Ultra-cheap residential land is disappearing quickly as home-building activity rebounds from the Great Recession.
One local developer reorganizing in bankruptcy court is selling residential parcels in Avon, Fishers and Carmel at prices far below what it paid.
Most tracts are fetching nowhere near what they could command during the housing boom. But as new-home construction heats up, demand is building for undeveloped property, and prices have begun to rise.
“We’re starting to see it come back,” said Bill Flanary, a senior vice president in the land group at Cassidy Turley. “Not like anywhere near the prices we were getting five years ago, but we’re seeing some activity.”
Land prices are at levels about one-third below what they were before the collapse in 2008. For example, land in Avon that once brought $30,000 an acre now sells for $20,000, Flanary said.
That’s still relatively cheap, but hardly as inexpensive as the last remaining parcels of bank-owned land taken back from home builders that fell into bankruptcy.
RH of Indiana LP, a local division of California-based Ryland Homes, has offered to buy 113 acres of undeveloped land in the Western Hills development near Avon for $1.25 million, or just $11,061 an acre. The current owner is Indianapolis-based Platinum Properties, which is reorganizing in federal bankruptcy court.
The offer is far below the $4.6 million principal left on Platinum’s loan from First Merchants Bank, which equates to $40,707 per acre, according to federal bankruptcy court documents.
Platinum, an upscale residential developer, filed for Chapter 11 in April 2011 and is attempting to restructure its debt under the protection of bankruptcy.
“We’re getting through those distressed properties,” said Alan Goldsticker, the Indianapolis president for Ryland Homes. “We’re running out of them and now we’re working on market-valued land as opposed to discounted values.”
Another builder, M/I Homes of Indiana LP, hopes to buy land in Hamilton County also once owned by Platinum and taken back by PNC Bank.
Platinum owes the bank $16.2 million. But M/I Homes would pay $9.5 million, or $35,876 for each of the 264 acres spread over two developments: Westmont in Carmel and the Reserve at Steeplechase in Fishers, according to March 18 court documents. The amount Platinum owes the bank equates to $61,363 per acre.
That’s higher than what Ryland might pay in Avon, but still cheaper than the $100,000-per-acre price that some land in parts of Hamilton County could fetch before the housing bust, Flanary said.
Demand is much higher in Hamilton County, where a lot of the metro area’s building activity occurs.
About 43 percent of building permits filed in the first two months of the year in the nine-county area are for new homes in Hamilton County.
Overall, 669 building permits have been filed in the Indianapolis area through the first two months of the year, a 40-percent increase from the same time last year, according to the Builders Association of Greater Indianapolis.
Curtis Rector, owner of Indianapolis-based Arbor Homes LLC, can vouch for the uptick in building activity. At its Winter Meadows development in Avon, Arbor sold 20 homes within an 18-month period ranging from 2011 through mid-2012. Through just the second half of last year, Arbor sold 24 homes, Rector said.
“We thought we’d have home sites in front of us until mid-spring, but we’re out of lots now,” he said. “We’re desperately trying to get the next section in so we’ll have home sites in front of us.”
Home prices are appreciating, too, which is giving builders the confidence to purchase more property. Depressed home prices make it harder for builders to profit from their land investments.
Average selling prices for homes in the nine-county Indianapolis area rose 7.7 percent in February, to $144,225, according to the latest housing report from Indianapolis-based F.C. Tucker Co.
Despite the recent increase in home building, activity is far below pre-recession levels.
Almost twice as many permits—7,331—were filed in 2007 than the 4,182 filed last year. Yet that’s up from 3,614 in 2011, and it’s the first time the number surpassed the 4,000 mark since 2008.
Real estate pros favor the slow rise in land prices coupled with the increase in housing starts over an unsustainable rise.
“We were at stratospheric values of land for our local market,” said Ross Reller, director of land services at Colliers International who started in the industry in 1982. “I saw pricing I had never seen before.”•