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Insider Q&A hears that land market’s ‘non-existent’
October 6th, 2007, 12:18 am · 29 Comments · posted by Jon Lansner/O.C. Register columnist
Homebuilders, particularly the ones with shares trading on public stock exchanges, are dumping land and projects en masse. We figured that meant it was time to hear what a square foot of dirt was worth these days. So we chatted with Tom Reimers, executive VP at land broker O’Donnell/Atkins from Irvine ….
Us: What’s the market for raw land in SoCal and Orange County today? What’s the outlook?
Tom: In general, the residential raw land market is non-existent. Land values and deal flow for other types of product are more stable right now, but the credit/financing crunch is squeezing those values as well. Orange County benefits from scarcity of raw land and a great location. Relative to other Southern California land markets, O.C. is holding up well. Buyers are few and far between. Many that have available capital are waiting to try and time the bottom of the market. There is a perception of distress entering the land market 9 months to 12 months out.
Us: How are prices?
Tom: It’s hard to say. With few to no buyers, it’s hard to say what land is worth. There are no transactions to set a benchmark. In some tertiary markets, the land is worthless from a residential development standpoint due to costs to develop being higher than the land value.
Us: Are any new deal structures being used to accommodate these tough times?
Tom: There is no shortage of groups who are looking to take publicly
owned homebuilders’ land assets off their balance sheets. We are also seeing more long-term options with small incremental lot closings — “rolling takedowns” in builder jargon — that mark the land to the market price at each takedown. Builders will not take on entitlement or development risk and are trying very hard to structure
out market risk in their transactions.
Us: We often hear builders have long-term outlooks … then we see many big builders walk out on options on land. Have things changed?
Tom: At the peak of the market, builders were so long on land that a negative jolt to their absorptions — the finished home sales rate — pushed 4-year to 5-year land pipelines out to 10 years or more. The properties to deliver lots the last were the ones that got dropped. My prediction s that most publicly owned builders will only control enough land to supply 2 years to 3 years of building activity at today’s absorptions. But the inverse is also true; if absorptions accelerate, they could find themselves needing land faster than anticipated.
Us: We’ve seen some entities formed to be, we’d guess, bottom-fishers if the market softens further. Are these folks nibbling yet?
Tom: This is the capital referred to earlier. The turmoil in finance markets coupled with weak absorption are what will cause the distress. Opportunities are beginning to appear and offers are being submitted. However, not much has been consummated yet. The pace of transactions should accelerate through the middle of next year.
October 6th, 2007 at 1:14 am
this guy knows his stuff and Rants is a pedophile.
October 6th, 2007 at 7:03 am
If building is coming to a stand still and builders have a supply of land to accommodate only 2 to 3 years of building, which they won’t actively pursue until they move their present back log of homes, then buyers will have to return to the resale market. With rents skyrocketing, prices softening and interest rates dropping, prices in those depressed zip codes of Santa Ana , Orange, Anaheim could become very attractive to the DINKS, dual income no kids, and the yuppification of Central Orange County could begin. If you don’t believe it just remeber what happened to Burbank, Glendale and Pasadena in the late ninties.
October 6th, 2007 at 8:32 am
LOL, two great takes. Now we can sit back and watch all the experts who make 50k a year tell us what a moron this guy is and why they know so much more then he does about real estate.
October 6th, 2007 at 8:36 am
Mr. Reimers is good at Greenspan-speak. Here is the brutal truth: That $600,000 plain-vanilla tract house next door to you? It’s not worth $600,000. Not $500,000. Not $400,000. Not $300,000. When this is finished shaking out, that plain-vanilla tract house will ultimately sell for between $250k-$300k, max. The person who buys it will be a person who actually wants to live there for the next few decades, instead of treating it as a “cashflow”.
October 6th, 2007 at 9:31 am
richard and trader chris…can you tell me what else this guy is saying besides the obvious statements I hear all the time?
Land - There’s a lot of it but not a lot of land where you can still buy and build for a profit.
Demand - Developers dumping some land and are not willing to lower the prices far enough for private owners to buy but he sees potential here.
Prices - There have not been enough transactions to put a price on land.
October 6th, 2007 at 11:20 am
whats non- exisistant are anymore sheep to buy over-priced
houses
richard t bagley dude WTF is your problem didnt your mommy give you enough attention thats too damn bad
get over it already
October 6th, 2007 at 11:51 am
Market “non-existant,” land “worhtless,” “rolling takedowns.” Just another perfect day in sunny California!
October 6th, 2007 at 11:56 am
Trader Chris,
You called it.
October 6th, 2007 at 12:03 pm
ter·ti·ar·y
(tûr’shē-ěr’ē) Pronunciation Key
adj.
Third in place, order, degree, or rank.
(As in the inland empire?)
“Orange County benefits from scarcity of raw land and a great location. Relative to other Southern California land markets, O.C. is holding up well.”
October 6th, 2007 at 12:35 pm
Landbrokers telling their clients that the dirt they just bought 2 years ago is now worthelss! That has to be a tough converstion.
October 6th, 2007 at 1:59 pm
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Countrywide can help.
October 6th, 2007 at 3:09 pm
Ghost, I’m a bit of a sourpuss, but that was good enough to be my first ever Internet LOL!
Thanks
October 6th, 2007 at 4:53 pm
Another satisfied customer.
Another example of how Countrywide can help.
I can’t help but notice the name, though…patientrenter.
Are you aware that renting has been outlawed by California state statute #234554.444.4443.664? Yes, it’s true.
You’ll need to take out a loan from Countrywide as soon as possible, otherwise you may be ‘revised’, just like the latest unemployment numbers. Human Revision can be painful.
We’d never lie to you, or mislead you, at Countrywide.
We’re currently working on a way to revise Jon Lansner.
We’ve started with shaving his beard and moustache. Next, we will revise the shirts he wears on television. After that, we’re going to revise his blog, so we don’t have to put up with these pessimistic, annoying, bubble perpetuators that fill the public mind with nonsense.
According to our numbers, the Orange County median price is actually up 6.3%, and Jon is only 28 years old.
Countrywide can help.
October 6th, 2007 at 4:55 pm
I heart Ghost..
October 6th, 2007 at 5:35 pm
Don,t you just love that red arrow?
October 6th, 2007 at 5:54 pm
Rev,
Hope you’re ready with cash and awesome credit.
Wouldn’t want the train to roll through town too soon and leave you on the platform.
October 6th, 2007 at 6:00 pm
Richard and Trader, what in the interview makes you think that he is painting a good picture? I guess him saying prices are holding, however with no buyers as he says how long do you think the prices will continue to hold? If you take any commodities with out buyers how do you expect people to deal with inventory?
However, not unlike the NAR he believes that this is going to pick up next year - we will see how that works out for him.
October 6th, 2007 at 6:01 pm
Patricio,
The Irvine Company, for one, will wait as long as it takes.
They are already in hibernation.
They can take care of themselves just fine.
October 6th, 2007 at 6:21 pm
Trust me I know they are going to wait and have more cash than God, but it is the smaller players ie the majority of the market that will have to weather this….I suspect this is where the butter meets the bread as they say.
October 6th, 2007 at 6:30 pm
OK.
What percentage of raw land in Orange County do you think is not controlled by TIC?
I really don’t know for sure, but I would guess they control a huge chunk of it.
The Great Park may be another question.
October 6th, 2007 at 9:24 pm
Reverend,
That is not a red arrow! It is the the bloody red flag!
A flag Painted with the blood of bullish souls! The ‘V’ stands for VICTORY!
Listen to the bears roar !
GRRRRRR
October 6th, 2007 at 10:20 pm
TIC still owns a lot of acreage but not all.
Rancho Missio Viejo is not owned by TIC
Marblehead is not owned by TIC
El Toro Marine Base is not owned by TIC
Tustin Airbase is not owned by TIC
The 10,000 condos in planning at the Platinum Triangle and the 10,000 condos planned in the Irvine Business Complex are not TIC owned.
October 6th, 2007 at 11:29 pm
I guess you are back to being a censoring a-hole Lansner.
YOUR BLOGGER: New technology automatically sweeps a lot of junk (like swear words and multiple links) into the spam filter and … I don’t have time to rummage through that mess for one or 2 legit posts … so keep it clean, civil and no more than 2 links!
October 7th, 2007 at 3:57 am
trader chris,
If I made more than $50k a year and had connections to homebuilders and land developers would you take my opinion seriously?
I think you are being unfair to those who post here. Yes many may seem extreme bearish or bullish but for you to pigeon hole the highly critical of RE is weak. I mean when I asked you about CFC when it was at $40 and you said it was emotion to say it would go down. Well I didn’t listen to you and I went short. You have been right more times than not but sometimes the ones you are being critical of are right.
Relax and do not take everyone here seriously. But respect those that have made good decisions just as many here have respected you for selling high and buying low. I do not understand your lashing out and why you will not respond to me. I find it rather weak.
I find that the most successful are the ones that are the most humble. I also find that I struggle with that everyday and hope that one day it will not be a struggle. It seems you no longer care and you may not even see how you have become one of the people the bears criticize.
BTW land sales are dead. There no bids for the ask. If you or this guy really thinks that land sales are going to come back in the next year you are kidding yourselves. We have a long way to before they come back and the ones who are going to make money of this are the ones who have the cash to do so.
October 7th, 2007 at 6:52 am
The land market will only come back when the builders need more lots. As stated in the article, builders are selling a fraction of the homes today than they were when they bought their current land positions. Therefore, they have several years worth of land inventory.
The real problem for them is three-told. They bought way too much land at peak prices (2004-2006) with the expectation that the home prices would support the land purchases. Now (2007-08) they have very expensive land, the home prices have shrunk and they are selling fewer homes. Even if the homes sales velocity picks up (once the builders give enough price cuts and concessions), their profit margins can’t cover the cost to carry the bad land purchases. That is why they are writing off hundres of millions of dollars each quarter in the value of their inventory (land and standing homes).
It is a bad situation. I wouldn’t bet on 2008.
October 7th, 2007 at 1:06 pm
Well, it looks like ROC might have to find a new career.
Two new laws just passed by Gov. Arnold Schwarzenegger, one prohibits real estate agents from pressuring appraisers to inflate property values.
http://www.kcra.com/news/14282211/detail.html?rss=sac&psp=news
October 7th, 2007 at 3:53 pm
Bill,
Keep on spreading your lies - you POS.
October 8th, 2007 at 12:28 pm
Anybody else have reservations about this Great Park?
We have the builder giving rides on that giant orange balloon so folks can see their new developments nobody is buying - and from the air one can see the future “Great Park”, with untold millions of taxpayer dollars squandered on the worlds largest weekend picnic ground and soccer field - benefiting who?
October 9th, 2007 at 2:35 pm
Make the Great Park an international airport!
It is going to be pretty expensive (on a per unit basis) to fund the Great Park now that homevalues are down 30%.