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October 1, 2016

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Las Vegas land isn’t dirt cheap, but here’s why it isn’t selling like it once was

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Eli Segall / Las Vegas Sun

A damaged sign advertising land for sale sits near the southeast corner of Las Vegas Boulevard and Cactus Avenue on Friday, Jan. 8, 2016.

Las Vegas once was a hot spot for land speculators, who couldn’t get enough desert tracts to develop or flip to other investors.

Sales evaporated with the recession and recovered a bit a few years ago. But today, the land business has downshifted again.

Investors have pared back on purchases amid rising prices, a shrinking inventory of choice parcels, the still-wobbly economy and slower population growth, industry pros say. Buyers left hundreds of acres on the table at government auctions last year, are passing on properties on or near the Strip and aren’t making nearly as many speculative purchases as they did when the pre-recession real estate bubble was inflating.

The land market has by no means dried up — some believe it’s just hit more-normal levels, and that sales volume could rise.

But in a sign that Las Vegas’ roaring growth of yesteryear won’t return anytime soon — which is likely a good thing, considering how badly it all ended — land isn’t selling like mad anymore.

Buyers picked up about 2,700 acres of land in the Las Vegas area last year through 334 transactions, for a median price of around $317,000 per acre. That compares to about 2,400 acres in 2014 through 364 deals, at a median price of about $287,000 per acre, and just over 3,000 acres in 2013 through 367 deals, at a median $211,000 per acre, according to data provided by John Stater, Las Vegas research manager for brokerage firm Colliers International.

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By comparison, investors bought more than 10,000 acres in both 2003 and 2004, and prices soared to a median of about $960,000 in 2007, before the U.S. economy nose-dived and the bubble exploded in Las Vegas.

“This is a real market, and I don’t think it’s going to bust easily,” said investor Khusrow Roohani, owner of Seven Valleys Realty & Construction.

Southern Nevada's once-battered real estate market has improved in recent years, though it's still bogged down by underwater homeowners, foreclosures, slow-to-no-growth in wages and high vacancy rates and low rents for various commercial property, all of which crimp demand for construction and land. Las Vegas’ population is growing, but not nearly as fast as it once was, further dampening the need for new projects.

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But as the economy mends, construction has picked up from the depths of the recession, thanks in large part to apartment and warehouse developers. Some observers have questioned whether investors are overbuilding, but so far, demand for space appears strong.

If that continues, Stater said, investors would buy more development sites, although demand for new parcels would likely be smaller than it was, say, 10 years ago.

"We're probably back to a more-normal market for land," he said.

The supersized deals of last decade have all but disappeared, but acreage still sells in big chunks and at big prices.

Prices for apartment sites, for instance, have soared the past few years. Developer Eric Cohen, co-founder of the Calida Group, said it cost around $500,000 to $600,000 an acre for quality locations, and that Calida was buying a 15-acre site for $850,000 per acre.

Five or six years ago, his group paid about $180,000 an acre for fully graded land.

“It was pretty crazy,” he said.

Overall, sales volume is higher than it was during the recession; investors bought around 1,100 acres in both 2010 and 2011. But buyers scooped up more than 3,000 acres in both 2012 and 2013, Stater's data show.

Homebuilders were grabbing more property amid an influx of home buyers who had been squeezed out of the resale market by investors, who were acquiring cheap homes in bulk to turn into rentals.

Those home investors have since backed out of Southern Nevada in droves, making it easier for locals to buy a used house again. At the same time, new-home prices haven’t grown as fast as land prices, said broker Rick Hildreth of Land Advisors Organization, dampening construction.

Builders sold about 5,500 new homes in 2012; 7,300 in 2013; 6,000 in 2014; and 6,100 last year through November, according to Las Vegas-based Home Builders Research.

Homebuilders pushed up land prices during the brief buying binge. But now, brokers say, landowners often are asking too much.

Land investor and broker Scott Gragson, of Colliers, said a number of sellers are “asking more than what homebuilders are willing to pay.”

“If builders want to lower their profit margins, there’ll be more land sales. ... Personally, I don’t know any builders that are willing to do that,” Home Builders Research founder Dennis Smith said.

Another issue: Although the valley has plenty of vacant land — much of it’s owned by the federal government and available for sale through occasional auctions — some industry pros say there’s a shortage of desirable, developable property.

Homebuilder Larry Canarelli, founder of American West Homes, said builders were “having a very difficult time finding land to assemble in the southwest” valley, the top-selling submarket.

That, however, can lead to lucrative opportunities.

Canarelli noted that he and Olympia Cos. founder Garry Goett teamed up to buy 160 acres of raw land for $5.15 million through a federal auction. They closed on the sale last May — and then flipped 83 acres of it in October to builder Richmond American Homes for almost $31 million.

Most of the large, publicly traded homebuilders that dominate Las Vegas' market tried to acquire the land, Canarelli said.

"It is just impossible to buy a site of this size, especially in the southwest part of the valley," he said.

There was a shortage of land even during the boom years, Smith said. That wasn’t a problem during the recession when Las Vegas’ construction industry collapsed, but the shortage remains, he said.

In many cases, vacant land here is raw desert with no underground utilities, making development costs more expensive, a possible turn-off in today’s far-from-roaring market.

“Just because there’s land doesn’t mean it’s usable,” Smith said.

Perhaps reflecting that are recent U.S. Bureau of Land Management auctions.

During the boom years last decade, homebuilders flooded BLM auctions, spending huge sums for massive chunks of land. In 2005, for instance, developer John Ritter’s Focus Property Group led a consortium that paid $510 million for roughly 1,700 acres, or $300,000 per acre, in northwest Las Vegas. Months later, Goett led a group that paid $639 million for 2,700 acres, or around $237,000 per acre, in North Las Vegas.

At a 2002 auction, a BLM spokesman said the “energy and electricity” at the packed event “was simply breathtaking.”

“I wasn’t even bidding, and my stomach was churning,” he said.

That frenzy is long gone.

Last May, investors bought almost 358 acres at a BLM auction for $19.2 million, or $53,700 per acre. But they passed on 240 acres that also were offered that day.

In November, investors bought around 260 acres at auction for $32.6 million, or about $125,000 per acre — leaving 365 acres on the table.

Sales also are slow-going in and near the resort corridor. Broker John Knott, head of CBRE Group’s global gaming group, said recently that the land market there had “just kind of stayed stagnant,” even though prices of some properties have been "fair and reasonable."

“We have several properties that are on the market, and none of them have really sold,” he said.

Meanwhile, speculative land-buying was all too common during the bubble, and although it’s not as prevalent today, it hasn’t completed faded.

Last summer, for instance, an investor bought 72 acres of bank-owned land in rural Pahrump, about 60 miles west of Las Vegas, for just $50,000, or $694 per acre.

At the time, listing broker Grant Traub of Colliers said it was a speculative purchase, and the buyer “had some cash he wanted to invest.”

“As I understand it,” he said, “there were no plans whatsoever for the property.”

Even if land sales pick up again, at least one person doesn't want a return to frenzied boom years.

Hildreth, of Land Advisors, said he'd like to see steady growth but not the "insanity" of the real estate bubble.

"Because that's what it was: insanity," he said.

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