A Look At The Value Of Land Investment In 2021

While the COVID-19 pandemic drastically altered the commercial real estate landscape, it was perhaps a driving factor in the success of the land sector during the year 2020. In a survey conducted by GlobeSt., nearly 22% of land brokers experienced a significant increase in business during the pandemic, while 33.6% of brokers only saw some growth.

 Land values also rose last year between 1% and 5% according to survey respondents.  Recreational and farmland were top performers in the year, rising in value 50.9% and 18% respectively.  The sector also experienced record-breaking sales volumes during the second half of the year as investors found a safe haven in land investment.  Experts predict that 2021 is on track to be an even better year for those in the land sector.[i]

At the end of 2020, 48% of Americans, if given the choice, would prefer to live in a town (17%) or rural area (31%) over a city or suburb, compared to 39% in 2018.  The numbers show people are less interested in living in the suburbs specifically, as that percentage dropped 6 points from 31% in 2018 to 25% at the end of 2020.  If people do begin migrating from the cities and suburbs into exurbs and rural areas, the price of land in these areas will start to rise, and experts predict the land market will grow rapidly.

Traditionally, land has been perceived as an alternate investment, and though it likely will not become a mainstream line on investment, expert Omar Eltorai predicts it is likely to start gaining some serious traction, especially if institutions begin moving into this space.  Eltorai says, “The movement of institutions into this space is likely to speed up consolidation that’s already been underway.  The number of farm owners really has been declining, but that’s not a new story.  It has been happening for decades.”[ii] Advances in agricultural technology have allowed for farmers to optimize their land by identifying soil best for growing crops among other things, leading to crop rotation and harvest schedules.  These advances in technology are leading to consolidation, and the prospect of institutions moving to these areas would only hasten the rate of consolidation.

Environmental factors also play a role in heightening the appeal of land investment.  As environmental, social, and governance (ESG) factors are beginning to come into the picture, businesses will likely begin to take a closer look at their environmental impact, whether by choice or out of necessity.  Eltorai says, “There is a new potential income stream, and that potential income stream will ultimately be increasing the value of the land and anything that’s essentially grown on it.”  He also notes that as new carbon markets begin popping up, it creates other new potential income sources for productive land such as croplands and forests that play a key role in capturing and storing carbon.  While these new streams of income will probably not be enough to replace the primary use of this rural land, it will absolutely benefit the properties and increase land value.  No matter the driver, big money and investment in the land sector is likely inevitable.

70 ACRES WETLAND TRANSACTION CASE STUDY

 There can be opportunity in land investments even when it appears there may be too many obstacles to overcome.  Recently, a 70-acre parcel located in Marion County, Indiana had been on the market for several years with little to no interest from potential buyers due its difficult nature. The parcel was comprised of 40 acres of floodplains and wetlands leaving only 30 acres usable for development, with the usable land being split on opposite corners of the site in different zoning districts. Ten acres of the site were previously sold to another entity who had utilized wetlands in a nearby area. That land had also become government regulated as part of the wetlands mitigation trust, leading to further difficulties with sign off.   Additionally, a portion of the site was also deemed potentially environmentally hazardous as it was previously used as a recycling center.  Due to the complex nature of the land, the value was incredibly difficult to determine and an interested buyer in the site was hard to come by.

The seller hired Bradley Company broker, Mike Horrigan, Senior Vice President and Director of Land Services, as the listing broker on the site.  One of the opportunities Mike identified was that there was potential value creation for the property owner just north of the site. Mike collaborated with the other entity’s attorney and facilitated communication on both the buyer and seller’s behalf, along with the entity responsible for the trust, in order to resolve the challenges presented by the wetlands mitigation trust.  He also worked diligently with the buyer and seller to ensure the proper parties signed legal releases claiming responsibility in order to resolve the problems faced due to the potential environmental issues.  Mike’s facilitation between the parties and tenacious work ethic resulted in a successful transaction for all parties within a year of taking over the listing.  Mike’s determined spirit and unparalleled expertise in the land sector served him and his clients well.

Sources:

[i] GlobeSt.com – Rural Land Brokers See an Increase in Business

[ii] GlobeSt.com – Land Poised to Become a More Popular Investment

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