Investing in Land

In a recent report in the Phoenix Business Journal, people who ought to know say we are touching the bottom of a bad economy and should now start to look up.  And when investors cast their gaze in that direction, they ought to see land.

Sure, people like Land Advisors Organization CEO Greg Vogel, Arizona State business school real estate professor Karl Guntermann and Carter Froelich, managing principal of a real estate consulting firm are not with0ut a point-of-view.  But the pieces are starting to fall into place.

It was Vogel, in fact, who noted the “re-emerging investment market” in Arizona.  He added that “Investors are returning to Phoenix and snatching up undeveloped land at prices not seen for at least a decade.”  There is data, too.  As the decline in home prices slows, the Wall Street Journal reports that new home sales are up 11 percent.

This is not about repeating the mistake of what former Fed Chairman Alan Greenspan called “irrational exhuberance.”  There is too much evidence that says we still have miles to go.  The Associated Press just confirmed that home foreclosures in the first half of 2009 rose 15 percent.

But the signs are pointing up and that means they are pointing at the value of land.

It was only a couple weeks ago we noted that Arizona’s Pinal County was worth a long look from investors focused on raw land.

Now comes a report from Money Magazine that there is even more reason to take a longer look.  According to the editors there, “Pinal is forging into new territory by courting retailers, small businesses and medical-research companies. A major shopping center, the Promenade at Casa Grande, has already opened, bringing with it Dillard’s, Old Navy and a multiplex theater. A new hospital in Florence is projected to open in 2011 or 2012.”

At a time when there are few guarantees, it is good to see evidence pile up that suggests continued growth in The Grand Canyon State.

At the end of last week, two reports converged to add emphasis to the argument that the economy may be looking up.

First came word from the National Association of Homebuilders that the confidence level of the people who build the homes we live in had moved higher than it has been since last year.  The news is tempered by a still tight credit market and continued foreclosures, but good metrics are a path to the rebound.

Second came just some of that sort of news.  In the U.S., housing starts are up for the first time since last year.  The Commerce Department noted that “(s)tarts of single-family homes rose 14.4% last month to 470,000, the highest level since October. This is the fourth straight increase…”

These two elements of economic activity are at the end of a long line of events that begin with identifying, acquiring and developing the land beneath them.  And there are early signs that the land market is growing more active, too.

It will be best to keep a close eye on just what develops.

A lot of news clippings flash across my computer screen, but one earlier this month from the East Valley (AZ) Tribune caught my eye.

The headline read: “Pinal County Plan Prepares for 6M People.” Pinal County, to the south of the Phoenix metropolitan area, now has about 350,000 people.  That kind of growth requires a plan, a big plan and land, lots of it, which Arizona has.

It is not the first report on the importance of raw land investing in Arizona, but this article notes that the plan “looks farther into the future than 10 years, which is normal for comprehensive plans, and instead designates what land uses Pinal County should have when it’s built-out.”

It also was the product of input from multiple stakeholders — those who would use the land and those who would prepare and build on it.  As reported, “(t)he plan is the culmination of public meetings, multiple committees and consultations with private firms and public institutions…”

That’s foresight!

Last August 1 in Financial Planning magazine, Morningstar Investment Services director of research William Harding encouraged advisors to design a different mix in their individual investors’ portfolios.  In confronting a difficult stock market, he suggested, it was time to give thought to alternative investments that, in Morningstar’s world,  “includes nontraditional asset classes such as commodities, real estate, infrastructure, private equity and venture capital”

Good advice and well in advance of what became a deeper market trough.

In Harding’s view, real estate “can include raw land, commercial real estate and residential real estate…”  And there is no better, long-term investment than raw land.  Fact on the ground have shown him to be right.

One to look at is the payout just announced by Walton International on one of its Canadian properties.  In any market, a better than 13 percent annual compound rate of return is worth notice.