A Quick Land Update From Meyers

California Market Watch, January 17, 2012

Major Land Deals in Northern California

Through the second half of 2011, residential land transactions totaling $165M occurred in the Northern California region. The land transactions were primarily for paper lots, with the majority of activity taking place in Santa Clara County.  As was the case for much of the past year, homebuilders remain attracted to core markets in or around employment nodes.  With strong employment opportunities focused on high-tech jobs, Santa Clara County will continue to be one of the core markets of interest for developers and homebuilders in the near term.

                                                                                                                                                                                          

·         Homebuilders’ purchase of residential land focused on paper lots in Santa Clara County.  As finished lots become increasingly scarce throughout the region, paper lots will be the norm for land deals.  California remains one of the toughest places to get lots mapped and entitled, leading to a competitive bidding process for lots with any entitlements.  Even paper lots in core markets have been trading at prices as high as $350,000/lot.  One such transaction occurred in the third quarter of 2011 with Tri-Pointe’s $13.5M purchase of the Cadwallader project in San Jose. 

·         Employment remains a key driver of land purchase decisions.  The Bay Area employment outlook is one of the best in California.  With Santa Clara County experiencing a sharp drop in unemployment over the past year, it will continue to attract a sizable portion of the land transaction market in the near term.  A variety of residential product types have transacted in the past couple of quarters, from mixed-use and attached products to traditional single family detached lots.

·         The multi-family market continues to be at the forefront of the real estate industry.  With homebuilders continuing to struggle against foreclosures and short sales, the multi-family segment now accounts for a larger portion of the market, representing about 60% of the permit activity in the region for 2011.  Renter demand continues to be fueled by the uneasy housing market conditions, tight homebuyer credit, as well as by the booming technology industry.  These factors, along with the preference of generation Y consumers to live in centrally-located areas, will continue to focus demand on the multi-family market.  As a result, existing rental properties and multi-family land will see competitive offers and high transaction values.

Further details on land transactions, as well as other economic and housing data, is available by subscribing to Real Estate Trends, a quarterly newsletter published by Meyers LLC and Elliot D. Pollack & Company covering Southern California, Bay Area and Phoenix.

Jeff Meyers, Principal

jmeyers@meyersllc.com