Dirt is Depressed, But it Ain’t Dead (Opinion)

I won’t say which real estate deal it was. It was a big one, and it was in Northwest Arkansas.

There we stood, three developers and I, on a pleasing mountain morning just days after their land acquisition had closed. They wrestled plat maps of the streets and lots they would develop, drawing pictures of storybook homes and commercial buildings with their fingers across the nowhere.

They bragged about introducing practices that would revolutionize the way major developments are done in Arkansas. Luxury cars and SUVs caravanned to the best overlook site to admire the pupa of a prairie they would turn into a butterfly.

“Attaboys” were contagious.

After 11 years with this publication, I remember that particular multi-million dollar development because of two reasons:

The buyers laughed, off the record, about the sellers feeling they had “left too much money on the table.” And because the deal mostly became a flop.

Maybe “flop” is too coarse of a word. The property is developed, and well done. But the real estate market reversal turned it into a “white elephant” that trampled one developer and seriously injured the others.

Although the original owners thought they should have gotten a lot more for what amounted to pastureland, the price exceeded what the land could ever bear out as developed property.

In hindsight, the sellers caught it just right.

They were probably one of the last local farm families to land the real estate equivalent of Willie Wonka’s Golden Ticket — at least for the foreseeable future. In today’s market, the same acreage would fetch maybe half as much with motivated sellers, buyers and lenders involved.

Penultimate paydays aside though, “dirt” isn’t dead.

We enlisted the help of technology solutions provider Revolution Technologies Inc. of Rogers and its proprietary IDX Engine 3.0 to analyze land listed for sale through the Arkansas Regional Multiple Listing Service.

The ARMLS figures include all of Northwest Arkansas, the Arkansas River Valley and their traditional surrounding areas.

As of June 9, there were 86,125.13 acres for sale categorized as “Land,” and another 16,253.32 acres classified as “Farm.” Obviously, that does not include “For Sale By Owner” postings or properties that are being discreetly shopped for offers.

That’s more than 102,378 acres of developable or farmable land for sale in the state’s northwest corridor.

For buyers who can manage their debt service, this really may be the perfect time to “warehouse” land for future commercial or even residential use. There are deals to be had for the right buyers.

As with any speculative investment, there are piles of considerations to sift through. Buying dirt today means looking at comps (if relevant ones are even available), submarkets and whether you can get the parcel at market or below-market cost.

Even with pressured prices, land owners can be motivated by their own set of issues. They might have another business agenda, or there might be a personal matter such as a divorce, marriage, death, health issue or other circumstance. The deal also just might make sense.

Local experts say the most essential consideration for everyone involved is the oldest real estate watchword in the book: location.

Is this property going to be in the path of future growth? There are always a lot of formulas and assumptions involved, but good instincts and luck also play a role.

Particularly in today’s land market, you are better off navigating with an experienced professional.

There are plenty of local Certified Commercial Investment Members (CCIMs), Realtors, appraisers and inspectors to help.

Existing commercial buildings are under similar pricing pressure and might also be worth a look. Local specialists say the sales range in that sector is more like three to four times multiple of gross (MOG refers to gross collections).

That’s well down from boom years, and also depends on a variety of factors such as whether the structure is in disrepair, access and a variety of outlooks.

For land or buildings both, there is pent up property and opportunity locally. With more grounded valuations out there, it’s probably time for commercial buyers with good instincts and capital to get down and dirty.