Farmington Hills, Michigan (May 2, 2014) – Friedman Integrated Real Estate Solutions, one of the nation’s leading providers of commercial real estate services, anticipates that residential and commercial land values will continue to increase throughout Southeast Michigan in 2014.
In order to fully appreciate the recent trends in the land markets in Southeast Michigan, it is important to turn back the clock to pre-recession times. By the end of 2007, land values had reached their peak and were already beginning to “teeter.” When the economy crashed in 2008, the land market came to a grinding halt. It got so bleak on the residential side that some national homebuilders and developers pulled out of Michigan completely. Many of the local builders scaled back their operations dramatically, and some walked away from their deals, giving the land, and even partially developed projects, back to the lenders.
From the perspective of a land broker, it was a very scary time and one of great uncertainty. For a broker who was willing to stay the course, it also presented great opportunity. Robert A. Hibbert, Senior Vice President, Brokerage Services, who specializes in residential and commercial land sales for Friedman, pursued the opportunistic route. Following the advice of David Friedman, company founder and President and CEO, Hibbert “avoided the noise” and held fast in his belief that land values and demand would eventually recover.
By the end of 2008, Hibbert had worked himself into a very unique position, getting close to many of the local banks, and even some of the national banks. He listed these foreclosed land deals and partially developed projects, and began selling them on behalf of the banks. Hibbert’s business model grew to the point where he was even selling assets for the FDIC. As a result of the strong business relationships he formed during this time, Hibbert has become the “go to” guy for builders and commercial developers in Southeast Michigan.
Hibbert remembers it well. “For a long time, you couldn’t give land away. It wasn’t worth the carrying costs (mainly property taxes) for the builders to have it on their books.” Then, in 2010, things began to slowly turn around and developed and partially developed land started to sell again. Developers were grabbing up developed lots and prime commercial sites for pennies on the dollar. This gradual upswing continued through 2012. By early 2013, the inventory that was sitting for years was suddenly gone. Slowly prices began to increase. It wasn’t long before the only developed lots and strong commercial sites left to buy were in tertiary markets.
Fast forward to 2014. Raw land values are continuing to trend upward and more quickly than anticipated. This uptick is being seen across the board in residential as well as in the industrial, retail, and office sectors. While values have not yet reached their pre-recession levels, they are inching closer. Residential markets that were strong before the recession, such as South Lyon, Lyon Township, Northville and Rochester Hills, were the first to recover. Land values in infill markets with hard-to-find sites like Downtown Rochester, Birmingham and Royal Oak, have bounced back, and in some cases, are already back to pre-recession levels.
By way of example, Hibbert has been working on a large tract of vacant land in North Oakland County since shortly after the crash in 2008. When he first put the property on the market, there were no offers for the first year. For the next couple of years, he received numerous offers in the $8,000-$10,000/acre range. Since the middle of 2013 and into this year, Hibbert has been negotiating multiple offers at almost $40,000/acre.
One key indicator of economic growth analysts have been monitoring is building permit activity. According to the Home Builders Association of Michigan, single-family home permits statewide were up 30% in 2013 and are expected to increase another 20% this year. Although still historically low, the numbers paint a positive picture. The Southeast Michigan Council of Governments tracks residential permit activity for the seven counties that make up Southeast Michigan. In 2013, SEMCOG reported 5,716 permits pulled for single-family use compared to more than 15,000 ten years ago. With the pace of construction growing steadily over recent years along with a huge pent-up demand for housing, builders are now racing to catch up. The Detroit Free Press recently reported that there is now a shortage of skilled workers due to the recent increase in construction.
Another encouraging sign is that builders and commercial developers are starting to buy land to inventory on a speculative basis for future development. “During the crash, builders weren’t willing to take the risk associated with building spec homes. No one wanted to build unless there was a firm buyer in place,” Hibbert explained. “On the commercial side, speculative development was almost nonexistent for several years.”
Increasing availability of financing and continued historically low interest rates are also contributing to this positive trend. Locally, banks are back in the commercial lending game and more eager to lend than they have been in years. In stark contrast to what occurred just a few years ago. “I brokered more than $15 million in land development transactions from 2008 to 2012 and 100% of those deals were cash deals. Not one of those transactions had any financing,” recalled Hibbert.
Although Hibbert focused mostly on the residential side of land sales during the crash, he also specializes in commercial land sales. With the resurgence of the domestic auto industry and the recovery of the housing market, businesses are expanding, tenants are leasing and buying buildings, and quality properties are being snapped up at a brisk pace. This is leading to a tight supply of quality sites. Developers are also showing an increased appetite for vacant land in order to meet the growing demand for new facilities. Basic economics tells us that limited supply and increased demand leads to higher prices. “We are definitely seeing increased sale prices across the board, from raw land to retail, office and industrial buildings,” said Hibbert. Growing optimism in the land market has lead to a rise in new commercial construction with CoStar Group reporting there are 8.4 million square feet of proposed office buildings and 8.5 million square feet of proposed industrial space in Wayne, Oakland, Macomb, Livingston and Washtenaw counties.
It seems the dark cloud that’s been hovering over residential and commercial land markets since the economic downtown has finally lifted. And, if every cloud has a silver lining, then forecaster predictions regarding land values will lead to increased opportunities for developers and brokers alike.
ABOUT FRIEDMAN INTEGRATED REAL ESTATE SOLUTIONS
Friedman Integrated Real Estate Solutions is recognized as one of the largest privately-held commercial real estate organizations in the nation. Friedman offers a full range of services that include: commercial brokerage, property and asset management, investment and loan sale advisory, turnaround management and receivership, space planning and design, construction and project management, graphic design and marketing in addition to a vast array of advisory services. We provide our clients with a single point of contact for the entire range of services we offer.
Friedman represents banks, special servicers, institutions, property owners, national and regional retailers, and commercial tenants in every size range. Friedman manages over 140 facilities encompassing more than 16M SF of commercial and multi-family properties throughout the country. As owners and managers of commercial property for more than 25 years, Friedman understands what it takes to achieve results that maximize the client’s objectives.
For more information, please visit: www.friedmanrealestate.com.
