At a standstill

The big homebuilding companies that fueled much of the land-buying frenzy in northern Nevada in recent years have hit the brakes hard.

As they dramatically slow their purchases, or even begin selling off some of their holdings, some smaller builders are beginning to nibble at the market, thinking they can buy land at a good price today for use when the residential market recovers.

"It has slowed considerably," says Mark Krueger, a senior vice president with Grubb & Ellis/NCG who handled many of the big transactions when homebuilders were buying. "There are only a few companies even looking for land to purchase, and there is nobody looking for large blocks of land."

The numbers, he says, tell the story:

Krueger estimates that about 3,300 new homes will be sold in the market this year, a 23 percent drop from last year. The drop, he says, cuts across all parts of town and cuts across all price points.

"This sudden cooling of demand in the market has caught many of the builders off guard," Krueger wrote in a recent analysis. "An aggressive pace of construction has created a standing inventory in most communities, a major red flag for builders."

With sales of new homes slowing quickly, builders are quickly losing their appetite to buy more land that will require monthly feedings of cash until they're ready to build.

On the other hand, the slow market is drawing some interest from opportunistic buyers.

They're coming in with a sharp pencil, says Bruce Breslow, who sells land at CB Richard Ellis in Reno.

"They're not willing to pay a penny more than they can pencil out," Breslow says. Long gone, he says, are assumptions that ever-rising home sales will cover high-priced purchases of raw land.

Smaller homebuilders, particularly those with the capital to carry property for a while, are among those that are bargain hunting for land that the big builders no longer want. Breslow says, too, some investors both locally and from other regions are beginning to look for land purchases.

Says Ron Cobb, who works with Breslow at CB Richard Ellis: "A down market is where you want to buy land."

Cobb and Breslow say that the cooling market also means that buyers aren't pressured to make fast decisions and sellers of land need to be financially flexible.

Krueger notes, for instance, that rolling options in which developers hold a series of options on contiguous parcels that are exercised as they need land are back in fashion. So are flexible closing dates, such as deals in which sales are finalized only when finished homesites are completed.

Cobb notes, too, that while tracts of raw land ticketed for suburban subdivisions are selling slowly, the market for other types of land remains relatively strong.

Redevelopment projects in the downtown area are drawing interest, and so are commercial and mixed-used projects.

In recent sale, for instance, Marina Properties LLC sold 18 acres at Sparks Marina to Lakemont Homes Nevada. The transaction, in which Lance Faulstich of Grubb & Ellis/NCG represented Marina Properties, totaled about $7.7 million.

How long will the market for subdivision land remain soft?

Krueger says a recovery is at least 12 months away as builders work to reduce their inventories. In July, he says, incentive packages on new homes free upgrades, for instance, or interest rate buydowns ranged from $20,000 to $100,000.

But over the longer term, he projects that strong job growth and continued migration of Californians into the market will support the market at 3,500 to 3,750 new homes annually.

Cobb and Breslow feel even more bullish about those factors and guess the market might support close to 5,000 housing starts a year once builders get past the current oversupply.