The proverbial good news–bad news scenario is at play when it comes to land values and transactions in Albuquerque, New Mexico.
As always, the good news first. Albuquerque did not experience the effects of mammoth overbuilding and the resulting plummeting disintegration of value that has infected many other markets. The 180 degree reversal of values that commenced in the run-up to 2008 in areas like Phoenix and Las Vegas and continues as we write is in stark contrast to current Albuquerque price levels, where generally most commercial property and land in particular have suffered far less than in those areas and other markets nationally.
There is, however, still bad news if you’re a local owner, prospective seller or broker trying to make a living in the land business.
Historically Albuquerque has lagged behind most other areas of the country in economic timeline trends. If you subscribe to the theory that a housing sales slump is the precursor of a commercial real estate decline it’s easy to extrapolate why non-residential land here is beginning to experience a current decrease in demand. Current reports from appraisers and brokers in the residential subdivision business provide a gloomy picture of north of 10,000 lots being on the market at the end of 2008, with demand scratching to reach 15 percent of available inventory. Add to that the more than 23 percent decrease in the number of single-family home sales in 2008 from 2007 and it’s logical to predict that the worst in non-residential land transactions may still to be experienced.
The transaction volume of sales of larger parcels of commercial land dropped in 2008 from the previous year when the incoming tide of rising prices was still lifting most boats floating on the sea of commercial real estate appreciation. Perhaps another portent is that beginning about in the second half of 2008 brokers reported significantly longer marketing times required to find a ready, willing and able buyer and close escrows on unimproved land parcels. And a perceptible decline in per square foot price is now evident.
Besides the obvious supply-demand factors that effect all commerce, the new commercial real estate four letter word — LOAN, specifically the lack thereof — has further dampened what demand may have survived the economic downturn. The heartburn of TARP, TALF, TUMS* and other overused and under managed buzz abbreviations has with very few exceptions not invaded New Mexico, and most local lenders are faced with the problem of an existing glut of loans made on residential subdivisions and commercial land on which projects planned during the “heydays” have been put on hold. Where previously, most local lenders had a criterion for land financing anywhere from 50 to 70 LTV, today, anyone wanting to buy unimproved land has pretty much two options: come to the table with cash or the seller’s mortgage for a significant part of the purchase price.
Given the current confluence of general economic factors and Albuquerque’s historical lagging indicator status in national cyclical evolutions, it’s not unreasonable to envision a continuing decline in the demand for unimproved land through perhaps most or all of this year.
* This Unbelievably Muddled Situation
— Larry Ilfeld, CCIM, ALC is a managing director of Sperry Van Ness, Albuquerque, New Mexico.