Not surprisingly, speculative real estate investments – especially in vacant land – have declined in favor among high net worth households in recent years. However, with the land market in Nevada reaching towards a more sustainable supply-demand balance, renewed interest may be on the horizon.
The Private Bank by Nevada State Bank released the 12th edition of its “High Net Worth Report” series, with this month’s analysis focusing on the trend in non-residential real estate investments by wealthy households. As the current historically low interest rate environment persists, residential properties are capturing an ever-larger share of investments such as buying vacant land, which may require the investor to undertake a significant amount of risk, as well as maintain an asset lacking revenue-generating capability.
Highlights from the report include the following:
- An estimated 18.8 percent of families in the top 10th percentile of income have holdings in non-residential real estate, down from 27.7 percent just over two decades ago (since 1989). In contrast, 42.1 percent report residential holdings outside of their own homes, up from 36.8 percent in 1989. Non-residential real estate such as vacant land holdings has likely become less attractive given the purely speculative nature of the investment strategy, while income-producing alternatives can provide increased stability, whether actual or perceived.
- Though nowhere near the demand level witnessed during the run-up during the early to mid-2000s, the desire for vacant land in Southern Nevada has increased to the point that the Bureau of Land Management (BLM) plans to auction 440 acres of vacant land in January 2014, the second largest sale of this kind since January 2005. An increase in new home construction and improved economic conditions since the end of the recession are contributing to the renewed interest. Investors have remained cautious, however, with vacant land prices remaining well below the peaks reached during the boom era. In Southern Nevada, values are hovering around $200,000 per acre on average, compared with the $940,000 reached during the peak in 2007.
- In Washoe County, land prices have remained remarkably stable since the bubble, when an average price of $1.4 million per acre was reached in 2008. From 1998 through 2004, vacant land prices averaged $328,100; from 2010 through 2012, the average was $322,300.
- Regardless of the area or location, a unique expertise is required in land speculation and, ultimately, land development. In Nevada, the inherent risks in land investment have been particularly great.
“In recent years, vacant land investments in Nevada have often proved to have more value as tax mitigation strategies rather than investment strategies, and this will continue for some time for many who made investments during the boom era,” commented Russell Price, executive vice president of The Private Bank. “With prices beginning to stabilize and even improve in some areas, some affluent households may be looking to diversify once again into the land market. Portfolio diversification remains a key hedge against risk in all asset classes, including real estate.”
The Private Bank publishes the “High Net Worth Report” monthly. Briefings are available on Nevada State Bank’s website at www.nsbank.com/HNWreport or by contacting The Private Bank directly at 702.855.4812.
About The Private Bank by Nevada State Bank
The Private Bank by Nevada State Bank provides a full range of personalized financial servicesfor high net worth and high-income clients, including deposit and lending services and wealth management planning. The Private Bank by Nevada State Bank is an unincorporated division of Nevada State Bank that provides specialized banking services to significant net-worth clients. Nevada State Bank is a full-service retail bank that has been chartered by the state of Nevada and is insured by the FDIC.
About Nevada State Bank (@nevadastatebank)
Nevada State Bank, with assets of more than $4.0 billion, is the largest state-chartered bank in Nevada. A full-service bank with 50 branches statewide, Nevada State Bank offers complete range of consumer, private and business banking services. It is a subsidiary of Salt Lake City-based Zions Bancorporation (Nasdaq: ZION), one of the nation’s premier financial services companies. With affiliates in 10 Western and Southwestern states, 140-year-old Zions Bancorporation has assets of $55.2 billion. For more information on Nevada State Bank, call 702.383.0009 or access www.nsbank.com.