Market Overview - What happened in 2013
The Residential Land Market Metropolitan Baltimore/Washington in recovery if your selling lots, not so much if all you have is un-entitled dirt.
The residential land market in the greater Washington-Baltimore area showed signs of recovery in the spring, as national homebuilders, such as Lennar, Richmond American, and NVR, loaded up on inventory of engineered and finished lots. The first phase of this land grab actually began in 2011, as a number of builders started purchasing defaulted subdivisions from area lenders such, as M&T and PNC. Once all of the low hanging fruit had been acquired for pennies on the dollar, builders began to seek new opportunities from land developers and smaller homebuilders who had projects that they had shelved during the Great Recession. Much of the builder activity we saw is 2013 resulted from the acquisition projects that had finally obtained record plat or had been previously-stalled projects.
Raw unimproved land is still proving to be difficult to sell outside of Montgomery, Howard, and Anne Arundel Counties. Many nationals have not ramped up their land development departments to pre-recession staffing and are simply not able to handle the in-house processing of more than a handful of unentitled land projects. In an effort to continue to feed the pipeline, the nationals and many smaller homebuilders are turning to local land development firms to do the “dirty” work for them. However, the challenge that land development firms are experiencing is a lack of working capital. So many of the developer-friendly community banks, such as Key Bank, Bradford Federal, Bank of Annapolis, and Carrollton Bank, have been acquired in the last several years by larger banks. Because the larger banks have been burned by bad land loans, they are disinclined to lend to developers with the same generous approach that the smaller banks had historically adopted for their long-term, valued clients.
Looking for new funding sources, many local developers are partnering with high-net-worth individuals or entering into joint ventures with venture capital groups. While the new funding sources help solve the problem of a lack of working capital, the also create a new obstacle: for assuming the risk, the sources also take a huge bite out of the developer’s profit.
While the overall lack of funding has opened up opportunities for cash-ready investors, it also continues to suppress raw land values: There is still a substantial number of would-be buyers forced to remain on the sidelines for lack of working capital – traditional or otherwise – thus land continues to remain unsold, which keeps prices from increasing.
In addition to many buyers sitting out the season, lower land values on all but the best parcels have kept many potential sellers (some of whom are still wearing pre-recession beer googles) inclined to remain on the sidelines, waiting for land values to rise. With potential land sellers continuing to hold their properties, autumn 2013 offered a palpable slowing in the land market: With much of the existing inventory under contract and builders disinclined to purchase raw land, the land acquisition managers were unsure as to what they should buy for 2014 and beyond.
As for our land practice, we found that 2013 was a time to prepare for 2014. All of the deals that settled this year were deals that we began in years prior. We have continued to work with landowners who are preparing to sell by assisting them in taking their land through the subdivision process as a way to help them unlock value. We continue to market our services to landowners considering selling their landholdings throughout Maryland.