Chicago Tribune
10-01-06
Development drought cuts into farmland cash yield
By William Sluis, Tribune staff reporter. Tribune staff writer Sharon Stangenes
contributed to this report
For farmers eager to sell land for development, the phones have fallen silent.
Less than a year ago, vacant cornfields were creating bumper crops of cash for
tillers of the soil who stood ready to sell their acreage for new housing.
But an unseasonable chill has settled over the housing market, and farmers and
middlemen who were waiting for deals that would yield bundles of money have
been left holding the bag, said real estate consultant Steve Hovany.
"There have been some cries of agony as buyers renege on agreements," he
said. "National builders have sold off some land as a way to make their bottom
lines look better."
Earlier this year, a few builders began toying with the idea of selling excess
property. That was followed by the gavel falling on several suburban
subdivisions.
Additional builders have taken write-offs for land they no longer need. Some are
letting options expire, dropping plans to make purchases from farmers.
As autumn arrives, agricultural land is ready for a typical harvest of corn and
soybeans, not the green and gold of cash windfalls.
Farmer David Bengtson, 47, says the market for those seeking to sell their land
"appears to be just about dead. Everyone has pulled in the reins. It was so crazy
for several years that a downturn had to happen. From all that I hear, things will
remain this way for about three years."
Bengtson's family sold its 116 acres in southwest suburban Homer Glen to
housing developers several years ago. It still has more than 1,000 acres of
farmland in Iowa and elsewhere.
Now Bengtson, his wife, Pamela, and brother Dan operate an annual Homer
Glen pumpkin festival on rented property.
In recent years, several outlying counties got approval from voters to buy millions
of dollars' worth of farmland as open space.
"Farmers who still want to get rid of some land are hoping to sell it to a forest
preserve," Bengtson said.
Moving closer
Some national developers have switched from building in distant cornfields to
acquiring infill properties in established suburbs closer to Chicago, said
consultant Hovany, of Strategy Planning Associates in Schaumburg.
"That way, they don't need to carry land on their books for a long period of time,"
he said. "Building nearer to the city, they expect to finish projects within a year."
Some builders have run into financial problems.
In southwest suburban New Lenox, a new development, Sanctuary Pointe, less
than two blocks from the village's park district golf course, is sitting idle. Village
officials recently granted the owners 45 more days before they will stop a $2.3
million letter of credit to complete unfinished work on the subdivision.
"They put in the roads and the utilities, but no houses out there," said Robin Ellis,
planning and development administrator for New Lenox.
Three developers have expressed interest in the unfinished subdivision, which
has grown up with weeds. It is just north of U.S. Highway 30 on Marley Road,
according to village officials.
About two miles north of Sanctuary Pointe, another subdivision has completed
roads and other infrastructure, but has seen virtually no construction. One house
is under way. A forlorn sales trailer sits at one corner.
Ellis said those stagnant developments have had little impact on city revenues
because New Lenox has abundant residential development and has had good
commercial development this year.
But Hovany said a housing slowdown could have a "significant impact" on
growing cities, noting: "Housing is by far the largest industry, largest employer,
largest payer of fees and, by and large, growing cities do quite well with
development."
Though not all municipalities are affected equally, he said generally those farther
out suffer first and recover last because "developers are reluctant to move in an
outward direction during a slowdown."
Not far south of Joliet, realty agent William Arbaugh said a multimillion-dollar deal
to sell 400 acres of farmland fell apart earlier this month.
"The buyers didn't show up for the closing," said Arbaugh, of Manhattan Realty.
At this point, the deal is off, although the buyers are trying to salvage the
agreement, he said.
Arbaugh, 78, is offering another farm of 159 acres for $9.54 million and has other
large tracts available. But business has slowed.
"Last year was the best of my career. I sold $27 million worth of farmland," he
said. "This year I have already sold $20 million." But most of that was in the first
four months, he said.
The 159-acre farm is being offered by the family of a longtime figure in the
Manhattan community, he said, and could command a hefty price because it is
within a half-mile of sewer and water connections. Several developers have
looked at the property.
After a frenzy to buy farmland over the last several years, the market has
calmed, but that doesn't mean developers aren't looking, said home builder
Christopher Shaxted.
"We are buying land from other builders, and we are buying from farmers," said
Shaxted, of Lakewood Homes in Hoffman Estates.
He said national builders who moved into the Chicago market inflated prices in
recent years, with the result that "we created some very rich farmers,
multimillionaires."
Currently, according to Shaxted, "the situation gives us a bit more time and a
chance to be more selective when looking for property."
Cornfield prices OK
The drop in demand for farmland around major cities doesn't seem to have cut
into prices for cornfields in rural areas, said economist Neil Harl of Iowa State
University.
"The demand for corn, because of new facilities being built to create ethanol and
biofuels, is shoring up prices for land away from the big cities," he said. "In Iowa,
prices for farmland are steady or slightly higher."
Harl said the weakness in prices near Chicago is "not at all surprising,
considering the spotty demand for housing. But we aren't seeing the effect in all
cities equally."
He said prices are hardest-hit "where the run-up was the greatest. The Chicago
housing market never was frenetic, although home sales clearly are softening."
According to Purdue University, the value of an acre of average-quality farmland
in Indiana rose 6 percent to 7.5 percent during the year ended in June, to more
than $3,000.
That continues a 20-year trend of rising farm property prices, the coordinator of
the Purdue survey said.
Around the country, builders, who were optimistic about their prospects until a
few months ago, are cutting back. Economist Kenneth Simonson of the
Associated General Contractors says a survey of developers shows projects
being canceled in Florida, Nevada, California and elsewhere, in part because
building-material costs have skyrocketed.
Meanwhile, consultant Hovany says the scare over land prices likely will end in
short order.
"Last year, builders were producing 40,000 new housing units in the Chicago
area, and they still are building 30,000 units," he said. "Some builders may think
they are land-rich, but that situation is temporary. Sooner or later, they will need
to look for some additional property."
wsluis@tribune.com