Transitional land deals stage a comeback

SAN FRANCISCO – Nov. 26, 2013 – Transitional land deals are picking up in 2013, but the recovery’s locations are still very “pocket-oriented,” Nancy Surak told attendees at the “Current Trends in Transitional Land” session during the recent National Association of Realtors® (NAR) convention.

Transitional land is defined as land in constant transition between uses, such as from commercial to residential. Such land sales often occur when buyers anticipate a future transition and are willing to pay a premium to purchase the land from the owners, said Surak, a commercial practitioner with Eshenbaugh Land Co. in Tampa, Fla.

Land values faced big decreases during the Great Recession, with foreclosures sparking price reductions in some cases more than 80 percent off peak prices. The sector continues to dig its way out. For example, Surak pointed to a 675-acre parcel in Wesley Chapel, Fla., purchased in stages by Pulte Home Corp. in 2004 and 2007 for a total $29 million. By 2009, the property sold for $5 million, posting an 83 percent price reduction. The property, however, regained most of its lost value three years later. Homebuilder Standard Pacific purchased it in 2012 for almost $25 million and has plans to deliver its first homes on the land in the first quarter of 2014.

“Cycles will continue, but I’ve learned that the best deals were purchased when most buyers were frightened and not willing to buy,” Surak said.

Transitional land deals are starting to gain steam in many areas, and in some cases are seeing a return to 2004 and 2005 values, Surak noted. “Land in highly desirable locations will command a premium, and during the next correction, there will be focus on infill locations,” she said.

When the market improves, take note of investor buyers, she said, as they tend to become quick sellers in improving markets. Pivotal to the recovery will be banks’ openness to lending on land again. “Easier and less expensive access to capital may lead to price increases,” she said.

Local governments also play a critical role in the sector’s recovery.

“Government will have the biggest impact on value,” Surak said. Local municipalities that want to see development in an area can prove a boon for land values in those areas, since those municipalities often offer incentives or reduce or eliminate impact fees that encourage development. On the other hand, local governments that want to curb development can make the cost of development rise, hampering the recovery in those areas.

She encouraged attendees who focus on land transactions to stay close to investor buyers as their momentum in the market starts to pick up. She also encouraged attendees to carefully research permits and other factors affecting the potential value of land, such as expired permits on water rights or new FEMA floodplain maps. Surak urged those who want further training on navigating land deals to seek out the Realtor Land Institute’s Accredited Land Consultants designation.