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| 'When cash is king in any market, the product becomes cheaper due to the lack of leverage and fewer buyers.' |
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December 19, 2008
Banks that were heavily involved in lending for residential subdivision development are taking a hit all over Georgia. Due to the downtown in the market and the supply of building lots in several metro counties, banks have had to foreclose on these developments. And, as a result, some are reducing inventory at dramatic decreases in prices.
It seems that the private sector, in good ole' capitalistic fashion, is swooping in to invest in these properties. One member of one of these "vulture funds," as people are starting to call them, says he expects an 18-month to 24-month hold period for the lots.
Due to the overwhelming supply of lots to the existing demand, he expects that development of some of these subdivisions won't begin until sometime in 2010. So, to factor in this hold time, many of these investors are calculating two years' worth of interest in their development proformas.
Of course, most often, they are cash buyers, since financing has continued to be difficult to obtain. And, when cash is king in any market, the product becomes cheaper due to the lack of leverage and fewer buyers.
While the big land deals will be purchased by well-funded investors, there may be opportunities for future homeowners to buy a building lot for their dream home. Since there are so many lots on the market, the investment funds tend to overlook the smaller one- and two-lot deals. There's just not enough time in the day for them to look at the smaller deals. This may provide some opportunity for a cash buyer to buy a lot at a discounted price.
So, if you have interest in building a new home, contact your local banker and see what they have available. You might find a deal that's too good to pass up.
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Brian Patton, CCIM is the founding broker of Capital Realty Advisors, LLC of Alpharetta. He is an author and lecturer on real estate issues and can be reached via his company Web site at: www.CapitalListings.com.
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