Future Opportunities In Land Development
The future of land development:
None of us have a crystal ball showing us a definite future in anything, but in the “here and now” every land developer is forced to predict future market conditions in a variety of ways. It’s a dilemma of finding and using quality data on past and current conditions to predict future outcomes… a speculative enterprise with no magic genie on-hand to help.
An example would be the use of current market values combined with demographic, social and economic trends to arrive at an estimated future market value of the finished product. No matter how you cut it, the speculative aspect means risk, but risk can be mitigated with quality fact-based decisions.
Risk is also managed with focused attention on the existing and emerging real estate trends that might help a developer capitalize on development opportunities.
Let’s take a look at some emerging trends that I see:
Low income housing:
No matter your political or social position on how it started, we can all probably agree that there is a significant homeless problem in this country. It started long before COVID and also with different administrations in power. Homelessness and the lack of low income housing is a glaring and inexcusable social problem, but might present economic opportunities for both the developer and to society as a greater whole.
Zoning changes over the last 30 years favor high density and this steers us toward a land use environment where developers in raw land, new construction, or conversion can thrive. I know nothing about federal and state grants involving development and financing for the low income population, but it seems worth investigating to those interested. Further, in the interest of full disclosure, I have never done a low income project.
For more on high-density zoning see: High-Density Zoning in Land Development — Land Development Realities
Ground leases:
I’ve always been hot on the ground leasing idea - lease out your dirt! This can be done on both a small and large scale.
A small-scale example is a guy back in my home state that owns a gas station/minimart. It is on a pointed corner of an irregular intersection and he has extra land at the tip. He has leased it to the local utility district for overnight parking for their service trucks for years. Besides that, the crews fill up there and come in for coffee and donuts in the morning, beer and munchies at the end of the day. Smart move!
Another small-scale ground lease example is one my land manager spoke to me about years ago. A cell tower lease. The link to the entire story is below, but there was a guy that owned land with a high spot that was perfect for a cell mast/tower. He did a long-term lease on the high spot with the provider for $15k per month on land he couldn’t use anyway.
See the story here: Leasing Land — Land Development Realities
On a large-scale, land can be leased for big time uses. In eastern Washington state there are huge wheat farms and they used to be family run. Many are still family owned, but not family farmed. Instead, corporate farming outfits lease the land and the farm landowner (f.k.a. farmer) gets a regularly scheduled wire transfer while watching Oprah reruns on TV!
Manufactured Home Parks - MHP’s
Even the name has changed over the years - MHP originally meant Mobile Home Parks and call it what you will, off-site manufactured homes have come a long way in quality. Not only that, they tend to fit the demographic of an aging population that is more interested in downsizing than upsizing.
With a combination of afforadability and a much higher quality of construction than the original designs, MHP’s might be a profitable way for the land developer to penetrate the low income market. I see two main areas of opportunity here going forward: The first is the already mentioned aging demographic that wants to downsize. The second is the low income population where an economic choice needs to be made between a sketchy and possibly dangerous neighborhood and a potentially safer and better maintained MHP community.
Self-Storage:
I see opportunity in self-storage development and leasing moving forward. It seems like there has been a fair amount of consolidation in this sector recently - big guys buying out independents, but here’s one fact pointed out by a really smart investor that I know in the sector - “If there is one thing for certain - Americans have a lot of stuff”.
It also seems clear that the nature of residential home offerings have changed for good. Single family lots are smaller with fewer opportunitites for things like storage sheds. Also, what passes for a 2 car garage in newer homes is pretty lame. The end result is that storage at the ‘ole homestead is tight and there is no sign that any of these factors are going to change.
Industrial warehousing:
What I am mostly thinking about here is industrial distribution centers. With the meteoric rise in online shopping, recently given a turbo charge by COVID, there are more and more domestic distribution centers being constructed. These facilities tend to be a huge dollar investment and out of reach for developers like us, but knowledge of this expanding market is food for thought as a possible fund investment.
Land rights (TDR’s, easements, water and mineral):
Whether it’s a current opportunity or a future trend, in land development we shouldn’t overlook the possible value of the rights granted on title and in the deed, plus how we might profit from them:
Easements: Buying an easement can save on the cost of actually buying the land if that’s all you need. Selling an easement can be profitable as well, but care should be taken to evaluate any reduction in property value from the easement sale. For how I profitably transacted an easement, see the following:
What To Know About Easements: What To Know About Easements — Land Development Realities .
TDR’s: Transfer of Development Rights is another emerging trend nationwide. This link provides both the background and details of TDR’s and any owner of raw land should be aware of both the potential positive and negatives of TDR’s as an emerging power:
Transfer of Development Rights (TDR’s): TDR - Transfer of Development Rights — Land Development Realities
Minerals / subsurface: As landowners, we own not only the property surface, but also down to the earth’s center and upward to infinity. Subsurface and air rights can be of value as shown in these two articles:
What is vertical thinking in land development? What is Vertical Thinking in Land Development? — Land Development Realities
Negotiating Mineral Royalties: Negotiating Mineral Royalties — Land Development Realities
Good luck and be diligent!
Contact me at: ldr@landdevelopmentrealities.com
Blog photos courtesy of Unsplash.com - Cesira Alvarad - Thank you!
