Clark Wheeler - Montana Association of Land Trusts

Report
Montana Land Trends
In The Re-emerging Market
Looks Like We’ve Weathered The Storm
Norman C Wheeler & Associates
Bozeman & Missoula, Montana
May, 2014
Please Note:
Opinions
Ideas
Observations
Shameless Projections
Values or Scenarios
These are of a small minded appraiser and
may not be coherent or representative
of those who govern over us.
The Land Ranch market is re-emerging
What is the Market Rewarding?
Productivity
&
Good Buys
Not Speculative Development or Values
Not the best environment for beneficial
Conservation Easement valuation.
Historically
The “Other
Market”
One Market
State Project
Average Land Sale Values Per Year
$2,500
$2,000
Annual Land Report - Norman C.
Wheeler & Assoc. - Summary of data
compiled from annual ranch study of
land sales > 640 acres in MT
recreational land market
$1,909
$1,795
$1,500
$1,361
$1,325
$1,164
$1,135
$960
$1,000
$880
$874
$798
$785
$655
$776
$610
$505
$500
$-
Note – this is the Western Land Survey
2004 verses 2013
Deeded Acres Sold Per Year
500,000
450,000
400,000
464,074
Annual Land Report - Norman C.
Wheeler & Assoc. - Summary of
data compiled from annual ranch
study of land sales >640 acres in
MT recreational land market
Number of Acres
350,000
300,000
250,000
200,000
150,000
100,000
50,000
-
Sale Year
Lowest Price Point on
Average since 1990s
Volume of Sales & Land Sale Values Per Year
500,000
Annual Land Report Norman C. Wheeler &
Assoc. - Data compiled from
annual ranch study of land
sales > 640 acres in MT
recreational ranch market
$610
450,000
Deeded Acres Sold
400,000
$1,361
$960
350,000
$776
$1,135
300,000
$874
250,000
Average Land Value
$785
$1,325
200,000
150,000
$655
Deeded Acres
$1,909
$1,164
$1,795
$880
100,000
50,000
$798
$505
-
Also a factor of Supply & Demand
Later
Larger Ranch Sales Annually - Western Market
Bifurcated
Rural Land Sales 640 acres or greater in deeded acres
within primary recreational influenced markets - Volume
of confirmed sales - Land Value Expressed as
Unimproved
Norman C Wheeler
& Associates - 2013
land survey
Year
Average
Acres
Sales
Deeded Acres Sale Value
Average
Land Value
1990
10
22,300 $
11,053,890
2,230 $
505
1995
33
101,541 $
68,032,470
3,077 $
655
2001
2002
2003
61
51
52
320,861 $
217,546 $
200,379 $
313,160,336
192,310,664
159,100,926
5,260 $
4,266 $
3,853 $
960
874
785
2004
2005
2006
2007
2008
54
83
53
46
31
265,394
323,895
174,229
159,061
91,999
$
$
$
$
$
309,184,010
459,283,110
237,996,000
319,715,000
172,040,000
4,915
3,902
3,287
3,458
2,968
$
$
$
$
$
1,135
1,361
1,325
1,909
1,795
2009
2010
2011
2012
17
41
47
46
66,822
464,074
323,779
327,029
$
$
$
$
60,125,004
291,405,710
273,994,314
258,632,689
3,931
11,319
6,889
7,109
$
$
$
$
880
610
798
776
up 30%
Average Per Acre
$899
up 37%
Average Per Acre
$1,476
up 64%
Average Per Acre
$748
down 49%
Average Per Acre
sub 2012
2013
37
34
88,793
114,804 $
$98,254,689
147,851,010
2,400 $1,107
3,376 $ 1,164
Up 52%
$1,135
or up 5%
Average Land Value
$1,600
Annual Land Report - Norman C.
Wheeler & Assoc. - Summary of data
compiled from annual ranch study of
land sales >640 acres in MT recreational
ranch market
$1,476
$1,400
$1,135
$1,200
$ Per Acre
$1,000
$899
$748
$800
$600
$400
$200
$-
2001 to 2003
2004 to 2008
2009 to 2012
Sale Period
2012 to 2013
Bifurcation Analysis 2012 vs. 2013
2012 was $776 per acre overall
Year
Sub Class
2012 sub class one
2012 sub class two
2013 sub class one
2013 sub class two
Land Per Sale
Acres
Sale Volume
Acre sample
88,793 $ 98,254,689 $ 1,107
37
238,236 $ 152,570,205 $
640
64,753 $ 81,829,548 $ 1,264
50,051 $ 42,006,210 $
839
2013 was $1,164per acre overall
5
73% of
market
12 up 23%
20 up 31%
Strong Value Influence Based
on Commodity Prices
Listings:
Quick Sample over
640 Deeded Acres
194,603 Acres
$1,920 Per Acre
Less IX Ranch
134,603 acres
$2,309 on Average
Deeded
Overall
734
1,138
2,661
1,396
1,050
5,665
2,964
5,366
731
934
1,068
1,965
950
1,782
2,930
3,017
6,291
1,652
1,125
10,605
4,640
9,600
5,060
12,910
2,011
9,800
60,000
4,750
10,000
7,539
5,870
8,399
Imps
Land
List Per
Acre
$ 16,349 $ 2,500,000 $ 9,500,000 $ 12,943
$ 8,699 $ 750,000 $ 9,150,000 $ 8,040
$ 8,455 $ 1,500,000 $ 21,000,000 $ 7,892
$ 8,954 $ 2,000,000 $ 10,500,000 $ 7,521
$ 7,619 $ 500,000 $ 7,500,000 $ 7,143
$ 7,061 $ 500,000 $ 39,500,000 $ 6,973
$ 6,916 $ 5,000,000 $ 15,500,000 $ 5,229
$ 4,659 $ 1,000,000 $ 24,000,000 $ 4,473
$ 4,788 $ 300,000 $ 3,200,000 $ 4,378
$ 4,026 $ 500,000 $ 3,260,000 $ 3,490
$ 3,839 $ 400,000 $ 3,700,000 $ 3,464
$ 3,511 $ 450,000 $ 6,450,000 $ 3,282
$ 4,053 $ 750,000 $ 3,100,000 $ 3,263
$ 3,339 $ 500,000 $ 5,450,000 $ 3,058
$ 3,328 $ 1,500,000 $ 8,250,000 $ 2,816
$ 2,967 $ 500,000 $ 8,450,000 $ 2,801
$ 2,368 $
$ 14,900,000 $ 2,368
$ 2,361 $ 700,000 $ 3,200,000 $ 1,937
$ 2,467 $ 750,000 $ 2,025,000 $ 1,800
$ 1,839 $ 1,000,000 $ 18,500,000 $ 1,744
$ 1,724 $
$ 8,000,000 $ 1,724
$ 1,766 $ 1,500,000 $ 15,450,000 $ 1,609
$ 1,759 $ 1,250,000 $ 7,650,000 $ 1,512
$ 1,433 $ 750,000 $ 17,750,000 $ 1,375
$ 1,492 $ 500,000 $ 2,500,000 $ 1,243
$ 1,224 $ 500,000 $ 11,500,000 $ 1,173 2013 Average
$ 1,075 $ 1,500,000 $ 63,000,000 $ 1,050 $1,164 Per Acre
$ 1,011 $ 200,000 $ 4,600,000 $ 968
$
950 $ 400,000 $ 9,100,000 $ 910
$
962 $ 500,000 $ 6,750,000 $ 895
$
818 $
$ 4,800,000 $ 818
$
655
$ 5,500,000 $ 655
194,603
$ 373,735,000 $ 1,920 overall Avg
134,603
Overall Less IX
$ 310,735,000 $ 2,309 Ranch
January
2014
2013 Market
Average
$1,164 Per Acre
And Then There’s Demographics
• Who’s next behind the Boomers?
– GenX’ers: born between roughly 1965 and ’82
….now 31 to 48 yrs old.
– Millennials: those following, now 18-30 yrs old
Millennials
GenX
Source: BabyBoomer
HeadQuarters –
www.bbhq.com
So when looking at Montana’s Rural Land Markets now, post-RESET….
Millennials
GenX
Location and
Highest & Best Use
(Really) Matter
Changing Matrix – Buyers
Desires – Land Ethic
CE – Historically changes to H&B Use- Greater
Native Range
$600
Mountain Pasture
$850
CE – Historically
Limited Change
Irrigated –
Pivot - $4,000
Productivity
Riparian
$6,500
Features
Typical Matrix
L
e
a
s
e
s
Native Range
Irrigated –
Pivot -
Mountain Pasture
Riparian
Buildings
Western Markets
General Value Range Per
Land Class
acre - Land
Pivot Irrigated
$
3,250 $
4,500
Wheel Move
$
2,250 $
3,250
Flood
$
1,500 $
2,500
Irrigated Meadow
$
1,000 $
1,800
Sub Pasture
$
500 $
1,500
Dry Crop
$
550 $
800
Dry Crop - North Central $
700 $
1,050
Mountain Pasture
$
600 $
900
Native Range
$
550 $
650
$
$
$
$
$
$
$
$
$
FCS Typical
Medium
4,000 Irrigated
3,000 $ 3,000
2,500
1,500
750 Dry Crop
800 $ 715
900
800 Dry Pasture
600 $ 700
$
$
$
$
$
FCS Medium
3,200 $ 3,200
1,200
650 $ 715
600
425 $ 494
Eastern Market
Land Class
River- Irrigated
Flood Haylands
Dry Crop
Timber/Rec Pasture
Native Range
General Value Range Per
acre - Land
$
2,500 $
3,500
$
800 $
1,500
$
400 $
750
$
350 $
650
$
275 $
500
State Of
2013
Montana
Irrigated
$
2,800
Dry Crop
$
710
Dry Pasture $
580
2013
Irrigated
Crop
$
Dry Crop $
Dry Pasture $
Avg Rent
Per Acre
$
86
$
24
$
6
FCS - All
Montana
3,150
715
475
Return
3.1%
3.4%
1%
2013 – Small Lands Analysis
• 100 to 320 Deeded
Acres – 24 Sales
• $12,846,000
• 4,430 Deeded Acres
• $2,900 per acre
Improved
• $2,348 Per Acre
Unimproved
• 321 to 1,000 Deeded
Acres – 25 Sales
• $24,167,843
• 14,076 Deeded Acres
• $1,717 per acre
Improved
• $1,394 Per Acre
Unimproved
Appears to be an upside to selling smaller parcels
Based on averages – averages Good
2013 Sales
Water Amenity Properties
5,546 Deeded Acres $20,550,000
$7,135 per acre - Improved
$5,425 per acre - Unimproved
Average 504 Deeded Acres
Water Class Values - 2013
Class One Water
Class Two Water
• Land Value Per Acre- Overall
• $5,877
• Land Value Per AcreOverall
• $4,227
• Non CE - $6,460
• CE Encumbered - $3,958
• 38.73% Property Rights
Adjustment
• All Non CE Encumbered
Southwestern Montana
River Trending
• Madison County
Madison Only - Riparian Trending
2003
2004-’05
2006-’07
$3,056
$4,301
$8,432
No Sales
2010-’13
$8,536
No Sales
2010-’13
$5,896
• Beaverhead County
Beaverhead Only - Riparian Trending
2003
2004-’05
2006-’07
$1,150
$2,385
$3,858
Not Appreciation – Changing
Property Features Spring Creeks
Averages Good
Recent River Site Data Trends
2011 to 2013
• Average Site - 78.86 acres
• Average Site - $810,000
• High Amenity
• $914,000
• $10,272 per acre
Unimproved
• Lower Amenity
• $595,000
2013 River Sites
$20,550,000
15 Sales – 1,427 Deeded Acres
95.13 acres per site
$1,370,000 Per Site - Improved
$14,401 per acre overall
Average $960,000 Site/Land Value Only
$10,091 Per Acre
Unimproved
FCS –Southeastern Montana Ranches
2012
2013
• Sales Volume
$81,000,000
• Sales Volume
$51,000,000
• Deeded Acres
208,000
• Deeded Acres
117,000
• $390 Per Acre - Deeded
• $436 Per Acre – Deeded
(11.8% Increase)
Eastern Montana – “The Other Market”
Predominately Agricultural H&B Use
2005: $175 to $225 Per Deeded Acre
2010: $225 to $275 Per Deeded Acre
2010 - Emergence of N Bar Sale & Expanding Western Market
Mid State - Spanning Two Market Areas
More Recreational Influence - $400 to $500 Per Acre
2012: $350 to $400 Per Deeded Acre
2013: $435 to $496 Per Deeded Acre
Effect of Transitional Market On Animal Unit Values - 2010
Avg AU Rec Influence
Avg AU Grass Ranch
$
11,730
$
Per AU Unimproved
8,043 Per AU Unimproved
Effect of Transitional Market On
Animal Unit Values - 2012
Avg AU Rec Influence
Avg AU Grass Ranch
$
15,000
Per AU Unimproved
$
11,000
Per AU Unimproved
What's Up with Appraisers
Regulation began in 1990
Grandfathering
Lack of Mentorship
(intelligence)
IRS Enforcement ( Intimidation) 2006
Overstatement Penalties - Sanctions
Lack of Effective Support or Pushback
By Appraisal Organizations
Report Formats
USPAP
YELLOWBOOK
(One hand tied behind your back)
QUAILIFIED IRS APPRAISAL
(Two hands Tied behind your back)
Pushback was Limited
Errors and Misleading
Reports Flagged - Bad
No Logical Defense
No Real Standards in Place
IRS Walk Over Appraisers & Land Trusts
Subsequently Decreed Rules
“Standard Procedures”
Property Rights Adjustment Gutted for CE Valuation
But Still Fully Acceptable for any other Damages Measurement
Access
Fire
Environmental
Virtually Whole Appraisal Practice is based on Property Rights
Adjustment
USPAP
(Follow the rules)
5 Standards of Practice & Incorporated Rules
10 Statements on Appraisal Standards
32 Advisory Opinions
316 Frequently Asked Questions
USPAP
Report Credible Results in a
Non
Misleading Manner
Based on Standard of your Peers
No Review – Until?
Maybe Never
As dictated By Your Experience/Ethics
Review and acceptance by a
qualified reviewer based on
a statement of work
Yellowbook
Report all undeniable elements
In a Supportable Format
IRS Qualified
Appraise As Ordered
Based on Non Regulated Rules
Radom –based on
unlicensed IRS Engineer
Only Federal Agency that has
not adopted USPAP
1-Larger Parcel Issues
2-Highest and Best Use
3-Valuation
4- Trends
Larger Parcel
Unity of
1-Ownership
2-Location
3-Unity of Use
4- Highest and
Best Use
Mom & Pop
CE Subject
640 Acres
Larger Parcel
Unity of
1-Ownership
2-Location
Mom & Pop
CE Subject
3-Unity of Use
4- Highest and
Best Use
640 Acres
Mom and Pop
160 acres No CE
Mom & Pop
Yellowbook
Before 800 acres
After 640 Encumbered
160 Non – different H&B Use
CE Subject
Mom & Pop
640 Acres
CE Subject
Mom and Pop
160 acres No CE
640 Acres
USPAP
640 CE Subject - Encumbered
Mom and Pop
160 acres No CE
IRS – 800 acres Partially Encumbered
With Analysis of Benefit to Remainder
and Enhancements
Larger Parcel
Unity of
1-Ownership
Mom & Pop
2-Location
3-Use
Ex Son
In-law
CE Subject
640 Acres
Mom & Pop – No CE
Daughter
Larger Parcel- USPAP
Unity of
1-Ownership
Mom & Pop
2-Location
3-Use
Ex Son
In-law
CE Subject
640 Acres
Mom & Pop – No CE
Daughter
Larger Parcel- IRS
Unity of
1-Ownership
Mom & Pop
2-Location
3-Use
Ex Son
In-law
Daughter
CE Subject
640 Acres
Mom & Pop – No CE
Now for IRS
920 acres Partially
Encumbered Larger Parcel
640 encumbered
Benefits
Enhancements
Larger Parcel- IRS
Unity of
1-Ownership
Mom & Pop
2-Location
3-Use
Ex Son
In-law
Daughter
CE Subject
640 Acres
Son
Mom & Pop – No CE
Now for IRS
920 acres Partially
Encumbered Larger Parcel
640 encumbered
Benefits
Enhancements
Highest & Best Use
Before Easement
Legally Permissible
Physically Possible
Financially Feasible
Maximally Productive
Legally Permissible
Zoning
Prior Easements
Floodway
Governmental Restrictions
Physically Possible
Topography
Access
Floodway
Size/Shape
Soils
Financially Feasible
What Economic Use
Supports Market Value
KEY
Probable
Measurable
Predictable
Probable
Agriculture
Productivity
Interim
Recreation
Features
Foreseeable
Future
Investment
Quality
Bullshit
Subdivision - Really
Subdivision- OK
Value Analysis
Discounted Cash Flow
NO-NO
Bulk Sale
Unhappy Client
Joe Bag of Doughnuts
Buys a 320 acre tract
At market - say $1500 per acre
Or $480,000
Based on Buyer Logic:
A = $100,000 - 20 Acre Lot
Then regardless of input costs
My 320 acres = 16 times $100,000
Or B - $1,600,000
$5,000 per acre
CE Reserves 2 build sites and no division
So
After Value
2 times $100,000 = C- $200,000
D- (duh)= CE value $1,400,000
320 acres – assuming zoning and all that:
Infrastructure - $10,000 per lot- $160,000
Cost of Sale at 12% - $192,000
Retail less $352,000 – net $1,248,000
After – “IRS” two enhanced build sites at $150,000
280 acres of permanently restricted pasture
At $500 = $140,000
After Value - $440,000/ $1375 per acre
CE Value - $808,000
But wait - What about
Financial Feasibility?
Demand-?? Why of course.
Supply – not like this.
Absorption – It is “red”hot.
Cost of Money – Who cares.
Discounted Cash Flow
Typically a six to seven year window.
Based on:
Extraordinary Assumptions
Remember: There is no mythical
development market out there.
Maximally Productive
Rural Recreational Investment
with
Agricultural Influences
in
Anticipation of Appreciation
Based on value and use
measured by
Non Economic
Intrinsic Personal Use Benefits
And is that improved or unimproved
Oh Yea
Measure the Effects of Super Adequate Buildings
On land values within CE sale Analysis
Average $960,000 Site/Land Value
Only
Real World –H&B Use
Remember average River Class One
504 acres at $6,400 per acre
$3,225,000
So CE allowing 2 sites within 504 acres
Two 78 acre sites at $960,000 each
$1,812,000
$10,091 Per Acre
Unimproved
Remainder 348 acres restricted
at CE Value of $4000 per acre
$ 1,392,000
Average 78 acres
Take Down $21,000
Yea so you can’t divide to capitalize on two sites But do I have any sales to go down that roador is it an Extraordinary Assumption
After Value - $3,204,000
Sites $1,812,000
Open Space - $1,392,000
Lets Go To Real World
Assume Identical CEs – No Splits- No Homes
Assume water/ systems /productivity - similar
Irrigated Cropland
Bozeman Proper
$10,000 Per Acre
Irrigated Cropland
Holland Settlement
$5,500 Per Acre
Consider Change in H&B Use
Irrigated Cropland
Toston
$3,500 Per Acre
Highest and Best Use a Function of:
Irrigated Cropland
Bozeman Proper
$10,000 Per Acre
Irrigated Cropland
Holland Settlement
$5,500 Per Acre
LOCATION
Consider Change in H&B Use
PRODUCTIVITY
SUPPLY
DEMAND
Irrigated Cropland
Toston
$3,500 Per Acre
Remember
Financial Feasibility
Maximally Productive
Assume Identical CEs – No Splits- No Homes
Irrigated Cropland
Bozeman Proper
$10,000 Per Acre
Irrigated Cropland
Holland Settlement
$5,500 Per Acre
LOCATION
PRODUCTIVITY
Consider Change in H&B Use
SUPPLY
DEMAND
Irrigated Cropland
Toston
$3,500 Per Acre
Do we even have a sale of encumbered irrigated cropland?
Well I have sales that contain lands including irrigated cropland.
Those sales say 30% property rights adjustment - overall.
Oh yea – those are at Dillon and they are 4 years old.
I have non comparable pasture sales in this area that show a
Property Rights adjustment of 40%.
I have county and NRCS purchases of CEs on Irrigated cropland
that were funded at 20 % of market value.
Oh yea
IRS and courts can try to default to established Programs.
Highest and Best Use a Function of:
If This was Entitled
It would Sell at $25,000
Per Acre
Consider Change in H&B Use
Financial Feasibility
Maximally Productive
Irrigated Cropland
Bozeman Proper
$10,000 Per Acre
Simple – Entitled to Speculative
$25,000 to $10,000- 60%
But wait - $10,000 was “fee simple”
and
Who really puts an entitled tract under CE?
Case solution
Based on a preponderance of the data my $10,000
speculative land could be assumed to be affected
60% bringing $10,000 per acre down to $4,000 per
acre which somewhat equates to Toston irrigated
sales, with some unexplainable consideration that
Toston sales are “fee land”, whatever, but
considering location I have to adjust $4,000 per
acre up 57% to $6,280 based on locational
premium of Settlement lands as compared to
Toston lands; and by the way that ends up as a
37.2% property rights adjustment that just
happens to coincide with the average of every non
comparable easement sale in my database that
occurred in Montana over the last 10 years, that
wasn’t a riparian property sale.
Highest And Best Use
Considerations
Irrigated
Cropland
Dry Cropland
Ex Urban
Lands
River - Riparian
Semi Arid
Native
Rangeland
Buildings
Mountain
Pasture
Highest And Best Use
Considerations
Irrigated
Cropland
Dry Cropland
Site
Site
River - Riparian
Site
Semi Arid
Native
Rangeland
Buildings
Mountain
Pasture
River - Riparian
Historically Discount Based on
“Principle of Substitution”
In the Maturing Montana Market
You have to ask yourself
Is there a substitute?
And realize that for high end property
Most are Encumbered!
Parting Thought – What Drives Value in Your market?
Gallatin
Avg Site
Acres
Volume
Land Value Avg
1,592 $
11,855,000 $
7,447
200 unimproved
$
7,384
Paradise
Avg Site
3,082 $
23,900,000 $
770 unimproved
$
7,755
6,328
Bitterroot
Avg Site
1,688 $
19,875,000 $
562 unimpoved
$
11,774
6,120
Thanks For Your Time !

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