‘More pain to come in this Vegas land market’

By Buck Wargo

Sunday, March 1, 2009 | 2 a.m.

Some Las Vegas residential land has no underlying value, and it’s only going to get worse, one land expert says.

The slowdown in home construction that saw builders close on 284 homes in January and fewer than 10,000 in 2008 is depressing the market to the point some residential land in essence has no value once improvements are excluded, says Craig Cherney, director of Western operations of Philadelphia-based American Land Fund, a private equity land acquisition group that buys raw land and gets zoning and other government approvals.

Cherney is seeing finished residential lots sell for $25,000, which is a 20 percent to 30 percent discount of the underlying land improvement costs. That means finished lots are trading at a discount and the underlying land at many nonprime locations for residential development has virtually no value in today’s distressed market, Cherney says.

“Until the valley works off the immense overhand of foreclosures of resale properties, I see no reason why residential land demand would improve or otherwise increase in value,” Cherney says.

In addition, the large public homebuilders only add to the problem with their new-home inventory, which must be discounted and priced to levels that can compete with foreclosures, says Cherney, who calls it the perfect storm.

“If you’re not in the marketplace every day, it may be tempting to believe that this is only a temporary problem,” Cherney says. “To the contrary, the land market is far from finished with respect to wringing out the excessive speculation and greed that put us into this situation to begin with.”

Cherney says he wouldn’t be surprised by another 50 percent decline from current market values. Declines of that magnitude are happening in Phoenix, where finished lots are trading for as little as as $11,000 — less than half the price in the Las Vegas Valley.

“The last I checked the median sales prices of homes in both Phoenix and Las Vegas were very similar in the mid-$150,000 price range. If houses are more or less selling for the same amount in both markets, why should Vegas finished lots be priced at twice or more of the values trading in Phoenix?” Cherney says. “The answer: They shouldn’t be.

“There is more pain to come in this Vegas land market. The fundamentals of supply and demand are alive and well and will ensure further declines into 2009. This washout is far from over.”

Most land loans coming due relate to inflated transactions that occurred from 2005 to 2007. Any equity that had previously existed in these land assets has been wiped out compared with today’s drastically reduced prices, he says.

A version of this story appeared in this week’s In Business Las Vegas, a sister publication of the Las Vegas Sun.