quartz writes:
Saturday afternoon first!
quartz | 03.29.08 - 5:04 pm | #

1st writes:
1st?
1st | 03.29.08 - 5:04 pm | #

PW writes:
The land is probably in the high desert. Palmdale, Lancaster, etc. This will be scrub land for a long time.
PW | 03.29.08 - 5:06 pm | #

prairiedog writes:
Yes. And where is the water?
prairiedog | 03.29.08 - 5:07 pm | #

Chuck writes:
Geeeee.... I thought "they weren't making any more of it" so land prices would go up forever?

SNORT
Chuck | 03.29.08 - 5:11 pm | #

crispy&cole writes:
Soon it will be "worth" 10 cents on the dollar.
crispy&cole | Homepage | 03.29.08 - 5:16 pm | #

dryfly writes:
Wow - I did a little algebra and if my high school word problem skills are right... that would mean if the land sold for say a $1MM, the development cost would have been about $430K with total cost coming in at about $1.43MM... then if they get it at 15 cents/$ they get it for about $215K... Multiply those by how may millions the whole thing cost and wow.

Man those are 1980s Farm Crisis like discounts (where I saw farms previously selling for $3,500 an acre go for less than $500 an acre).

Oh and in the 80s - the only way you could buy that farm for $500/acre is if you brought cash. None of the banks were making 'farm loans' back then either.

The more things change...

dryfly | 03.29.08 - 5:18 pm | #

Rob Dawg writes:
Land at 15¢ on the dollar is not the same as 15% of what the previous owner paid for it.

I also disagree that this land has been removed from the market. The investors are well served by keeping and developments current which this deal certainly includes if there is already some infrastructure. Still on the market, still being developed, just the name on the chain link fence has changed.
Rob Dawg | Homepage | 03.29.08 - 5:19 pm | #

chickenlittle writes:
You just found this out. About a month ago, in Sacramento, Centex and Pulte sold a piece of land they paid $50 million and added $30 million of improvement for less than $20 million.

Right now in many parts of California and Florida, raw land is in a no bid state. The cost to improve the land into a lot is more than the resulting value of the lot.
chickenlittle | 03.29.08 - 5:24 pm | #

dryfly writes:
Still on the market, still being developed, just the name on the chain link fence has changed.

Yup - but at a whole new 'basis'. That's gotta make the neighbors (other developers) happy - not.

dryfly | 03.29.08 - 5:24 pm | #

Calculated Risk writes:
PW, the land is in the Inland Empire.

Best to all.
Calculated Risk | Homepage | 03.29.08 - 5:26 pm | #

C Mack writes:
CR,

Any chance of an address or geo-coordinates so we can take a vulture's eye view of this tract on Google Earth?


Had breakfast this am with a long time friend who works for a sand and gravel company here in Oregon that was recently purchased by the Irish
materials company Old Castle (not to be confused with White castle) which
has ample capital and along with Knife River is buying up many mom and pop sand and gravels across the U.S.

He said many local builders have inventory here in the Willamette Valley they can't unload, especially any specs over $500M

However I just appraised a new house @2700sf in a new subdivision for just under $300M and that 150+ lot subdivision is selling well.

As the British say, it is now coming to be all about

VALUE FOR MONEY,

or, more exactly, for what's

left of the value IN money
C Mack | 03.29.08 - 5:28 pm | #

Calculated Risk writes:
Rob Dawg, yes, the land is available, but the buyers are planning on holding in the current condition for 3 to 5 years (or longer) before selling to a builder.

chickenlittle, I just heard about this deal because it closed last night. I suspect we will see many similar deals this year.

Best to all.
Calculated Risk | Homepage | 03.29.08 - 5:32 pm | #

Calculated Risk writes:
C Mack, I wish I could reveal a more specific location, but I promised I wouldn't.

This does set the new low price point for the area.

Best Wishes.
Calculated Risk | Homepage | 03.29.08 - 5:34 pm | #

Anonymous writes:
Now were getting somewhere, time to mark to market.
Anonymous | 03.29.08 - 5:36 pm | #

ShortCourage writes:
CR,

OK then, how about revealing your identity? C'mon, give us something!
ShortCourage | 03.29.08 - 5:36 pm | #

Average Joe writes:
Why couldn't the builder wait the 3 to 5 years.

If it's a good investment for the buyers, why not good for the holders?

Two answers of course.

1)the builder knew the land won't be worth the wait.

2)the builder is in desperate need for cash.

I suspect it's #2 more than #1, but maybe a little of both.

If it's only #1, then it's a good short candidate, assuming it's a public builder.
Average Joe | 03.29.08 - 5:40 pm | #

Average Joe writes:
"This is an important step. The homebuilders are finally starting to liquidate surplus land at prices that are attractive to "vulture funds", and this potential inventory is also being removed from the market."

Not sure I agree with this completely. Sounds like demand is significanly below supply, so I doubt that even if all the land was held for 3-5 years, it probably wouldn't raise prices. If prices started to shoot up, this supply wouldn't be waiting the 3-5 years. They instantly put the supply up for sale.

As long as it's zoned and prepared for homes, then it's supply. The 3-5 years is just a guess by the buyers and doesn't mean much.
Average Joe | 03.29.08 - 5:45 pm | #

Average Joe writes:
on my first post it should read, if it's only #2, a need for cash, then it's a short candidate.
Average Joe | 03.29.08 - 5:46 pm | #

Cobradriver writes:
8 /2004 VACANT $100
3 /2005 VAC-MULTI $66,000
4 /2006 VAC-MULTI $127,000

Lot above was split from a larger tract and had scrub removed.
Current MLS lising price...16K.

OUCH.

Bigger OUCH.

6 /1997 VACANT $12,500
6 /1998 VACANT $15,000
9 /2002 VACANT $35,000
11/2004 VACANT $305,000

Can you say Holy Shit!!
I have found lots like this show the price bubble in detail. I can show you THOUSANDS of lots just like this here in SW Florida.

I just sent an email off to get some info on 13.5 acres for 19k. The holding trust wants the land gone due to being taxed at a value of almost 600k by the county...

Fun times ahead...

Chris
Cobradriver | 03.29.08 - 5:49 pm | #

dryfly writes:
This does set the new low price point for the area.

Best Wishes.
Calculated Risk | Homepage | 03.29.08 - 5:34 pm | #

I would certainly guess so.

This also tells you the pricing for new build homes out there is so low that the margin can't cover more than 15% of the 'fixed cost' from a build out. It might cover all variable cost to build but no more than 15% of fixed... else they would cash back faster by building out.

Sell Price < Variable Cost + 0.15*Fixed Cost

Another wild guess is this decision is driven by the continuing high rate of cancellations. Didn't some builder just report and said they were still over 50% cancellation rate? I can only imagine the discounts those require to move. My guess is sites near the IE site had numbers that bad or worse.

That is almost like a BK liquidation price... wow.

dryfly | 03.29.08 - 5:52 pm | #

dryfly writes:
I just sent an email off to get some info on 13.5 acres for 19k. The holding trust wants the land gone due to being taxed at a value of almost 600k by the county...

Have to grow a lot of pot on that land to be worth $600K...

dryfly | 03.29.08 - 5:54 pm | #

Bankrobber writes:
CR,

I'd be interested to know exactly what state the land was in. You said "improved." I doubt that means at finished lot. I'd suspect that it's partially improved, somewhere between raw land and a finished lot. As previously noted, there's plenty of places in CA where raw value has a negative residual value. Anything in the Inland Empire, especially the high desert (Victorville) is highly toxic. I suspect they will need every bit of 5 years.

Not with my money.
Bankrobber | 03.29.08 - 5:56 pm | #

revro writes:
CR, inland empire from wha i red here will really have a lot of problem because of water. and lets not forget they should renamed it into foreclosure empire :)
revro | 03.29.08 - 5:57 pm | #

Sippn writes:
Not so surprized. In the mid 90's crunch, finished lots a friend and myself were looking at would have needed to be gifted with $10K each to make work.... bad neighborhood.

Land is the residual after hard costs, carry and prices. Besides the market going sour, during the runup, municipalities continue to load the land with additional fees and costs, often exceeded 1/3 of the value of the finished home - whatever you pay, you still might need to write checks totaling $100K+ in fees to start.

CR, check my quotes from a year ago, I said the writedowns by public builders then were missing a "zero".

A lot of land buyers and final decision makers for the publics didn't know there was a downside.
Sippn | 03.29.08 - 6:06 pm | #

Sippn writes:
Land is the "CDO" or "Derivative" in the development business.
Sippn | 03.29.08 - 6:08 pm | #

Anonymous writes:
Where is the proof of this deal?
Anonymous | 03.29.08 - 6:08 pm | #

Average Joe writes:
"Where is the proof of this deal?"

Although you can never be sure, for me if CR said it, then it's good enough for me.

He gets my benefit of the doubt.
Average Joe | 03.29.08 - 6:11 pm | #

chickenlittle writes:
CR,

Deals like this come accross my desk all day long.

If you really want a deal....in Fort Meyers area, you can buy all the FINISHED lots you want for under 10 cents on the dollar. The amazing part about it is that the cost finish the lot is more than what you can buy one now.

In other words, raw land has a negative economic value. Habitat for Humanity is buying $60 K lots for under $5K.

The problem is the house is worth below construction cost.

How low will be go?????
chickenlittle | 03.29.08 - 6:14 pm | #

Anonymous writes:
Democratic heavyweights in the Senate clashed with President Bush yesterday over the Administration's actions to help ease the housing market. The Senators think that the White House has not gone far enough in its efforts to put the brakes on foreclosures. Their comments came as the president traveled to suburban New Jersey to visit a debt-counseling center that is participating in the Administration's initiative to get struggling homeowners help with refinancing options. Sen. Charles Schumer (D-NY) said that the Administration's moves thus far amounted to nothing more than fiddling while Rome burns.

"The administration refuses to step up to the plate and do what's needed. The administration joined by [congressional Republicans] in their Herbert Hoover-like attitude of do nothing, twiddle your thumbs while the economy gets worse, especially in the housing area, is not going to sit well with the American public."

Senate Democrats, led by Schumer and Sen. Chris Dodd, chairman of the Senate Banking Committee, want Congress to pass a series of mortgage reforms that would allow governments at all levels to buy up foreclosed properties or provide financial backing for loans in danger of foreclosure. The plan would also allow bankruptcy judges to change the terms of mortgages in trouble, lowering payments and adjusting interest rates. The Democrats' plans, however, would have the opposite impact on the housing market from what they intend. They would likely raise interest rates and artificially prop up home prices. Both need to be allowed to come down to market levels in order to avoid a worse housing crisis.

At his stop in New Jersey, President Bush countered the Democrats by stressing that the Federal government's role is to help "responsible" homeowners and warning that too much government intrusion in the market would make things worse.

"There are some homeowners who have made responsible buying decisions and who could keep their homes with just a little help.

We have a role to play at the government level, and that is to help lenders and borrowers work together to avoid foreclosure. The housing market problems are complicated and there's no easy solutions. But ... we will help responsible homeowners weather a difficult period."
Anonymous | 03.29.08 - 6:14 pm | #

Average Joe writes:
OT

"Merkel says she will not attend opening of Beijing Olympics"

Everyone says that China will hang togther at least through the Olympics before they let any kind of meltdown occur.

If this Boycott catches on, then we may not have to wait that long. The olympics may be "over" before they start.

If you can't go to the mountain then make the mountain come to you.....
Average Joe | 03.29.08 - 6:16 pm | #

RE writes:
CR is the epitome of integrity. I have known him for many years and before this blogging days and never but never had a reason to question the veracity of any of his posts.
RE | 03.29.08 - 6:17 pm | #

Average Joe writes:
"CR is the epitome of integrity. I have known him for many years and before this blogging days and never but never had a reason to question the veracity of any of his posts."

Now, can we trust RE?......lol
Average Joe | 03.29.08 - 6:19 pm | #

Anonymous writes:
Re: veracity?

I just thought adding a little factual precision to the story would help, versus the latest bias towards a recovery in the market, which may be related to selling news letters?
Anonymous | 03.29.08 - 6:21 pm | #

Broker writes:
Consider the taxes at ~2.5%(of what the first builder paid for it) and you are looking at another ~13% in 5 years. Good luck dealing with the county on the taxes! I wouldn`t touch commercial dirt right now If I got it for free. I managed an investment RE group (till 2005). I intend to give it another run, but not this year. I am a very cheap russian (not by birth but by the grace of Stalin) boy.
Broker | 03.29.08 - 6:21 pm | #

Rob Dawg writes:
CR,
For those of us within the "blast radius" we knew it was either the Antelope Valley or Inland Empire. Thanks for confirming. The IE got really crazy with raw land prices but let's not attribute it all to "demand." I can almost guarantee that some portion of the price the first builder paid had to do with denying the piece to competitors. Some other portion to optimistic demand projections. Still more was speculative investment from a cash rich company. I'd be willing to even bet that the seller owns/owned land adjacent to the parcel in question.

Man is Corona (or Moreno Valley, wherever) ever gonna scream at the new tax basis and the prospect of no more infrastructure increment payments and delayed Mello-Roos collections. Their budgets were so bloated with this stuff that it's gonna hurt.
Rob Dawg | Homepage | 03.29.08 - 6:23 pm | #

RE writes:
That's a whole different story... :).
RE | 03.29.08 - 6:28 pm | #

Calculated Risk writes:
Bankrobber, I have limited details ... but my source is excellent (and well known to me).

They are prepared to wait as long as necessary (there is no loan, so a longer period just reduces their return on investment - assuming there is a return).

Best to all
Calculated Risk | Homepage | 03.29.08 - 6:30 pm | #

RE writes:
I think the Germans are still too conservative.


Finance Authority Fears $600 Billion in Worldwide Shortfalls

For months, experts have been wondering just how bad the ongoing finance crisis (more...) might turn out to be. Now, Germany's Federal Financial Services Authority, known as BaFin, thinks it has the answer.

According to information obtained by SPIEGEL, an internal BaFin report says that shortfalls at finance institutions worldwide could end up totalling $600 billion (€380 billion). The shortfall comes as a result of ill-advised speculation on the US subprime market and resulting jitters in markets worldwide. BaFin says that its prognosis is merely a worst-case scenario. "Given what we know about the current situation on the markets, we presume that a total of $430 billion is more probable," the 16-page report says. ...
RE | 03.29.08 - 6:37 pm | #

Average Joe writes:
"They are prepared to wait as long as necessary"

Just to clarify my point CR. I am not sure where you get that this is eliminating supply.

Sounds to me like they are coming right back into the market as soon as demand meets their price.

It's not like they are turning it into farmland, no?
Average Joe | 03.29.08 - 6:41 pm | #

Average Joe writes:
"and this potential inventory is also being removed from the market."


The absense of a market removed it from the market.
It's back on the market as soon as the market returns.
Average Joe | 03.29.08 - 6:44 pm | #

Periwinkle writes:
This is exactly what happened in the 1920's. The formerly farmland is now taxed residential and has a much higher carrying cost. A joke is told of a man who unloaded 40 acres on an unsuspecting rube. "It is really 80 acres as he will find out when the tax bill comes" he said.
Periwinkle | 03.29.08 - 6:45 pm | #

Anonymous writes:
Federal Reserve Bank of Atlanta President Dennis Lockhart said the U.S. economy appears to be on the verge of recession with little growth this quarter and a recovery in the second half of the year may be slower than expected.

``The economy is in a slowdown that resembles past periods that were the leading edge of a recession,'' Lockhart said in a speech to the Rotary Club of Chattanooga, Tennessee. ``Following a sluggish fourth quarter, I expect that GDP for the first quarter of this year will show little, if any, growth.''

The economy expanded 0.6 percent at an annualized pace last quarter and economists surveyed by Bloomberg News this month predicted the rate will slow to 0.1 percent in January to March. Martin Feldstein, the Harvard economics professor who heads the research group that determines when downturns begin, said this month that a contraction had already begun.
Anonymous | 03.29.08 - 6:49 pm | #

Rob Dawg writes:
Just for a little perspective there probably weren't any SFRs in Moreno Valley for less than $150k in 2004 and now there are 147:
http://www.realtor.com/search/se...42&mxp=16& typ=1

Here's one with easy access to the freeway: http://www.realtor.com/search/ li...rcnt=147#Detail
The carrying costs would be about $600/mo for an investor. Ask yourself why a house that looks to cashflow before taxes and an 80x multiple is not selling. This explains why raw land with no income potential is selling for 15¢ on the dollar.
Rob Dawg | Homepage | 03.29.08 - 6:53 pm | #

Anonymous writes:
In all fairness to CR, we had some nut on here last week pumping some land deal he just got into, so there are pockets of glory and deals do get done, so CR is just adding a little balance to the other side of this complex coin.

I forgive you CR and there is a limited place for balance; however, suggestions of a recovery at this early stage of a recession seem somewhat out of character, and I just hate to see NAR-like touting that the good times are rolling.
Anonymous | 03.29.08 - 6:54 pm | #

Average Citizen writes:
That reminds me of a joke, this old lady got her Polident and her Preperation H mixed up... She talks like an asshole now, but her gums don't itch!
Average Citizen | 03.29.08 - 7:17 pm | #

Broker writes:
One good thing about buying vacant land in Florida is that even if you can`t sell it in the next 5 years you get to mow it every week in the summer.(good exercise)
Broker | 03.29.08 - 7:22 pm | #

Bankrobber writes:
CR,

Can you give us a idea of the number of lots, acres or purchase priced involved in this transaction? It would certainly add some color to the discussion.

I seem to recall an analyst report detailing the unbelievable number of lots available in the IE, somewhere around 200,000 if I remember correctly. That covers the gamut from zoned to finished.
Bankrobber | 03.29.08 - 7:27 pm | #

Neil writes:
chickenlittle writes:
CR,

Deals like this come accross my desk all day long.

If you really want a deal....in Fort Meyers area, you can buy all the FINISHED lots you want for under 10 cents on the dollar. The amazing part about it is that the cost finish the lot is more than what you can buy one now.

In other words, raw land has a negative economic value. Habitat for Humanity is buying $60 K lots for under $5K.

The problem is the house is worth below construction cost.

How low will be go?????

The problem is also that construction costs have dropped. Materials are going for 50 cents on the dollar and labor for 70 cents. With land at 15 cents...

Its not a question of when land will recover, but when the finished product will. That's years away. For once there is sense saying that vultures can make money off paying for something that goes for pennies on the dollar to sell it for 30 cents.

This still implies that the "finished lot" portion of the land will go for 30 cents on the dollar circa 2012.

That implies homes selling for traditional values then... I can believe that.

Got Popcorn?
Neil
Neil | Homepage | 03.29.08 - 7:28 pm | #

thoth writes:
Who pays the mello roos fees for all that infrastructure? The new owners I would expect. Otherwise the county and public utilities are going to have to float some bonds or eat it bigtime.
thoth | 03.29.08 - 7:31 pm | #

thoth writes:
"I just sent an email off to get some info on 13.5 acres for 19k. The holding trust wants the land gone due to being taxed at a value of almost 600k by the county..."

And you think the counties aren't wetting their didies about this trend? How much tax are then getting from all these undeveloped tracts? I'd guess enough that they don't want to lose it.
thoth | 03.29.08 - 7:34 pm | #

dc1000 writes:
dunno. i'm flush with cash from sponsors and others who want to put real money to work. we have over $10MM in deals working just this week. acreage in the city and hundreds of acres in the burbs. seems like the smart money is buying.

one thing i really like about today's environment is that the only other 'buyers' out there have cash just like we do because its the only way to close. therefore, they are generally not fresh noobs. thus their calculations must be similar to our own. the market is actually working with accurate price signals.

i like it.

i mean crap, what am i gonna do, switch industries? hahah. nope. so timelines are longer, patience is stronger and pockets are deeper. sure makes buying things easy.

the market has definitely picked up in the last few weeks and by that i mean land sales, bulk deals and development deals. not finished product. and its not that prices are going up. its that the sellers are finally coming down to our offer prices.

which means they're too high!
dc1000 | 03.29.08 - 7:50 pm | #

Broker writes:
dc1000, Pets.com was a heck of the deal at $60.
Broker | 03.29.08 - 8:00 pm | #

thisthatother47 writes:
Look at the liquidations the HB's did right at Quarter-end last quarter as well - likely the same thing here. My guess: SPF.
thisthatother47 | 03.29.08 - 8:05 pm | #

lawyerliz writes:
I am advising all of my clients in Miami-Dade to challenge their tax assessments come September. I don't know what they were doing with all the extra money, but the teachers aren't complaining they have so much money they don't know what to do with it, and the roads are still congested and the bums aren't wearing tuxedos.

But the squealing and whining will really start in about a year. Or, less.
lawyerliz | 03.29.08 - 8:11 pm | #

BSR writes:
zillow gives the value of that Moreno Valley home for sale at $100K as $371K!

Start discounting zestimates by at least 50% to get at the upper limit.

http://www.zillow.com/search/ Rea...ystatezip=92555
BSR | 03.29.08 - 8:15 pm | #

Rob Dawg writes:
lawyerliz writes:
I am advising all of my clients in Miami-Dade to challenge their tax assessments come September.

Now, remember file at the very last minute. You want 50,000 in front of you. Then you have two choices; either state 20% under current market value or 80% under. In the former you just want the staffer to rubberstamp the appeal. In the latter you make it clear that you are not negotiating with staff, you want to appear in front of the assessment appeals board. If you are real lucky they can't get to you in the legal time limit and you win by default. If you actually do get in front of the board, cut the best deal of the moment.
Rob Dawg | Homepage | 03.29.08 - 8:18 pm | #

herve writes:
This land must be around Perris somewhere.

Some builders in the Inland Empire are just barely hanging on. Another couple years of this and many will be long gone.
herve | 03.29.08 - 8:18 pm | #

RayOnTheFarm writes:
C Mack, I wish I could reveal a more specific location, but I promised I wouldn't.

This does set the new low price point for the area.

OK, we don't need to know the exact location (and I can accept that), but ...

I suspect that this transaction will be reported via public records at the courthouse. Sooner or later, the lenders and appraisers are going to take note of the number of acres/lots and the price that it moved at.

Could that trigger margin calls on other builders that have leveraged loans on unimproved (or partially improved) RE ?

Similarly, is there any reason to believe that this transaction might have occurred due to a margin call on this seller ? (as in the second or third domino in the chain falling over)

Ray
RayOnTheFarm | 03.29.08 - 8:33 pm | #

Cobradriver writes:
And you think the counties aren't wetting their didies about this trend? How much tax are then getting from all these undeveloped tracts? I'd guess enough that they don't want to lose it.
thoth | 03.29.08 - 7:34 pm | #

thoth,
The last county meeting I attended was interesting to say the least. I spoke at a couple 6 months ago and was written off as a tin foil hatter.
At least now the supervisors are realising there will be deep cuts needed. As a SWAG I am guessing our county needs to cut 30-40%. We have a shit ton of BS that can go away without a lot of impact. One major benefit is the older crowd in my county are generally very averse to tax increases(thank god!),the cuts will get deeper,it is a matter of time...

As a fyi,the taxes on a 13.5 acre single lot run about 7500.00/yr at a valuation of 600k. If the acrerage sells for 19k the taxes will eventually drop to about 200.00/yr.


But the squealing and whining will really start in about a year. Or, less.
lawyerliz | 03.29.08 - 8:11 pm | #

Already happening on the west coast...

Chris
Cobradriver | 03.29.08 - 8:38 pm | #

lawyerliz writes:
Dawg--it doesn't work that way in Florida. It only costs a little money to appeal, but you only have about 2 weeks to do it, and it's in teeny tiny language in a yearly mailer that says in very big font "This is not a bill." So nobody looks at it too closely. Especially noobies. Then if you file, you get an appointment and meet with a bureaucrat and present some proof. They actually do reduce the bills a lot of the time. You need a realtor or appraiser, or maybe some comps to take with you.
lawyerliz | 03.29.08 - 8:48 pm | #

Jas Jain writes:
--
CR, do you still think that New Home Sales (SFH) will bottom around 600K? Builders might only build 200-400K a year in 2009 & 2010.

Jas
Jas Jain | 03.29.08 - 8:50 pm | #

Bob Morris writes:
A savvy real estate investor friend in L.A., after years of not finding anything to buy because prices were so high, is just now starting to maybe buy a few houses in the San Fernando Valley for, say, $390,000 that might have been $650,000 eighteen months ago. (These homes are bank-owned or foreclosures.)

(For those interested, the homes are in the Lake Balboa area of Van Nuys)
Bob Morris | Homepage | 03.29.08 - 8:50 pm | #

Angela writes:
Rob Dawg,

That property in Moreno Valley was originally listed for $370k. It's a short sale that doesn't appear to be approved by the bank yet. They are just waiting for offers to come in to submit to the bank. I would buy it tomorrow as a rental if it could be purchased for $100k.


When we first sold our house in 02/06, we set a price target of $300k for Riverside (IE). There were 7 properties (junk) available. Today there are 1309. I would guess at least 1/2 are bank owned. Prices are coming down hard.

Angela
Angela | 03.29.08 - 8:51 pm | #

Jas Jain writes:
--
"Senate Democrats, led by Schumer and Sen. Chris Dodd, chairman of the Senate Banking Committee, want Congress to pass a series of mortgage reforms that would allow governments at all levels to buy up foreclosed properties or provide financial backing for loans in danger of foreclosure."

These guys are certified agents of BFNYC. Screw the American People and serve their masters. Yes, we do have the best political system in the world and in history.

Jas
Jas Jain | 03.29.08 - 9:00 pm | #

Anonymous writes:
Sing along...

What’s the Trouble?
Anonymous | 03.29.08 - 9:09 pm | #

Francis writes:
If your friend is having trouble getting final entitlements and/or water to the property, do send an e-mail. This is what I do for a living. I'd love to have a chance to compete for his/her business.

As to the location, it could be anywhere. Western San Berdo (Ontario, Upland, Rancho Cucamonga, Fontana, City of SB, etc.) and Western Riverside (Corona, Hemet, Perris, etc.) are my bets.

As to the seller, it depends on the size and status of entitlements. Toll, SunCal, KB, Hovnanian are all big merchant builders out there. Raw land developers tend to be more obscure, locally connected businessmen.
Francis | 03.29.08 - 9:22 pm | #

Doug writes:
Would anyone like to speculate on how this will affect farm and ranch prices in the central valley? Is it possible to buy unimproved land and rezone it back into agricultural land cheaply? Is the value of agricultural land in California also currently overvalued, because priced into the asking price is the assumption that it will be converted into housing? (Which will not be feasible for many years.)
Doug | 03.29.08 - 9:33 pm | #

lama writes:
Jas,
Don't be ridiculous.
http://www.opensecrets.org/polit...1093& cycle=2004
lama | 03.29.08 - 10:12 pm | #

mack writes:
Even on cash deals, improved lots have carry costs just like everything else. Particularly because they can't be reverted back to conservation or farm status for taxes and have no cash flow during the hold period.

These considerations have a lot to do w/ return expectations as they'll increase basis at time of eventual sale (reducing returns).

However, here's your new price! Expect all subsequent deals in that area to be negotiated from it.

"Tell all our cients to buy bellies at 68! Mr. Valentine has set the price."
-Randolph Duke

Good luck to your friends CR.
mack | 03.29.08 - 10:25 pm | #

Troy writes:
versus the latest bias towards a recovery in the market, which may be related to selling news letters?

Selling semi-improved land for LESS THAN HALF THE COST OF THE PERMANENT IMPROVEMENTS is good news about a recovery?

get real, anon. This is deeper into the rabbit hole.
Troy | 03.29.08 - 10:37 pm | #

Tom Stone writes:
It is nice to see deals that make sense again,there are a few that do,depending on a host of factors,including the local economy and the availability of water,which is critical in Californis.Anyone planning to build in southern California would be well advised to spen some time reading the reports of the state hydrologist.Here on the fringes of the SF bay area I expect workable deals sometime this fall and I expect a reasonably sane market in 3-4 years,with luck ( no GD2).
Tom Stone | 03.30.08 - 12:27 am | #

other Jim writes:
I wonder if someone has the actual costs of building a house available. I know lumber has come down a lot, but what about plumbing, wiring, fixtures, etc? It would be interesting to see just what builder's actual unit costs were. And how much of that $600K price was *ahem* overhead.
other Jim | 03.30.08 - 1:13 am | #

DaveJ writes:
Wait that can't be true. The homebuilder stocks already bottomed!

http://finance.yahoo.com/q/bc?t=...ctx%2Cnvr% 2Cbzh

They have formed a guaranteed bottom structure referred to as the "Alpine Valley formation"! That guy must have meant $1.15 on the dollar. I suppose it is an honest mistake. He must have not checked out Yahoo finance and maybe didn't understand the concept of "bottoming".
DaveJ | 03.30.08 - 1:14 am | #

Oy Vey writes:
Interesting blog post, but then the comments are so ignorant. Ugh.

I also disagree that this land has been removed from the market.

Land buyers today are pricing for a 4-6 year hold, typically -- perhaps longer if the site isn't really in the path of development.

That means this land is not being (vertically) developed.

If you want another data point, Standard Pacific sold land in the Apple Valley just before year end for $10,000 a lot. Their basis was north of $90,000 per lot.

Land values are a little complicated if you've never contemplated them before. Entitlements expire, so land that is worth X if you plan to build today, is worth some fraction of X if you (or a buyer) won't be building and selling for years.

Plus, as CR points out, these deals are all equity in today's market, with means you've got to hit an equity IRR on an unlevered basis.

If you try to find the "residual value" of land in much of california today, you'd end up at a negative number, but of course land's not really worthless.

The land that's unsaleable in CA is that where the CFD has been formed.
Oy Vey | 03.30.08 - 3:46 am | #

Oy Vey writes:
Other Jim - hard costs are not down at all, so I have no idea where you're getting the idea that the sticks are cheaper.

Labor is clearly cheaper.

Lenders were reasonably tough on overhead -- although in boom times everyone gets sloppy.
Oy Vey | 03.30.08 - 3:49 am | #

Jim writes:
For how long can you "survive" selling your assets at 15 cents on the dollar?
Jim | 03.30.08 - 4:17 am | #

Jim writes:
"Merkel says she will not attend opening of Beijing Olympics"


Should China care? Before long China will probably destroy (competition) a lot of the famous German engineering industry.
Jim | 03.30.08 - 4:29 am | #

Alec writes:
My Father was a Prof. in Mech Engineering and taught a ton of Chinese students. They could crunch numbers, but 99% of them had no spatial awareness or creative spark.

The germans don't need to worry about China for a while. Russia, maybe, not china.
Alec | 03.30.08 - 5:44 am | #

Jas Jain writes:
--
"Jas, Don't be ridiculous."

I am ridiculous and ridiculously right about my criticism of American People (brainwashed from birth like few populations) and American system (a fraud on the name of democracy).

AMERICA WAS *NOT* FOUNDED SO THAT PEOPLE COULD HAVE MUCH POWER OVER THE GOVT; IT WAS FOUNDED TO PROTECT CREDITORS ABOVE *ALL*. IT WAS, MOSTLY, AND IT IS, FULLY, RULE OF THE BANKERS.

ORDINARY AMERICANS HAD MORE POWER OVER THE GOVT AND PAID LESS TAXES UNDER THE BRITS THAN UNDER THE LOCAL GOVT UNDER WASHINGTON ET AL. How many people know about Jay’s Treaty (1795?) that protected the British creditors? Poor Jay, a Founding Father, was later treated as a traitor.

Sorry,

Jas
Jas Jain | 03.30.08 - 9:04 am | #

Jas Jain writes:
--
more…

What sustains an American's blind faith in the system is his, or her, gross ignorance of the real and detailed history of Britain and America for the past 350 years.

Ignorance is bliss!

Jas
Jas Jain | 03.30.08 - 9:06 am | #

Jas Jain writes:
--
"My Father was a Prof. in Mech Engineering and taught a ton of Chinese students. They could crunch numbers, but 99% of them had no spatial awareness or creative spark."

Alec,

How about the Japanese? How many industries have Japanese acquired dominant position in which Germans were considered tops?

Chinese will be able to buy (hire) all the creative talent they lack.

Jas
Jas Jain | 03.30.08 - 9:12 am | #

lawyerliz writes:
Isn't it really too soon for the vultures to be swooping in?

Also, OT, there were 4 real huge vultures chomping on something in my back yard (Brevard County, Florida) yesterday. Fantastic creatures, 6 or 7 foot wingspan.

Also, my Miami developer buddy sez things are continuing to get more expensive, not less, when I asked about this.

Chindia, you know.
lawyerliz | 03.30.08 - 10:02 am | #

EL writes:
I could be wrong here, but I believe CR's point with the post was that there appears to be the start of a *market* where previously none existed. Plenty of sellers but no buyers for the distressed developers/homebuilders/REO's. The fact that a market price - 15 cents - has been made suggests a market is forming, which is a much better environment than has existed over the last 9 months. Could be good news or bad news for the buyers/sellers in this particular transaction, no one knows right now (e.g. the seller may have already written it down to zero). I think an operating market to deal with this 'toxic waste', at any price, is a positive for the overall economy.
EL | Homepage | 03.30.08 - 11:24 am | #

EL writes:
Also to add...

I'm a multi-family developer in LA. The product we build is still moving (hat tip to the new conforming limits...), because we focus on low supply/high demand areas. Of the previous conduit of equity investors we have now only one - ourselves. All the equity investors we used to do business with are saving their cash for exactly these types of deals - cents on the dollar with long hold times. Whether this is smart strategy will take the 3-5 years to find out. Hard to say, but history is filled with people making and losing fortunes like this.
EL | Homepage | 03.30.08 - 11:31 am | #

Owner Earnings writes:
Even at $.15 on the $1 it's still over priced.
Owner Earnings | Homepage | 03.30.08 - 11:59 am | #

Bankrobber writes:
Although construction costs have come down recently, largely due due to labor being cheaper, a lot of the material costs are up over pricing from a few years ago due to commodity increases. Higher oil impacts a lot of development and vertical construction costs. Copper, cement, and drywall costs have also increased over the same period. Lumber is really the only material down. Unless commodity prices fall much further, it will be hard to get back to development and vertical costs of a few years ago.
Bankrobber | 03.30.08 - 1:08 pm | #

JoeB writes:
Rob Dawg and others - regarding that $100K house in Moreno Valley, can these houses be rented or is there a glut in rentals too? Seems like you could get more than $600/month - but I certainly don't know this area. Will all of this cheap (or soon to be ultra-cheap) housing start to draw in more residents?
JoeB | 03.30.08 - 1:13 pm | #

sandiego67 writes:
How is this anything more than a rumor? We all know that the market has tanked and your story might have some snippets of truth but throwing out a land comp like this is worthless without the details (location, lot sizes, cost to complete, etc.). Was there debt on the property that the new owner is paying off? How long have the improvements been completed? Have the subcontractors been paid (i.e mechanics liens to pay off)?

You implied that it was a homebuilder. It must have been a public homebuilder with the capacity to fund the improvements without a Acquisition and Development loan. I don't know of many builders who have been doing that lately. Most will still use a bank or credit line (along with bond financing) to fund the improvements. The builders have been hoarding any cash that they can get for the last 2 years. The lender in first position wouldn't sell for this price.

Tell us the details or I am calling semi BS.
sandiego67 | 03.30.08 - 1:31 pm | #

Troy writes:
^ and who the f are you and why should we care?
Troy | 03.30.08 - 3:10 pm | #

Golfer_X writes:
Rob Dawg wrote: Here's one with easy access to the freeway: http://www.realtor.com/search/ li...rcnt=147#Detail
The carrying costs would be about $600/mo for an investor. Ask yourself why a house that looks to cashflow before taxes and an 80x multiple is not selling. This explains why raw land with no income potential is selling for 15¢ on the dollar.

Unfortunatlely, that's an auction house and that is the min bid price. But your right, there are loads of homes under $150k in MoVal. Unfortunately none are as nice as that one.

X
Golfer_X | 03.30.08 - 3:34 pm | #

Herve writes:
Alec writes:
My Father was a Prof. in Mech Engineering and taught a ton of Chinese students. They could crunch numbers, but 99% of them had no spatial awareness or creative spark.

The germans don't need to worry about China for a while. Russia, maybe, not china.
Alec | 03.30.08 - 5:44 am | #


Alec - No spatial awareness and no creative spark for the Chinese???? Did your Dad also say that negroes like to eat watermelon and fried chicken? Did he say that the Japanese students could turn a microwave oven into a watch, too?

You and your dad sound like swell guys....
Herve | 03.30.08 - 6:17 pm | #

dilbert dogbert writes:
CR,
Your post brought to mind the early 50's when I chased jackrabbits in a field in San Burdu. Streets, sidewalks and fire hydrants and tumbleweeds. I was told it was a failed development of the late 20's. Then in the late 50's my girlfriend worked an a Relitter office and was told she could buy 25 by 50 lots on Atascdero Beach for $50 a lot. It took two to be able to build. This also was a failed 20's development with streets, sidewalks etc.
Your friend may have to hold for longer than a couple of years.
What is the old joke? Buy raw land in California and make your grandchildren rich. This time it might be your great grandchildren.
Tanta,
Loved your post but the commenters get a bit tiresome.
dilbert dogbert | 03.30.08 - 10:45 pm | #

gab writes:
1. Sounds like Lewis. 2. Mello-Roos money doesn't go to the city.
gab | 03.31.08 - 12:04 am | #

lee Parker writes:
When a subdivision sells at or below the cost of the improvements, we say the land is selling for less than zero.

Lee
lee Parker | 03.31.08 - 8:57 pm | #

duediligence007 writes:
based on the news hitting the wire this evening, looks like the seller was CTX (see Centex news release for full details). by my math it was 16 cents on the dollar:

the loss generated a tax loss of $294 (which they will receive as a tax refund). therefore, original book was:

-294 / 35% tax rate = -840mm = PBT (for tax purposes)

-840 - 161 = $1,001mm = original book value

and...

$161 / $1,001 = 16 cents on the dollar

...consistent w/ CR's post (but off by a penny)
duediligence007 | 04.01.08 - 1:02 am | #