Foreclosures fuel land bargains for investors

By Buck Wargo

Friday, Nov. 20, 2009 | 3 a.m.

Foreclosure sales are dominating the raw land market and suppressing prices, but they are creating bargains for investors, analysts said.

Applied Analysis reported that nine of 10 sales in the third quarter were a result of a foreclosure. That spurred more demand with 411 acres sold compared with 395 in the second quarter. It’s the third consecutive quarterly increase.

The number of parcels sold increased sharply to 248 transactions, up from 107 in the second quarter.

The bank-owned properties are driving down land prices, with a per-acre average price of $226,000 in the third quarter, down from $225,309 in the second quarter, according to Applied Analysis. Raw land prices have dropped by about half in the past year: The price per acre paid in 2008’s third quarter was $459,798. Prices haven’t been that low since late 2003, the firm said.

Land sales have started to trade in a fairly steady price range, which means that prices are starting to stabilize, said Jake Joyce, a project manager at Applied Analysis.

Buyers have gone after some unimproved lots on the valley’s periphery in the southwest and northwest near Kyle Canyon, Joyce said. Applied Analysis tracks sales of raw land of a half-acre or more. Much of the interest has been in parcels of 5 to 20 acres, Joyce said. One parcel was a 56-acre residential site in the northwest valley near the Las Vegas Beltway that was sold to an investor group for $88,000 an acre, Joyce said.

Prices are down 80 percent to 90 percent in some submarkets in the last two years, Joyce said. Overall, prices are down 76 percent since the peak of the market in the fourth quarter of 2007 when land sold for $939,000.

That is a much steeper drop than home prices, which since the peak have dropped 57 percent.

“Land values have deteriorated at a much steeper rate than homes,” Joyce said. “We are starting to see investors pick up land because prices have deteriorated so much. They see the long-term value. Some investors believe in the overcorrection theory that there is opportunity.”

The demand for unimproved residential lots, however, pales in comparison to lots with water and sewer lines, analyst said. Builders and investors have targeted properties to prepare for an increase in home construction.

Dennis Smith, president of Home Builders Research, said much of the demand has been for finished lots and suspects it won’t be until 2010’s second quarter before interest picks up in raw land.

“Eventually it will be there, but is not there yet, “ he said.

Joyce pointed out there isn’t a rush to buy the raw land because there are thousands of bank-owned homes that have yet to hit the market, and the vacancy rate for commercial property is high. Those who have the ability to buy and hold are the ones taking advantage of this, he said. Of those areas sold, they are closer to where infrastructure is in place and can be developed when the economy improves, Joyce said.

That was the case on the Strip where HCD Real Holdings of Kansas purchased the former Klondike Casino. The 5.24-acre site sold for $17 million or $3.2 million an acre as part of a foreclosure sale.