Home sites remain anathema to investors

Investors can snap up an unfinished parcel of land in Somerset for just $900,000 a fraction of the $9.5 million owed on the property. Similarly, a piece of property in Fernley is listed at $850,000 far less than the $10 million owed.

Though land prices have fallen by as much as 90 percent for many unfinished parcels throughout the Truckee Meadows, buyers still remain scarce. The problem: They'd need to tie up funds for five years, maybe more, until they can develop the properties, says Mark Krueger, managing director of Grubb & Ellis/NCG.

Speaking last week at the annual Builders Association of Northern Nevada's mid-year construction review, Krueger said the large number of finished lots combined with weak home sales in the region have kept land sales at a minimum during the first six months of this year. More than 3,300 home sites are ready for development in the region a six-year supply at the current pace of new home sales.

Through June, there were nine land deals in the region totaling $11.5 million. They encompassed 850 lots and 210 acres. In the first six months of 2010, however, there were 43 land deals totaling $68 million. More than 5,400 lots and 2,000 acres changed hands. Prices for undeveloped land are at pre-1997 levels, Krueger says, and most of the deals are from buyers with ties to the region who understand its economic situation.

"I have been in the market since 1995, and we were selling paper lots then for more than we are selling them now," he says. "The discount is less on finished lots, but paper is such a long hold right now, and there are fewer buyers, that you have to get into that 10 percent in order to sell."

Paper lots are lots and streets that have been planned, and sometimes recorded, but they don't actually exist physically. The actual land is still undeveloped.

Krueger says hold times on land could be as long as 10 years. "A lot of guys don't want to hold that long. You have to wait for all the finished lots to be absorbed, final maps left to be absorbed before putting paper (lots) into play. That's why sales activity is slow and we have to bring those prices down."

Land sales are expected to pick up with stronger home sales, but sales activity has been slow.

In 2010 there were 530 new homes sold, a 25-year low for Reno-Sparks. Through the first six months of this year, 264 new homes have been sold, an even weaker pace than last year.

South Reno has been the most active suburban area in the Truckee Meadows, garnering 45 percent of all new home sales. Northwest Reno was second at 28 percent, followed by Spanish Springs at 20 percent.

Construction of single-family homes is limited to public companies and one or two of the strongest private companies, Krueger says. The five most active homebuilders in northern Nevada are Lennar, KB Homes, Ryder Homes, DR Horton and Pulte. Ryder is the only privately held builder on the list.

Washoe County's woes have spilled over to neighboring communities as well. This year there have been just 22 permits for new home construction in Lyon County one in Fernley and 21 in Dayton.

"They are obviously still lagging behind and waiting for Reno-Sparks to warm up," Krueger says.

Weak prices for existing homes also have impacted new home development. According to the Reno-Sparks Association of Realtors, the median sales price for an existing single-family home in June was $152,400, a decline of 7.5 percent from the December 2010 median.

"This has really been hurting us," Krueger says. "We have been waiting and watching for that median to stabilize. We are still seeing a softening in the resale market, and it is having a direct impact on our new homes."