Homebuilders preparing for only modest growth

Homebuilders are preparing for only modest growth in new-home sales and land investors appear to be bullish on midterm recovery of the Las Vegas real estate market, a local land expert said Tuesday.

Investors and developers drove land sales volume to more than $230 million in 2010, a 167 percent increase over the previous year, said Bill Lenhart, owner and broker of Sunbelt Development and Realty Partners in Las Vegas.

The most active sellers were banks and private lenders who sold off land that was in foreclosure, which represented about half of all land sales last year.

Investors accounted for 65 percent of all land purchases in 2010, laying out more than $150 million, Sunbelt reported in its year-end land sales report. About 87 percent of buyers and sellers were from Nevada.

"Land sales are an early indicator of future development and investor confidence," Lenhart said. "By virtue of their investments in 2010, we saw a lot of investor activity. In 2009, they were quiet."

Investors are implementing a buy-hold strategy for commercial and industrial land, with very few end-users buying for near-term development, he said.

Sales activity was strongest in the southwest and southeast Las Vegas Valley, although the typical proportion of sales in the south submarket was much greater than usual.

In 2009, vacant parcels with no improvements had zero or negative residual land value, meaning the cost to build exceeded the value of the completed structure, resulting in negative value for the land itself, Lenhart explained. Improved land was being sold at a fraction of the improvement cost.

Last year, many of the improved land deals were consummated and sales volume tripled, largely driven by investor optimism and homebuilders replenishing lot supply, the broker said. However, most homebuilders have an ample supply of land and have stopped buying, he said.

Average price per acre ranged from $96,948 for residential land to $386,247 for commercial tourism use, Sunbelt reported. Office and professional land averaged $129,171 an acre; industrial land averaged $161,346 an acre; and mixed-use development land was $323,809 an acre.

Land prices are determined by the amount of commerce that can be produced from the property, taking out the construction and development costs, regardless of whether revenue is generated from selling homes or leasing commercial space, Lenhart said.

To lump all land sales into a single price category can be misleading, he said.

Land prices may fall another 10 percent to 15 percent this year, depending on zoning and location, Lenhart predicted. Land owners who did not sell in 2010 are waiting for higher prices, but with home sales and prices still declining, homebuilders won't pay as much as they did in 2010, he said.

"Consequently, I think it may take a couple low-land-sales-volume quarters until builders and land owners find some common ground, so to speak," Lenhart said. "It's about having realistic expectations. We're not going to get back to where we were during the boom. If it increases at the rate it did in the past, we're in trouble again."

Lenhart said he expects residential land to outperform commercial in 2011. He doesn't see a significant increase in total year-over-year sales volume, excluding transactions in the resort corridor.

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