A 159-acre tract of farmland west of Zionsville that once listed for $3 million sold in late September for about a third of the original asking price.
Another farm, this one 55 acres and on the east side of Boone County near Indianapolis Executive Airport, has been discounted nearly 20 percent and is available for $1.3 million.
Though the properties are in the same county, they illustrate a broader quandary among owners of suburban farmland across the Indianapolis area. Farmland at the edge of sparkling new subdivisions, office parks and warehouses fetched top dollar for development before the economy tanked, but its value has plummeted so far that experts now struggle to put a value on it.
“We’re going through the biggest re-pricing of real estate in the history of the modern world,” Colliers International broker Ross Reller said. “That’s not an overstatement, that’s a fact.”
Reller listed the 159-acre tract just southwest of Interstate 65 and State Road 334 for a unit of Columbus, Ohio-based
Huntington National Bank, which took the property back from previous owner Fellowship Investments. Reller wouldn’t divulge some details, but said the property sold for more than $1 million but less than the $1.75 million asking price.
Despite the markdown, Baptist, which owns the 150-acre Hoosier Village seniors complex near West 96th Street and Zionsville Road, pulled off the purchase only because it had the cash on hand.
In this depressed real estate market, cash is definitely king. In fact, that’s about the only way deals are getting done.
A lack of traditional bank lending, coupled with tepid demand for new development, is making it far more difficult than ever to value land considered attractive to both commercial and residential builders.
Another reason land isn’t moving—and perhaps the most important—is that owners are reluctant to part with their property until prices rebound. They know what it brought five years ago and would rather wait for a turnaround instead of letting it go at such a bargain.
In Hamilton County, a piece of ground suitable for residential building five years ago could have brought $70,000 an acre, and land purchased for office or retail-type use could have commanded $400,000, particularly if it was a prime location, said Steve Pittman, president of the Carmel-based Pittman Partners development firm.
He declined to even venture a guess as to what the same land might be worth now.
“I couldn’t say today what that [price] is because no one is selling,” he said. “The only land transactions I’m seeing, and they’re few and far between, are when the bank is foreclosing.”
In the case of the 55-acre parcel near the airport in Boone County, the owner, who has possessed the land for several years, has agreed to knock $300,000 off the original $1.6 million asking price. But it’s doubtful he will let it go for less, said Abbe Hohmann, another broker at Colliers International, who is representing the seller.
His thinking: “I’m willing to be more aggressive, but if somebody thinks they’re going to buy it for 30 cents on the dollar, then I’m not going to sell it,” she said.
Counties, which rely heavily on property taxes to fund local school districts, can be grateful that the drop in farmland values near developed areas is not reflected in assessed valuations.
That’s because farmland zoned as such is assessed strictly for its use, no matter how much the value drops or rises. The safeguard protects farmers from huge pricing swings, said Larry DeBoer, a Purdue University agriculture professor.
“The reason for that is, if you’ve got the family farm, and they tax you on the commercial prospects,” he said, “you’d never be able to farm it.”
No reason to get excited
Plenty of properties tagged for commercial development, such as the one near Zionsville recently purchased by Baptist Homes of Indiana, have been repossessed by banks.
Cincinnati-based Fifth Third Bank, for instance, has been battling in the courts for more than a year to regain ownership of a high-profile piece of property in Fishers where a hotel and water park are supposed to be developed.
Fifth Third filed a complaint in July 2009 against Indianapolis-based Puller Group in an attempt to foreclose on half of the 104-acre site, and is seeking to collect nearly $8.6 million owed on the balance of the loan.
Yet, bank foreclosures are just as prevalent, and maybe even more so, on land bought by residential developers. In fact, residential builders, like their commercial brethren, are mainly buying land that’s fallen back into lender hands.
One of the area’s largest home builders, Ryland Homes, hasn’t purchased “raw land” without infrastructure started by the previous builder in more than 18 months, said Alan Goldsticker, Ryland’s president for Indianapolis.
The five pieces of property it has bought during that time, in Boone, Hamilton and Hendricks counties, all had been foreclosed upon. The profit margins are much better when “people want it off the books,” Goldsticker said, as opposed to farmers who still may be asking prime prices, particularly when the demand is so tepid for new homes.
The Builders Association of Greater Indianapolis reported that new-home construction fell for the third consecutive month in August. The number of building permits filed locally dropped 18 percent in August from the same month a year ago, falling from 354 to 290. At the height of the housing boom, August 2003, builders filed 1,350 permits.
“The landowner, typically a farmer or farmer’s family, they know four or five years ago [the price] per acre that their neighbor got, was ‘X,’” said association CEO Steve Lains. “If they don’t need to sell, they’re not going to take ‘Y’ on that piece of land.”
In Hendricks County, the unfinished Persimmon Grove subdivision along Ronald Reagan Parkway has been repossessed from Chicago-based Portrait Homes. The bank, which declined to be disclosed through the listing agent, is offering 32 finished lots, or 64 home sites, for $512,000, and a second phase, which includes 50 unfinished lots, or 100 home sites, at $250,000.
Goldsticker at Ryland remains optimistic the economy will gain enough traction to enable his company to begin scouting zoned but undeveloped parcels for residential projects.
But in the near term, he said: “The farmer shouldn’t be getting excited right now.”•