Pricey Land Market Confounds Developers

The pursuit of land and its price is rising, putting a strain on developers in nearly every market and industry segment.

In 2021, the land market had its best year in nearly a decade as sales rose 6% and outperformed the pace of acquisitions of other commercial real estate types, according to the 2021 Land Market Report from the REALTORS Land Institute (RLI) and the National Association of REALTORS (NAR).

Keith Poliakoff, founding partner, Government Law Group PLLC, tells GlobeSt.com that as the price of land continues to increase, so too are the development costs, which are up nearly 30 percent in the past two years.

“This is causing land to remain undeveloped, which increases the price of developable land even further,” Poliakoff said. “This is an incredibly difficult development cycle, as the demand is there, but the cost to purchase and develop is greater than the economic return.”

Mike Procopio, CEO, The Procopio Companies, tells GlobeSt.com that land prices are having a direct impact on the readability of new development projects.

“Yields are already very tight because of supply and demand imbalances, and the only thing that hasn’t shifted is land costs,” Procopio said. “In Massachusetts, for example, deals are still getting done because of the market’s drivers and their resilience. 

“Massachusetts has become the national leader in life sciences, one of the best places for tech, and arguably the mainstays of the ‘Meds and Eds’ remain as sound as ever – all of that is driving multifamily developers to take different approaches to get deals done despite the land-cost constraints.”

Available Land Scarce in Florida

Florida has been a particularly challenging market as well.

Noah Breakstone, Managing Partner and CEO of BTI Partners, tells GlobeSt.com that as large land tracts have become scarcer in South Florida, the company has had to look outside this market area for new opportunities for the past decade. 

“As masterplan, land developers, we buy agricultural tracts of land in major population and job growth markets in Florida that are ripe for new housing construction,” Breakstone said. “BTI Partners designs, entitles and builds the major horizontal infrastructure for the land prior to selling subdivisions to public and regional private homebuilders. 

“For the past couple of years, we have been seeing increasing tailwinds for ready-to-build land in Florida’s West Coast, Tampa, Orlando and Jacksonville. Homebuilders are seeking to buy land at more affordable prices in those areas to be able to build homes for the price-sensitive, first-time homebuyer.”

Claudio Mekler, CEO, Miami Manager, an investment group that owns shopping centers in South Florida and develops multifamily developments in the region, tells GlobeSt.com, “It has become more challenging to find development sites, but there are still opportunities out there. 

“While the process is taking longer than it did a year ago, we have been successful in finding land at the right price for us to develop multifamily with retail on the ground floor. We are currently in negotiations to buy land in Aventura and Boynton Beach.”

Fielding Out-of-State Calls

Luis Flores, partner, Saul Ewing Arnstein & Lehr, tells GlobeSt.com that the number of inquiries he receives from out-of-town real estate investors seeking land opportunities has increased dramatically over the past 12 to 18 months. 

“When those calls first started, our clients were seeking land opportunities at an average price of $15 million to $25 million, but now buyers need at least twice that amount to be competitive for similar properties,” Flores said. “In fact, land values have reached a point where many players are being priced out of the South Florida market.”