Volumes, Values and Emerging Trends

Volumes: Land sales volumes appear to have stabilized, hovering around 50% off from the peak in 2006 - 2007, on average over the entire Midwest region. Anecdotal evidence in the land market indicates we are seeing stabilized volumes now, suggesting we may have formed a bottom in terms of land sales volumes. Second, the developer and the leveraged speculator are fully out of the land buyer marketplace given the supply/demand imbalance of development product and the difficulties with obtaining credit. Much of the decrease in sales volumes (25-30%) is directly attributed to the absence of the developer and leveraged speculator, again supporting the stability of current sales volumes. Third, due to the established and recent consistency of the strongest cash buyer types, "end users" and private equity funds, the difficulty with obtaining conventional financing already plays no significant role in today's buyer market and is unlikely to further decrease sales volumes.

Values: The value landscape is different area to area much more so than any small regional differences noted in sales volumes. In areas with booming expansion, we witnessed land values spiking 15-30% annually in 2005 and 2006, an unsustainable movement. In other area far from development pressure, land values continued their steady annual appreciation in the 3-8% range without any dramatic spike. You can guess which category is experiencing the significant pullbacks. In line with the slower land market, pricing has been adjusted downward in many cases and will continue to be adjusted downward where needed to find common ground with value on a case by case basis. Inclusive of both Buyer and Seller representation, Dakota Properties land sales in the past 12 months have shown 5-20% discounts from asking prices, reflecting the varying gaps between pricing and value from property to property.

Emerging Trends: The Midwestern land market is not overly leveraged, but as a result of leverage and recent losses in other investments, land owners are placing some spectacular "legacy" properties on the market this season. We believe this trend represents an important generational buying opportunity, as we normally only see this highest level of quality available every 15-20 years. As an additional trend, owner financing may become more common again as it aids both sides of the transaction, helping the Buyer hold on to more cash as a precaution and facilitating a sale sooner for a Seller while also spreading out any gains for potential tax benefits.

Summary: As the blur of the last decade starts to come into focus, people seem to be taking stock in what is important. Doing the next big deal and sprinting to keep ahead of the crowd seems to be less meaningful than getting away from the crowd and spending quality time with family and friends. Since there are few places as appealing as the Midwest, we are seeing a renewed interest in our marketplace. While this interest is not as frenzied as it was prior to the recession, it is decidedly a thoughtful and introspective interest driven by a true reflection on the part of buyers as to what type of property meets all or most of their criteria. Upon finding such a place, buyers today will "pull the trigger" as they see the inherent value in owning investment quality rural real estate. The smaller number of transactions that have occurred closed on average 5% - 20% down from the prices sellers were able to achieve in 2006 and 2007. Late summer and early fall has brought on a small flurry of activity with more buyers coming and touring property than we have seen in the previous nine months. The stock market has clearly been stronger and, whether this is a "dead cat bounce" or a real turn in the economy, there appears to be growing confidence in our marketplace and in the fact that things will get better. Statistically the number of sales is down significantly from 2007 and still below the pace of 2008. The jury is clearly still out for this year as we are in the midst of what is normally our busy season with results still to come in. The sentiment seems to be one of guarded optimism rather than the pessimism of just a few months ago. As we await the verdict on the second half of 2009, rest assured that the team at Dakota Properties will continue to provide the best service we can to our clients while embracing this remarkable place we are privileged to call home.