Ranch Market Update: Summer 2009

June 16, 2009 by Caroline Leave a reply »

Bar Cross Ranch, Cora, Wyoming

“Stability in Volumes, Values, and Emerging Trends”

Many of the themes we reported on in our Fall 2008 CNBC story and newsletter have evolved into full form now with strong new trends emerging, (see www.LiveWaterProperties.com for an archived copy of the Fall 2008 Ranch Market Update).

Volumes: First, we reported in September of 2008 that sales volumes were continuing to pull back, off 40-60% from the peak of 2006. Now, ranch sales volumes appear to have stabilized, hovering around 60% off from the peak, on average over the entire Rocky Mountain region. Live Water Properties‘ strong first half 2009 sales and anecdotal evidence in the ranch market indicate we are seeing increased volumes now, suggesting we may have formed a bottom in terms of ranch sales volumes. Second, the developer and the leveraged speculator are fully out of the ranch buyer marketplace given the supply/demand imbalance of development product and the difficulties with obtaining credit. Much of the decrease in sales volumes (25-30%) is directly attributed to the absence of the developer and leveraged speculator, again supporting the stability of current sales volumes. Third, due to the established and recent consistency of the strongest cash buyer types, “end users” and private equity funds, the difficulty with obtaining conventional financing already plays no significant role in today’s buyer market and is unlikely to further decrease sales volumes.

Values: The value landscape is different valley to valley much more so than any small regional differences noted in sales volumes. In valleys with booming resort expansion, we witnessed ranch values spiking 15-30% annually in 2005 and 2006, an unsustainable movement. In other valleys far from development pressure, ranch values continued their steady annual appreciation in the 3-8% range without any dramatic spike. You can guess which category is experiencing the dramatic pullbacks. A few reference points are helpful here for understanding value. In the Jackson Hole resort market, we witnessed the big spikes. As a second floor tenant in the First Interstate Bank building here in Jackson, we have access to valuable information from the largest private bank in Wyoming and Montana. First Interstate is currently comfortable financing home purchases based upon 2004 values. In contrast, we are working on ranch transactions and listing valuations in rural valleys far from any resort or tourist traffic influence, and with few comparable sales over the years, we may be looking at data from sales over a 6 year period without any evidence of unsustainable spikes. Many of these rural properties continue to offer investment grade land and water features at a fraction of the cost of comparable properties in resort valleys only one hour away and for that reason are holding value well.

In line with the slower ranch market, pricing has been adjusted dramatically downward in many cases and will continue to be adjusted downward where needed to find common ground with value on a case by case basis. Inclusive of both Buyer and Seller representation, Live Water Properties’ ranch sales in the past 12 months have shown 5-30% discounts from asking prices, reflecting the varying gaps between pricing and value from ranch to ranch.

Emerging Trends:
The western ranch market is not overly leveraged, but as a result of leverage and recent losses in other investments, ranch owners are placing some spectacular “legacy” properties on the market this season. We believe this trend represents an important generational buying opportunity, as we normally only see this highest level of quality available every 15-20 years.

As an additional trend, owner financing may become more common again as it aids both sides of the transaction, helping the Buyer hold on to more cash as a precaution and facilitating a sale sooner for a Seller while also spreading out any gains for potential tax benefits.

With sales volumes appearing steady thus far in 2009, we believe more Buyers will re-enter the ranch market to take advantage of discounted deals with the aid of owner financing if conventional financing is not available in an attractive manner.

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