A Cushman & Wakefield/NorthMarq Featured Article
Land sales in the Twin Cities are finally showing some welcome signs of life with both transaction volume and sale prices on the rise.
“Things are starting to percolate, although sales are certainly not at the fever pitch that they were in 2004, 2005 and 2006,” says Dan Russ, a vice president in the Investment Services Group at Transwestern in Minneapolis. “But, it is starting to move in the right direction compared to the past few years, which has been stagnant.”
Land sales did not completely grind to a halt in the wake of the residential and commercial real estate downturn. The sales that occurred from 2008 through 2011, however, were dominated by residential parcels that were in distress or in the foreclosure process. Those bank-owned sales are tapering off, and demand is surfacing for good land sites for both residential and commercial projects.
Year-to-date through August, Real Capital Analytics has noted more than 20 land sales that are earmarked for commercial or multifamily development projects, which range from a new Cabela’s store planned in Woodbury to a new medical office building slated for 10709 Wayzata Blvd. in Minnetonka. Land sales are back, and the improving economy is a key factor in that long-awaited recovery.
“The economy in the Twin Cities has outpaced the national numbers, which is a plus for land sales. We are ahead of a lot of other places in the country,” says Richard Palmiter, a vice president in the Land Services Group at CBRE in Bloomington.
One of the big drivers behind the renewed appetite for land is growing demand from all types of residential, including single-family, apartments, student housing and senior housing projects.
“Single-family, and good, strong suburban markets that are led by strong schools districts, are extremely hot,” says Luke Appert, a senior associate in brokerage services at Cushman & Wakefield/NorthMarq in Bloomington. “We’re seeing an unbelievable amount of activity for land sales on the single-family side.”
Even so, home builders are still leery of going too far out in the cornfields and are mostly staying within the I-494 and I-694 ring.
In-fill locations in Minneapolis, St. Paul and first tier suburbs such as St. Louis Park are in demand for new Class A apartment developments. For example, C&W/NorthMarq represented the buyer in the $4.85 million acquisition of the 3.55-acre site of a former Chili’s restaurant and an Olive Garden in the southwest quadrant of Highway 100 and Interstate 394.
That price tag puts the acquisition cost at a premium: about $30,700 per apartment unit. An entity related to Dolce Living Homes LLC of Hallendale, Fla., is planning to build 158 units of high-end apartments near the West End area of St. Louis Park. A number of interested bidders were vying for that project even though the land does not have entitlements.
“That is a good example of how hot this Class A apartment market is, and the risks that developers will take for an A+ type of site,” says Appert.
Although there has been a trickle of build-to-suit projects in recent years, momentum appears to be growing among industrial and retail projects, while office projects continue to lag as that sector of the market recovers.
Industrial developers are starting to buy land again for both build-to-suit and speculative projects in areas such as Shakopee, Roseville and Rogers. On the retail side, in-fill development projects have continued, and developers are acquiring sites for big box retailers such as Wal-Mart, Costco and Fleet Farm.
“Location, location, location. That is the driving force behind land sales,” says Palmiter. “Transportation corridors, school districts and job locations — people are paying a lot of attention to those today.”
Prices are on the rise
The return of development has bolstered land prices. Raw land value for residential development has doubled, or nearly doubled, in the last 18 months in some in-demand markets, noted Appert. For example, C&W/NorthMarq received five different offers on a residential land parcel it was selling in Cottage Grove a year ago. The property closed for about $40,000 per acre. The company is currently listing a parcel for sale in the same area with offers of nearly $80,000.
According to Appert, values for single-family residential lots in high-demand locations have recovered about 80 percent to 90 percent of their values compared with the peak of the market in 2006 and 2007.
Developers also are willing to pay higher prices for good in-fill sites. Two years ago, in-fill redevelopment sites for apartment projects were selling at a price that equates to about $12,000 to $15,000 per apartment unit. In recent months, prices have increased to more than $20,000 per unit, and in some cases, premium sites have been commanding prices of $25,000 per unit or higher, noted Appert.
That rebound in pricing is fueling the supply of land deals on the market. Russ recently received two new land listings in Chaska, one for a 10-acre parcel in downtown Chaska and another for a 52-acre listing from the University of Minnesota near the Landscape Arboretum.
“I think people are looking at their inventory and thinking that it is potentially a good time to bring it to market as the past four years have been disastrous for raw land sales,” says Russ.
Source: Finance & Commerce