Mark Twain's advice to "Buy land, they're not making any more of it." may be true but the question remains, "Is land a good investment?" There are many untold stories of people who have made fortunes investing in land. However, just as many fortunes have been lost the same way.
Even the old adage regarding "Location, location, location." doesn't always hold true when looking for land investments. Perhaps a better adage would be "Location, taxes and carrying cost".
Over the last several years many fortunes have been lost by aggressive investors who rushed to acquire land for residential and commercial development only to see the market collapse and their investment value plummet. Holding costs and real estate taxes coupled with no income from new developments caused many of these investors to utilize some or all of their cash reserves. The result has been a surplus of raw and developed land on the market, a percentage of which is now bank owned. Current land listings are often offering property for less than half of its last purchase price just a few years ago. According to the Met Council, land absorption or development of raw land has actually declined during the previous decade as compared to the '90's. Nevertheless, outlying areas such as Shakopee, Blaine, Woodbury, Lakeville and Maple Grove all saw substantial growth within each community adding over 12,000 people during the last decade.
From 2000 to 2009, the Metro area's population grew by almost 240,000 people. The City of Minneapolis led new housing production, gaining 7,400 households. Aging Baby Boomers and Gen Y both seem more inclined to live closer to shopping, entertainment and core services. Mixed use development in the central core has gone from a novelty to a viable product type. New Urbanism has increased in areas that were previously considered highly undesirable such as Excelsior and Grand, The Villages of Mendota Heights and the Village at St. Anthony. These communities offer open space, context-appropriate architecture and balanced development of jobs and housing. Young professionals and older empty-nesters alike are attracted to these communities which often reduce traffic congestion and increase the supply of affordable housing while providing more Eco-friendly development through historic preservation and green building techniques.
So, what does this mean for the future of land as an investment? New development and land absorption will continue as the Twin Cities continues to grow. Minnesota's Metro areas offers a robust, diverse economy; a highly educated productive workforce coupled with an exceptional quality of life with easy access to national and global markets. The real question is, "Where will development occur?" Will it continue to be in the outlying suburbs or will the "next wave" consist of urban redevelopment? The answer appears to remain "Location, location, location."
Lou Suski and Dan Hebert represented Central Bank in the sale of a 12,000 office warehouse building located at 3250 Gateway Circle, Centerville, MN. The building was sold to John Hart USA, the U.S. subsidiary of Australia's John Hart company, for their first U.S. location.