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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Ramsey Su who wrote (21931)	7/4/2004 6:29:18 PM
From: Elroy Jetson	Read Replies (2) \| Respond to of 306849

What happens to land builders acquire at bubble prices? Here's a bubble-esque land purchase I previously posted. Builders paid $557 million for 1,940 acres in Henderson Nevada at a June 2004 BLM auction. The sale was a joint bid between seven builders Focus, KB Home, Toll Brothers, Woodside, Pardee, Beazer, Kimball Hill and Meritage. This same parcel had failed to sell in November 2003 for the minimum bid of $250 million. That's $280,000 per acre for land in Henderson that won't be ready for sale until 2007. This puts their raw land cost at roughly $165k per Development Unit plus something like $90k for off-sites which means each finished lot is going to have a cost of $255k - assuming there's no major infrastructure to but put in place. reviewjournal.com By way of comparison, Pardee paid $12.6 million for 1,969 acres in Temecula California in 1991. That's $6,400 per acre. That builds out 4,300 homes (2,650 single family and 1,650 town homes. Even though Temecula is sort of an armpit, it is in southern California. It's tough to justify paying 44 times as much for land in Henderson Nevada. Making a simple comparison between Temecula CA in 1990 at $6,400 per acre and Henderson NV in 2004 at $280,000 per acre - that's 4,421% appreciation or 31% appreciation per year compounded. The finished product in both locations sell for roughly similar prices today, so I think the comparison is quite valid. Compare that to income growth. I wonder if the person earning $60,000 per year in 1990 earns 44 times as much today, or $2.6 million annually? Of course you know what really happens when the cycle stops, having made a fine living selling REO bank properties in 1990. All of the builders with debt, or their banks, will sell their $100 million share of the Henderson NV project for $2 million. Or in this case, since Pardee has no debt, they'll take the whole $700 million project off the other builder's hands for $10 million. All of the builders are loading up with huge blocks of land right now. They always do that in the last year of each property bubble.