Dallas-Fort Worth land sales slowed in the second quarter as the coronavirus pandemic hit. Sensing weakness in the market, some investors are circling, looking for opportunities, but there may not be enough blood in the water yet to send buyers on a distressed land feeding frenzy.
“We haven’t received any information of a fire sale from sellers,” Younger Partners’ Michael Ytem said. “What we are finding is at the advent of this situation, you had some … buyers thinking they could probably corner sellers into renegotiating deals and dropping prices.”
Distressed asset buyers are chomping at the bit to find overleveraged property owners who need to quickly sell their land at a discount.
“I’ve had groups call me who are basically sharks,” Transwestern Managing Director of Retail and Urban Land Services Steve Williamson said. “They are looking for blood in the water, and they are saying, ‘If you come across any really good deals where there is pressure on the landowner, let us know, because we will come in and pay cash.’”
But DFW land assets remain relatively solid for now.
“So far, we are only six to eight weeks into this thing. I don’t think enough time has passed yet for people to be panicking,” Williamson told Bisnow. “I’m not saying there are not people who are panicked about it, but I haven’t seen it reflected in the land market yet and asking prices.”
DFW land prices reached decade highs in 2017 through early 2020, Williamson said. Sites in Uptown Dallas used to sell for $200 per SF on average 10 years ago. Those same tracts are selling for $500 to $600 per SF today.
A discount on DFW land would be beneficial to distressed asset buyers, but there is no indication the coronavirus has harmed the area’s overall land values.
CBRE Senior Vice President Marty Neilon said players in the DFW land space remain mostly confident in the prospects for land assets heading into the future.
“Fortunately, we have seen the majority of land transactions holding together currently,” Neilon said. “In spite of the high levels of uncertainty at the moment, we see continued interest — even internationally — in developing land and long-term land real estate assets in Dallas-Fort Worth.”
Sale volumes are feeling some temporary pressure.
“Many deals are simply being put on hold until the dust settles from the pandemic. It has become increasingly difficult to get a deal across the finish line due to the fact many banks and lenders have been overwhelmed with the recent wave of [Paycheck Protection Program loans],” CoStar Group Director of Market Analytics Paul Hendershot said in a statement.
DFW land sales reached $286M in the first quarter, according to CoStar. There has been a slowdown in recent months, but no one knows whether it’s a temporary sales dip from the virus or a warning of a land market recession.
“It appears that things have slowed significantly in the second quarter with $26.9M in sales [to date],” Hendershot said.
But that may be an indication of confidence in the market, not a pain point.
“We have not witnessed widespread panic or distress among landowners,” Neilon said. “We have seen a frequent viewpoint that the fundamentals of our North Texas market should stabilize in the mid-term.”
Right now, much of the land market is in wait-and-see mode. After a 10-year run of rising prices and sales volumes, land owners and buyers want more information about the pandemic’s lasting effects before assuming the market is a bust or expected to rebound quickly.
“It’s still premature. I think you have another 60 to 180 days until you can actually tell what effects this disruption is going to have,” Younger Partners’ Robert Grunnah said.
Whether a particular piece of land performs well during the crisis and immediately thereafter depends largely on whether the site is overleveraged or designated for a troubled asset type.
“Every landowner circumstance is unique. It is reasonable to expect some landowners could experience a greater sense of urgency than others,” Neilon said.
Land designated for retail or hotel development receives virtually no interest from buyers, Grunnah said.
“People sitting on those are going to be sitting on those for a while as [investors] determine if they are going to lower the price to a point where it’s going to make it beneficial,” he explained.
While the jury is still out on land designated for office space, land for industrial use is still coming in strong, Grunnah added.
“People are still looking,” he said. “People feel like the industrial market will hold up under any circumstances.”