CBBoston]

As others have pointed out it's a HBU issue. No matter what the land developer has spent to get the entitlement is irrelevant at this point or any point. Most home builders look at the price they can get for homes in their target market, deduct full costs of construction (including roads etc if needed and carrying costs), deduct what they think is an approariate profit, and what's left over is what they will pay for land. If the builder can't make any profit, which might be the case in many markets today, he doesn't purchase the land. So the entitelments may be fully valued, partially valued or worthless. Of course a builder might land bank the property for the future. In that case depending on how long he thinks it will take the market to recover. He might not even want to offer the land owner the price the landowner paid for the raw land. Caring costs and all that. Some of that may be offset by potential income the land might generate. And we come back to HBU.

 

[Ad Wizard]

Yep, ag land. Entitlements likely do not have value then. In my county site plan approvals are only good for 5 years.