Like 70 percent of Las Vegas homeowners who are upside-down on home values, anyone who bought raw land in the last decade as an investment is probably thinking about letting it go back to the bank, if they havent already done so.
Distressed land sales have become the standard in Las Vegas, resetting price levels to 10 or more years ago and influencing appraisers to be ultraconservative with their valuations.
Its going to get worse, depending on which side of the sword youre on, said Michael Stuart, senior vice president, land division, for brokerage Colliers International. Theres plenty of people out there holding onto 2007 values and were not there.
Commercial real estate lenders have kept the other shoe from falling by working with borrowers who are in default on income-producing properties such as apartments, office buildings and shopping centers. These efforts have staved off a foreclosure crisis that some analysts predicted would dwarf the one in the residential market.
Lenders arent so flexible with land. Nine of 42 notices of default filed on commercial properties in early May were for vacant land, Nevada Title Co. reported.
Silver State Bank, which was shut down by the Federal Deposit Insurance Corp. and taken over by Nevada State Bank in 2008, holds the largest loan of $9.5 million to Rainbow Rain LLC for 326,700 square feet, or 7.5 acres, at 8955 S. Rainbow Blvd. Southwest USA has three loans totaling $4.3 million to Ad America for about 11 acres at 2431 W. Pyle Ave.
LandBaron Investments has six bank-owned properties for sale in the Las Vegas Valley, including a prime 5-acre parcel fronting Las Vegas Boulevard just south of the Las Vegas Beltway to Warm Springs Road. Its zoned H-1, or hotel-resort development, and listed for about $6 million.
Financing is the biggest hurdle to buying raw land today, LandBaron Vice President Tony Hama said. The six properties can be purchased individually or as a portfolio, with carry-back financing at 50 percent loan-to-value and 6 percent interest only for 24 months offered by the bank.
People may think Vegas has turned the corner on bad times, Hama said. That depends on how banks dispose of their assets because now theyve become the biggest land holder in recent times.
Randy Black Jr., founder and principal of LandBaron Investments, said banks took back land that was probably overleveraged. Equity dissipated and owners were in a negative loan-to-value scenario.
The other issue is appraisers not identifying true market valuation because there have been so few transactions in the last two years, he said. They followed downward projection trends and were forced to use unorthodox methods, lacking information on substantiating values, replacement costs and capitalization rates.
The buyers idea of value and the appraisers idea are out of alignment, where it used to be the owner and appraiser, Black said. Theres a lot of leeway in assessing values these days and youve got to know the objective of the institution that has the REO (real estate-owned property) or wants to own the asset.
LandBaron co-founder Mike Chernine said he was getting a phone call a week three years ago from appraisers wanting to know about market conditions. Now the calls come once a quarter.
Black said raw land that has not been entitled or improved is selling for as little as $50,000 to $70,000 an acre, about what he saw in the late 1980s and early 90s. A piece on South Durango Drive just went for a little more than $30,000 an acre.
On the development side, Black said theres been upward pressure in the last quarter for finished lots with hard improvements such as utilities and infrastructure in place.
Colliers Internationals Stuart said land transactions have fallen to about 10 percent of normal volume, though hes seeing increased demand for developable land and speculative land opportunities in Southern Nevada.
With about an 18-month supply of finished residential lots, homebuilders are purchasing future inventory preparing for the next building cycle. As for commercial land, investors are pouncing on bargains around the valley, Stuart said.
He recently negotiated the sale of Hillwood Residentials land portfolio in Nevada to a joint venture between Ridgewood Real Estate Partners and Angelo, Gordon & Co. Hillwood bought the property in 2008 and spent nearly $70 million on infrastructure. Most of the 1,800 residential lots are either finished or partially completed, and 10 acres are zoned for commercial.
Kimball Hill Homes, which filed for Chapter 11 bankruptcy in 2008, sold more than 1,000 lots to SunCal Cos. for $20.1 million in October, then sold another 259 lots in the master-planned Inspirada community for $2.1 million in April.
Stuart sold nearly 20 acres of commercial land previously owned by Bank of America for $5.3 million; 4.5 acres of commercial land previously owned by City National Bank for $950,000; and 291 residential lots previously owned by Key Bank for $7.35 million.
Some of those transactions closed at 25 percent of their value from just three years ago, he said.
For the right person who has cash in hand and does not need financing, there are deals to be had, Stuart said.
Vacant land prices dropped to $182,400 an acre in the first quarter, down 24.1 percent from a year ago, based on the sale of 150 parcels totaling 526 acres, business advisory firm Applied Analysis reported. Prices have plummeted from a peak of more than $900,000 an acre in fourth quarter 2007.
About 60 percent of land transactions in the last 18 months are trustee deeds, deeds in lieu of foreclosure or some other type of distressed sale, Hama said.
Las Vegas land prices have reached a point at which investors wont wait to see how much lower they will go, Black said.
For a sharp guy that does his homework and aligns with the right strategy, you can knock it out of the park these days, he said.
Chernine said most land acquisitions in Las Vegas today are coming from speculators, with the exception of a few specific users such as restaurant chains looking for a particular pad location.
Contact reporter Hubble Smith at email@example.com or 702-383-0491.