Investing in Land

A recent story in the Calgary, Alberta, Canada Herald highlighted a subtle but significant shift in the approach one developer is taking to meet its needs and the needs of the market.  Even as signs of life in the housing market begin to surface, particularly in places like Texas, developers and land investment firms are open to new things.

The Herald story focused on Walton Development and Management, a unit of long-standing, raw land investment company, Walton International.  Both are based in Calgary.   Here is the nub of the story:

“‘This spring, we made the decision to essentially lower our lot pricing,’ says John Plastiris, president of the fledgling company under Walton International.

‘In part, it was because it was a new community and we wanted to achieve momentum and an increase in the northeast market share. It’s a value and price-driven market.’”

It is refreshing to see companies open to change in the face of changed circumstances.  Let’s keep an eye out for a trend.

Is it possible the ancient proverb about big things starting out small is taking root in Arizona?

Just this week, the economic prospects in the Grand Canyon State have been painted in dark colors.  A state budget crisis was described this way by the New York Times:

“Arizona finds itself in a worst-case scenario among states that have been hammered by the foreclosure crisis. One of the fastest-growing areas in the country for years, the state has seen its population — and needs — explode over the last decade, and development has more than helped cover the costs…With the number of new building permits plummeting, revenues from the big-ticket items associated with new homes, which had fueled much of the state’s budget in recent years, also fell.”

Less dark but still a mixed bag was a report from MDA DataQuick, the San Diego-based real estate analyst firm.  It reports that even though “Existing home and condo sales in the Phoenix area soared in June to the highest level seen in that month in four years…The level of newly constructed homes sold in the area has declined 50% from June 2008.”

The brightest data points may be those appearing earlier in the development pipeline.  Six months ago I saw a report from Walton International, the Canada-based raw land investment company, that its investment in Arizona in unabated.  According to the release, “Arizona has been and is expected to continue being one of America’s strongest economic regions, supported by long-term fundamentals in employment, population, economics, and housing affordability.”

Strong words and strong moves.  If Arizona’s governor can hold out, she may get rescued by the cavalry coming from Calgary.

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.