Lenders quicker to repossess undeveloped land

By Buck Wargo

Friday, Aug. 28, 2009 | 3 a.m.

Lenders have been patient when it comes to repossessing commercial buildings, but they are picking up the pace in taking back undeveloped land.

That’s the take after the latest land transaction report from Applied Analysis found that sales were up 42 percent in the first six months of 2009 compared with the same period in 2008. In the second quarter alone, the 395.4 acres transferred was 41 percent higher than the first quarter and 77 percent higher than the second quarter of 2008, the firm reports.

Trustee sales and deeds in lieu of foreclosure made up the bulk of the activity, suggesting banks are taking back more property than in the past, Applied Analysis Principal Brian Gordon said.

The increased activity prompted off-Strip land prices to rise slightly after five quarters of decline. The average price per acre sold in the second quarter was $255,300, a 6.2 percent premium compared with the first quarter, Gordon says.

Despite the increase, the amount of money paid for land off the Strip is down 55 percent from the second quarter of 2008.

No land transactions on the Strip were reported in the second quarter.

Gordon said no one should look at the numbers and expect any improvement in the near term because most sales are troubled properties, he says. Commercial and residential builders remain on the sidelines because of the recession and the amount of vacant office, industrial and retail space.

“With the limited demand for new homes and commercial space, I see little (pickup) in the raw-land market in the next two quarters,” Gordon says.

Applied Analysis Project Manager Jake Joyce says some investors may be looking for opportunities outside of Wall Street, but those are limited unless properties are deeply discounted. Because investors would have to hold properties for years, that pushes down the value, he adds.

Releasing foreclosure homes

Dennis Smith, president of Home Builders Research, says it appears that lenders who may be holding about 20,000 foreclosed homes in reserve, are releasing them slowly on the Multiple Listing Service.

They are concerned that releasing too many homes too quickly will push down the price even further and earn less of a return, Smith says. In July the median sales price of existing homes was $125,000, the same as in June. It’s down 41 percent or $85,000 since July 2008, he says.

The number of foreclosure properties on the service has fallen over the past four months from about 12,000 to less than 8,000, Smith says. About 70 percent of those homes are under contract. In addition, the number of short sales is increasing with more than 12,000 listed with the service.

Smith says 60 percent of the short sales are under contract. That increase is likely because of the decline of foreclosed properties available, he says.

As for the rest of 2009, Smith says based on what he is hearing from real estate agents is that sales of existing homes will be flat. That’s not a problem because some lenders couldn’t handle transactions rising even higher because they don’t have the staff to process more loan packages, he says.

Builders are making up for a lack of home construction by working with banks and investment groups on projects that were never completed, Smith says.

“They are finishing lots, houses, doing property management type duties or whatever it takes to keep people working,” Smith says.

Some builders are hoping to buy a few lots at prices that will allow them to compete with the resale market. Although they need to keep building homes, they need to do so at the current prices, he says.

“If finished lots can be purchased at a price that allows new-home retail prices to be competitive in the foreclosure dominated atmosphere, they can build and sell homes,” Smith says.

Some finished lots are selling for $10,000, and the larger, one-third-acre lots have offers at $60,000, Smith says. Other large lots have offers more than $100,000, but the majority of sales are ranging from $25,000 to $35,000 per lot, he adds.

It costs about $35,000 to $40,000 to improve raw lots, which shows why there is little demand for that property, Smith says. To build a home for less than $200,000, lots have to be 6,000 square feet or less and priced under $40,000, he says.

“By the end of 2009, most of the finished lots can be sold at prices that allow builders to complete houses and sell for under $200,000 could be history,” he says.

The slowdown in construction has helped builders get bids on labor and materials at 1980s’ levels, Smith says. There are costs of $35 to $40 per square foot, depending on the product type, he says.

In other news:

• There has been a shake-up at the corporate office of DR Horton, the No. 1 builder in Las Vegas, Smith says. Jim Frasure, the division president, is no longer with the company. Frasure had been running the Las Vegas division since DR Horton entered the market in the early 1990s. It may be the only builder to close on more than 1,000 homes during 2009, he says.

Brian Wargo covers real estate and law for In Business Las Vegas and its sister publication, the Las Vegas Sun. He can be reached at 259-4011 or at [email protected].