Posted by: Daryl & Wendy Ashby | November 6, 2010

Land Development 101

Having been active in the development of land (on behalf of others) for nye on 40 years, I think it is reasonable to say, I have some knowledge of the subject. Having said that, there is always something to learn.

With many developers moving swiftly through the existing stock of developable land, interest is slowly growing in new development sites.

Developers, some of whom were caught with excess inventory during the downturn of the past two years, have been reticent to load up sites without a clear read on the timing of a sustained resurgence in the market. The strong rebound of the past year is moderating, and many pundits are anticipating steadier — and slower — times ahead.

So what is a developer to do?

While opportunities exist, hard pricing information is difficult to obtain because deals haven’t been happening.

“There hasn’t been a significant amount of trades,” said Andrew Tong, senior vice-president, acquisitions and dispositions, with Vancouver-based Concert Properties Ltd. “There’s really no evidence out there of where raw land prices are for residential/condominium product.”

Avison Young (Canada) Inc. reports that 2009 saw land sales (not pricing, but volume) in Vancouver drop 37 per cent from 2008, totalling just $649.6 million. Calgary posed a 63 per cent decline, with land investment settling at $378.5 million for the year.

During the first half of 2010, however sales in Vancouver picked up, topping $359.7 million — an 11 per cent increase over the same period of 2009 and a 19 per cent increase over the previous six months.

The rebound reflects the bullish assessment in a recent report from Scotia Economics that indicates land prices have become the major component countrywide in home values. The land cost in new construction rose 2.5 times over the past decade and now accounts for half the estimated value of residential properties.

While this isn’t news in B.C. which has led the trend, it underlines the pressures developers face in trying to make land deals pencil out.

The challenges have pushed more developers to the margins, making suburbs more desirable for development. Notwithstanding densification efforts in Vancouver and, more recently, Calgary, developers are keen to tackle areas with fewer barriers to development.

Development sites in Burnaby currently cost $50 to $60 per buildable square foot, CB Richard Ellis reports, while prices in South Surrey/White Rock run $35 to $45 a buildable square foot. Speaking earlier this year, Sharp executive vice-present Darren Kwiatkowski noted that prices were still running at or above $1 million an acre, more than most commercial tenants are willing to pay.

Casting a ray of hope on these difficult times, this is a perfect time for smaller investors to get into the game. You can negotiate good terms with developers, you can negotiate good terms with construction guys, because there is access to trades. If you have some capacity, you can drive a hard bargain.

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