Land prices plunge 47 percent in fourth quarter
Analysts say price correction was inevitable
BY TONY ILLIA
BUSINESS PRESS
March 30, 2006
The unthinkable has happened. Las Vegas Valley land sale prices dropped 47 percent in the fourth quarter. No, the sky isn't falling. But the real estate market may be undergoing a period of stabilization.
"The escalations reported during the past 18 months were clearly unsustainable," said Brian Gordon, principal of Applied Analysis, a Las Vegas business advisory firm. "The economics of land pricing, escalating development costs and modest increases in interest rates will not allow for average land valuation to reach well beyond the recent peak, at least not in the near term."
There were 4,494 acres of land sold in the fourth quarter, or 60 percent more than the previous quarter, with average sale prices of $376,200 per acre or $8.64 per square foot. It marks a 47 percent price drop from the third quarter and a 28 percent decrease from the fourth quarter of 2004. The dramatic price depreciation is because of a higher volume of transactions in the central/east and north submarkets as opposed to the resort corridor. A U.S. Bureau of Land Management auction also helped to skew sale prices.
The federal agency sold 3,002 acres of land in the fourth quarter for $799.3 million, or about $266,256 per acre. It's 62.4 percent below third-quarter sale prices of $708,000 per acre. The Olympia Group bought the largest parcel, a 2,675-acre tract in North Las Vegas for $639 million, or $238,878 per acre. It was 18.25 percent higher than the BLM minimum bid, but 66 percent lower than the third-quarter average.
SOUTHERN NEVADA RECORD
Valley land sale prices have steadily appreciated quarter-to-quarter during the past two years, reaching a 149 percent appreciation in the fourth quarter of 2004. Local property sale prices hit $16.25 per square foot in the third quarter, a record for Southern Nevada, but there were also several large transactions around the resort corridor, including Centex Homes' purchase of the 15.2-acre Westward Ho hotel-casino for $145.5 million, or $9.6 million per acre.
"We simply cannot expect land prices to escalate at 80 percent per year while rents for office, retail and apartments are increasing in the 8 to 16 percent per year range," Gordon said.
Large land deals during the fourth quarter include a .84-acre parcel at Las Vegas Boulevard north of Sahara Avenue that sold for $5.5 million, or $8.1 million per acre; a $51 million purchase of 150.8 acres ($365,600 per acre) at the southeast corner of Craig Road and Fifth Street in North Las Vegas; a 80.4-acre site at Tropical Parkway and Donovan Street in the North submarket that sold for $27.8 million, or $345,600 per acre; and a $47 million purchase of 54 acres ($871,000 per acre) near Losee Road and Interstate-215 in North Las Vegas.
The Southwest submarket saw the most activity in the valley during the fourth quarter with 97 land transactions totaling 505 acres, while the West submarket saw the least activity with only 11 deals, totaling 48 acres. The West submarket, however, had the valley's highest median sale price at $1.666 million per acre, or $38.23 per square foot, followed closely by the Central/East submarket at $1.419 million per acre, or $32.59. The Northeast, meanwhile, saw the lowest sales prices at $228,878 per acre, or $5.25 per square foot, which was 39 percent below the valley's fourth-quarter median.
"Creative risk-taking developers will likely hold up values into early 2006, while speculative investors are finding it difficult to make the leap," said Jeremy Aguero, principal of Applied Analysis. "The ultimate development of large parcels previously acquired in bulk disposals by the Bureau of Land Management will provide insight into the depth of the residential market and the public's perception about product types never seen in Southern Nevada."
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