Big ranches bring big money in mountain states

Markets
Oct 14, 2013

Americans’ sights are set on big things these days. In real estate, that means big ranches, big vistas, big opportunities…and big price tags.

The other big things going on in the country—changes to taxes and healthcare laws, the market swings and considerable uncertainty with the government—have convinced many wealthy buyers that now is the right time to realize their dream of owning a piece of America’s premiere mountain landscape.

But land and ranch realtors want both buyers and sellers to keep in mind that big things come to those who wait. When it comes to multi-million dollar ranches and properties that are in demand, things take time to pair the perfect buyer with the perfect property.

Overall, the answer to the question, “How’s the intermountain market?” was “pretty good.” Several of the land realtors WLJ spoke with described a good first half of the year, but cited a recent slowdown in interest in the past months. Ron Morris, managing broker and co-founder of Ranch Marketing Associates, attributed this recent flatness to uncertainty regarding the government.

Hunter Harrigan, ranch broker with Harrigan Land Company, also commented on uncertainty impacting buyer behavior. But in his perspective, the uncertainties in the markets—the potential for inflation and suspicion in the stock market—have spurred buying interest in recent years rather than slowed it down.

“Something we’re hearing lately is no one really knows what to do with money,” said Harrigan. “A lot of people are gun shy from the markets.”

Mark Norem of Mark Norem Real Estate said things are going very well.

“It appears the larger the property, the stronger the interest. It seems that that part of the market for the last couple of years has been very active. We feel we have some very good listing inventory right now, but our largest properties have had the most interest.”

John Knipe, president of Knipe Land Company, was a lone voice of caution on the topic of how the market is lately. He referenced the real estate adage: “location, location, location.”

“I’m not trying to be negative. I’m trying to be realistic. Yeah, some places are red hot, but some places are stagnant as hell.”

He explained that it is hard to broadly categorize the market in any given region. Location and especially price were hugely important, he said.

“Those properties that are priced competitively are getting looked at, are getting shown, and are getting sold.”

What’s selling and who’s buying

So what’s selling? Overwhelmingly, the answer was big ranches. Norem noted they have been finding buyers for big ranches far more readily than for medium-sized ranches which he described as “our bread and butter in the past.”

“A lot of that is because that wealthier buyer has the ability to buy where others might be hesitant to buy, or that medium buyer might still be gathering discretionary funds.”

Everyone WLJ talked to painted a similar portrait of the current buyer; wealthy individuals looking for something they want and have the cash to buy it when they see it.

Norem explained there is a nostalgic desire to own a big ranch for many retiring business owners today. He chuckled and cited Roy Rogers and memories of his portrayal of life in the West as being an influence for many. For those who have been successful and perhaps sold their business recently, the ability to finally own a ranch is attractive and a wise thing to do.

He said the activity he’s seeing in the large ranches stems from a desire to “own large ranches and own large holdings” more than any other interests.

But it’s not just the desire to own land. There is always an investment interest. Everyone WLJ talked to said productivity of a property and a return on investment plays an important role in buyers’ decisions.

When asked what kind of properties are selling, Morris answered simply, “agricultural land.” When asked to specify more details—working ranches with improvements, grazing land, irrigated crop land? Yes, he answered.

“Just about anything that produces a return on investment,” he said.

Morris also noted a lot of current buyers lately are businessmen who are retiring and/ or doing a 1031 Exchange following the sale of a business.

He said they still have an eye for getting an active return on their investment, even if their motivation to buy a ranch was specifically personal. In this vein, he said that pure recreation ranches have been “pretty flat.”

Harrigan, who specializes in large recreational ranches, disagreed. He said Harrigan Land Company is on track to eclipse their record-setting year.

“You’re not going to make money running cows on these properties,” he said of many of their big recreational properties. But, he pointed out, that is not what their buyers seek. “I don’t think we’ve ever sold to a pure cattle guy.”

Like Norem, Harrigan said he sees a lot of very wealthy buyers who have always wanted a large recreational ranch to enjoy with their families. Though there is a return potential for a large recreational property in some states based on landowner game tag regulations, most buyers are looking at recreational lands for their own interests.

When it came to what features buyers are looking for in a property, Norem said, “All of it.” The potential to run cattle, grazing land, haying land, the potential for crop production, minerals and water, recreation potential—everything.

“Because of the sheer size of the properties people are interested in, all of the above. You have to have a recreation component with the ranch, but at the same time they are looking for the ag production, as well.”

Morris, speaking on the investment perspective, pointed to some long-tried wisdom. “Land is one of the safer investments; it doesn’t go away.

“Usually when inflation goes up, land is one of the alternatives,” he explained. Also, as a different perspective about what is driving particularly outside investors in big ranches, he pointed to more global concerns.

“I really think people are looking at projections of food shortages in the future and ag land is a way to deal with that.”

He said that in past years he used to be able to make the statement that land doubled in value every 10 years, but that isn’t necessarily the case anymore. There is a level of uncertainty going on in his opinion, but he sees land as a way to hedge against that, and enjoy it in the process.

“The picture isn’t as clear as it once was, but there is some incredible wealth in this country. And what better way than to have a little piece of the U.S.A. to be able to retire to?”

Challenges and the future

Time and the need for patience was a common theme in the “big ranches, big buyers” aspect of current intermountain markets.

“The higher-priced stuff takes longer to sell,” said Knipe simply. He estimated that the time it takes to sell a large property is about one year for every million dollars.

“It is a process that I would guess on an average takes between 2-2.5 years,” said Norem, agreeing that larger properties take longer to sell. “We have some properties that have been on the market for 4-5 years.”

Pricing is important, however. A big ranch that comes with a big—but competitive— price tag will still sell. Not pricing competitively will keep the property on the market longer.

“The seller sets the price and if they price themselves out of the market, then that’s to their own detriment,” advised Knipe.

The fact big properties are so individual is also a doubleedged sword. Buyers seek out their own patch of “heaven” and value the individual assets of a particular track. But the fact people like to make a place their own can cause problems; seller and buyer might not agree on what “heaven” is.

Norem explained that for what he called the “upper end buyer,” some improvements to a property can be as much a liability as a selling point. To someone who can write a check for a $20 million ranch, an existing improvement on the property—perhaps the seller’s 10-year-old dream house— might detract from the property’s value more than improve it in the buyer’s eyes. On the detail of houses on large properties in particular, Norem said many of the buyers he’s seeing are looking “to build their own nest.”

“Every ranch is a little bit different,” he said. “They are all unique. You can’t be impatient. It is a process in finding the right buyer.”

When it comes to the future of the intermountain region market, things look good by all accounts. Harrigan forecasted a strong market for ranches and recreational properties.

Speaking of the large properties, he said there is only a relatively small supply, but it works because the demand is there. “The buyer pool is relatively small, but they stay in strong demand.” Morris said, “If it’s got good resources and is well located, it will be appealing.”

He acknowledged there are concerns about a decline in land values or the “bubble” bursting, but he hasn’t seen any sign of it.

“One would think there would have to be some softening on the farm land, but we haven’t seen it yet.” — Kerry Halladay, WLJ Editor

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