The sixth annual Lay of the Land Conference, hosted by Coldwell Banker Commercial Saunders Real Estate, featured the growth-oriented nature of Florida. After the bust of 2008, the state is back on a growth track and the economy is heating up. In general, 2017 looks bullish for real estate.
In his comments before delivering the “Lay of the Land 2016 Market Report,” Dean Saunders, Owner of Saunders Real Estate, said the most contentious Presidential election in recent history put a pall on real estate business, but that has changed now that the election is over.
“Somewhere in the summer months, things just seemed to come to a stop,” Saunders said. “It was like everybody had election malaise. We were tired of it. Get this over with please.
“But, afterwards [the election], the flood gates opened and our phones have been ringing off the hook. Whether any of this happens [Trump’s business-friendly actions] or not, it has people believing it might happen, and it has gotten people up off their wallets.”
Dr. Mark Dotzour, former Chief Economist of the Real Estate Center at Texas A&M University, echoed the sentiment. He noted in his travels across the country, there is an enthusiasm across the business spectrum.
“It is like the whole country, in terms of business community, is ecstatic that some of this heavy handed government regulation that has been stifling the U.S. business world for at least the last decade might actually get unwound,” Dotzour said. “It might actually be a fun time to be a business person in America again. Everybody is euphoric right now.”
Dotzour added the economy is heating up and predicted the Federal Reserve would continue to seek rate hikes up toward the 2% or if and when the stock market tanked due to rate hikes. He also said he didn’t foresee inflation in the coming year, nor were there signs of a recession looming.
Saunders told attendees that the picture for citrus was not pretty and it is showing up in the statistics. In only a decade, acreage has fallen from 580,000 acres to about 430,000 acres. Production is way off, and most telling, production per acre is off.
“In 10 years, we have seen round orange production fall from an average 342 boxes per acre down to163 boxes per acre,” Saunders said. “That is a 52% reduction.”
Because of the ill effects of HLB, citrus groves continued to make up a significant portion of the agricultural real estate market in 2016. Pricing ranges vary according to attributes such as location, water quality and quantity, production potential, and disease pressure. But, Saunders said generally prices for grove land range from $6,000 to $8,500 per acre with outliers lower or higher than the range.
According the the land report, typical grove buyers are seasoned growers who are skilled in production and marketing. Citrus groves located in the path of growth are highly desirable for commercial or residential real estate. Groves located in the historic farming districts of Southwest Florida, could be developed into other crops.
The report also noted break-even or negative cash flow groves are going at discounted prices. The University of Florida benchmarks the typical all-in production costs for processed oranges is $2,235 per acre. Given that, the break-even number for a grove would be 225 boxes per acre receiving $2.28 per pound solids delivered (assuming 5.86 pound solids per box).
Saunders noted the overall uncertainty and waiting game for greening solutions have tempered groves sales.
“Some of that large consolidation is not happening like it was,” Saunders said. “I think part of it honestly is if you are a production guy for one of those farms you have to be scratching your head because your production numbers keep going down.”
For grove land transitioning into other crops, prices ranged from $3,800 to $16,000 per acre, depending on crop and infrastructure. Land transitioning into commerical or residential real estate ranged from $5,500 to $130,000 per acre.
Saunders said there is still hope and optimism that a solution will be found for greening, but until that time occurs, uncertainty will remain and it will be reflected in agricultural real estate.