Fay Ranches Market Summary 2010 Q1 Newsletter

by: B. Elfland and Mike Jorgenson of Fay Ranches

In this “Market Summary” section our goal is two-fold; summarize recent activity in the ranch real estate market, and provide insights, and rational expectations for what the future holds. Prior to the end of 2009, we experienced so many uncertainties, and such a low volume of sales, that it was difficult to generalize in either direction. With the benefit of time, and several recent sales, our job has thankfully gotten a little easier.In the last few months of 2009, Fay Ranches was fortunate to close on the sale of both the Lane Ranch, and the Schroeder Ranch. That momentum carried forward into 2010 with the sale of the legendary Sun Ranch in January, and a handful of smaller transactions. These transactions represent a large percentage of the overall market, but when combined with other sales that have occurred, yield some meaningful conclusions.

How Much have Prices Dropped?
It’s difficult to generalize about pricing due to two factors: low sales volume, and differences in market segments. The volume of sales has improved significantly in the last several months, but there still isn’t enough data to provide any definitive evidence. In broad terms, average sales prices have corrected 20-40% from their peak pricing. In most cases, that indicates prices stabilizing at 2005-2006.

The highest discounts have occurred on speculative investment property. Demand for new development has evaporated, and in some cases there isn’t a market for that asset class at any price. Recreational property in areas that experienced the greatest price appreciation has also fallen in inverse proportion. “A grade” properties have shown a lower reduction in value, and a higher level of buyer interest. Overall interest in these properties has remained strong, indicating a continued demand at adjusted prices. Agricultural land in our area experienced a rise and fall, though less dramatic than other property types. We continue to see investor interest in productive farm ground, and properties which can offer a multitude of potential revenue streams.

At this time last year there was a blanket expectation for a 20-25% reduction in the asking price of listed properties. It’s worth noting that many new properties have entered the market at prices which reflect the current environment. As a result, the idea of “percent off asking” as a barometer for value may no longer yield an accurate assessment.

What's Selling?
Large, high amenity ranch properties have experienced the greatest activity in the current market. The properties that have sold enjoyed unique water resources, wildlife diversity, access to wilderness, and public or protected lands, or a combination of those, and other special attributes that make them very difficult to replace. In short, “A grade” properties have proven to be the most liquid, and continue to generate the most interest looking forward.

Who's Buying?
Although the number of buyers in the market has diminished, our buyer profile has remained relatively unchanged. Most closed sales have been to private individuals and entrepreneurs from across the country. Additionally, we’re finding institutional investors are very active in today’s climate as investor confidence continues to stabilize. This year may provide some of the best opportunities in recent memory for investors to capitalize on current market conditions.

What are Buyers Looking for?
Buyers are looking for the highest quality properties at the best possible value. It’s a buyer’s market, and most of them expect to “have their cake and eat it too.” However, in many cases the most aggressive buyers have been unsuccessful in making purchases. The auction-like, foreclosure driven environment that exists in some areas of the residential market has not occurred in our ranch sector due to the finite nature of the property involved. Although most sellers in our market are long time owners or high net worth individuals, we’ve seen some instances where over leveraging created a distressed sale environment, and expect to still see a limited number of these opportunities this year.

Although the vast majority of sales in our market have been amenity driven or recreational in nature, there is a greater awareness among buyers as to the production components of a ranch. It’s logical that questions about operating costs and production capability have become more common and examined more closely.

Why Buy Today?
It’s easy to understand the wide array of opportunities currently available to buyers in the market, but why buy ranch real estate today? We feel the primary motivation is two-fold: investment and enjoyment.

Not only is this potentially the best buying opportunity that many of us will see in our lifetime, but there are also more exceptional legacy properties available than we’ve seen in many years. Prices are well below peak levels and for those interested in a long term investment there is security in owning an inflation resistant, finite resource like ranch real estate.

Enjoyment of the property is equally significant. Few other investments provide the rewarding opportunities for stewardship, enhancement and growth that unveil themselves to landowners. The ability to share that experience with friends and family and pass it along to future generations is tremendously satisfying. Ranch personalities are as unique as their owners, and while it may be a stretch to describe a ranch as an equivalent of a soul mate, there is no question that this is a great time to find the perfect ranch for you.

Why Sell Today?
While the immediate outlook may seem less rosy for sellers, it’s reassuring to know that western ranch real estate has held up very well relative to other real estate classes. Relativity also applies to those re-investing in the current market. For owners of amenity rich properties there is solace in knowing that those unique resources are of limited supply, and as is often stated, “They aren’t making any more of it.”

Lastly, we’d like to say thank you to all our friends and associates for your continued support and confidence. All of us at Fay Ranches value our relationships, and look forward to working together in the future. If you have ideas or any feedback you’d like to share, please don’t hesitate to contact us at any time.