Lots of Trouble
Selling vacant land becomes a struggle in down market
Baltimore Business Journal
The Diamond Group has cut its asking price for a 2-acre lot in the city’s Morrell Park neighborhood in half. The lot has room for 20 new townhomes.
Anne Arundel County home builder William Douglas Homes has four parcels of vacant land for sale in Maryland. Four years ago, selling empty land was an afterthought for the home builder.
And most lots are sitting on the market for months, a significant difference from five years ago when land would be under contract before it listed, said NAI KLNB broker Stephen J. Ferrandi.
“Builders were very eager to acquire land for the sake of further developments and they got crazy,” said Bernard Markstein, a senior economist at the National Association of Home Builders. “With the bust in housing, it has become a liability.”
Vacant lots that are development-ready and empty parcels of land are the latest victims of the housing market collapse. As fewer people buy houses, home builders have become more hesitant about building properties on lots they bought during the real estate boom.
As a result, developers and builders are frantically trying to remove empty land from their books and eliminate their interest payments on the properties. It’s leaving some offering hefty discounts on the lots, ranging anywhere from 10 percent to more than 50 percent.
“It’s all a matter of supply and demand,” said Brenda L. Desjardins, principal of New Homes Marketing Services in Annapolis, which does market research and feasibility studies for builders and developers. “There’s probably equal or less supply then there was four or five years ago, but the demand is substantially less.”
U.S. housing starts — the start of construction of a house or apartment building — fell 3.3 percent in May to their lowest level in 17 years, according to the U.S. Commerce Department. Privately owned housing starts — all non-government projects — set an annual pace of 975,000 units in May. Building permits also fell to an annual rate of 969,000, 36 percent lower than estimates from May 2007.
Industry experts say lot prices are directly related to home prices. So as houses continue to dip in value, empty lots are doing the same.
Economist Markstein said in markets like Washington, D.C., Miami and Arizona, weakness in real estate has caused land to slide in value by 50 percent or more. In Greater Baltimore, industry members say the market hasn’t been hit as hard and the price for land has dropped between 10 percent and 25 percent.
The Diamond Group’s property in Morrell Park off Washington Boulevard is going for $899,000. The Baltimore company was hoping to get $1.7 million when it listed the site four months ago.
“You would’ve seen four years ago a national home builder stepping up and buying the entire property,” said KLNB’s Ferrandi, who is representing the Diamond Group on the property.
Annapolis Junction’s William Douglas Homes was one of those home builders gobbling up properties several years ago.
The builder currently has four different parcels, or 70 lots, for sale on the Eastern Shore and in Anne Arundel and Prince George’s counties.
But during the boom for home builders, William Douglas wasn’t in the business of parting with any of its vacant lot inventory.
That has changed.
“We typically have bought the land with the intention to develop it ourselves,” said Douglas Milburn, vice president of William Douglas. The home builder put the lots on the market earlier this year, and has not yet reduced its asking price. He said the company hasn’t sold enough homes to use the lots.
William Douglas constructed five homes in 2007, down from around 20 in 2005, Milburn said.
At Arnold’s Baldwin Homes Inc., President Michael A. Baldwin said it’s an easier time for home builders to find land to buy — but it’s still a risk. It wasn’t as easy back in 2003.
“Before you just didn’t have the chance,” said Baldwin, adding that his business is off 50 percent from 2005. “You had to know the farmer down the street to get the lot from him.”
Baldwin currently has three lots for sale at $500,000 apiece in Davidsonville. He picked them up in 2006 for $425,000 each. He has yet to reduce the price of those lots, but has trimmed down his plans on the scope of the homes.
For example, Baldwin was initially offering to build a 5,500-square-foot home on one of the lots for $1.5 million. Now he’s marketing the lot as a 2,800-square-foot home for around $900,000 — what he hopes will be a sweeter deal for a buyer looking to pay less.
“You always have somebody kicking around out there,” Baldwin said. “If there’s deals to be made out there, I’d be willing to look at them.”