LV Valley land prices tumble 24 percent in a year

Raw land values have yet to stabilize in the Las Vegas Valley, dropping to $182,400 an acre in the first quarter, down 24.1 percent from a year ago, business advisory firm Applied Analysis reported Thursday.

Distressed land transactions -- those that have lost significant value or are in default with the lender -- continue to outpace traditional sales, which tends to drive prices down, Applied Analysis principal Brian Gordon said.

About three-fourths of property changing hands during the quarter were trustee sales, or lender foreclosures, he said.

Other factors digging into land values include rising vacancy and falling rents in the commercial markets, excess housing inventory and lack of development on the Strip, Gordon said.

With the increase in distressed land sales, investors and developers are resetting price points to a level not seen since the boom cycle was in full swing in 2004, the analyst said.

"There's less demand today for raw land than there was two to four years ago, and it's being reflected in land prices," Gordon said. "You look at the volume of sales in 2004, the market reported nearly 14,000 acres sold that year. During the past year it's been a fraction of that. That's put downward pressure on pricing, not unlike the residential market."

Sales volume nearly doubled in the first quarter, with 150 parcels totaling 526.6 acres, compared with 77 parcels and 281.2 acres a year ago.

Figures suggest that land prices have deteriorated by 80.6 percent from a peak of more than $900,000 an acre in fourth quarter of 2007, Gordon noted. He attributed the decline to both the overall loss of real estate value during this recession and to the mix of properties sold. There were no resort corridor transactions during the first quarter, which tend to skew prices upward.

"Investors and developers were expecting this growth curve to continue into perpetuity and it's just not realistic," Gordon said. "We were constructing more houses and commercial than we needed. People thought the trend would continue, but it was unsustainable."

The market is likely to see more vacant land deeds transfer ownership as prices continue to correct, he said. Holding costs may outweigh the opportunity cost of waiting until valuations improve.

"This recession is the longest recession in modern history," Gordon said. "It's had an effect on the market."

Investment specialist Christina Roush of CB Richard Ellis brokerage in Las Vegas said the market is slow, but deals are still getting done. She represented City National Bank in the sale of nearly 4 acres in Henderson to Kennedy Capital Uno for $650,000 .

The largest transaction during the quarter occurred in southwest Las Vegas Valley, where Nevada State Bank acquired about 72 acres on Blue Diamond Road in a trustee sale for $35,300 an acre.

Kyle Nagy of CommCap Advisors in Las Vegas said real estate lending by banks and life insurance companies has picked up. More lenders have re-entered the market and competition for reasonable loan requests is heating up, he said.

A resurgence in commercial mortgage-backed securities, also called "conduit" lenders, highlighted the discussions at a recent finance conference in Las Vegas, Nagy said.

About half of commercial mortgage defaults in Las Vegas are for vacant land, creating a burden for many lenders.

"We're going to look at current development plans," Bank of Nevada chief executive officer Bruce Hendrick told the Review-Journal in March. "We're not going to lend for speculative purposes. That's not our niche. Our focus is on owner-occupied real estate. In addition to development, we want a strong equity value, a strong loan-to-value based on today's appraised value."

Contact reporter Hubble Smith at hsmith@reviewjournal.com or
702-383-0491.