6/14/2007 - 'Land rush' ups Denton prices

Cost of acreage in northern part of county doubles, triples in 10 years

Dallas Business Journal - June 15, 2007
by Lauren D'Avolio
Staff Writer

Land prices are reaching historic highs in northern Denton County, despite a slowdown in housing development.

Parcels in far northern areas, largely agricultural tracts, are selling for $75,000, $85,000 and even $99,000 an acre -- double and triple what buyers were paying 10 years ago.

"It just doesn't make sense," says longtime North Texas land broker Morris Orr.

Orr and his colleague at Dallas-based Glacier Commercial Realty LP, Andrew Beckman, are peddling about 200 acres in the area.

Pricing on commercial land also is spiking. According to Beckman, tracts that were going for $1 to $1.50 per square foot just a few years ago are now at an average of $5 per square foot.

"Commercial land is virtually impossible to find in the northern region, because prices have gotten so high," he says.

Experts say values are spiraling for three reasons: The area is in the direct path of growth, with new and expanded roadways creating easier access; an influx of new investors are entering the market; and the "D" word.

Landowners and buyers in northeast Denton and northwest Collin County are well aware of a persistent and vague rumor about the Walt Disney Co. developing a project in their neck of the woods.

By some accounts, the Disney rumor has circulated for more than three decades. Many guffaw and write it off. A select few believe there may be something to it. For its part Disney, through a spokesman, told the Dallas Business Journal: "This is ridiculous and absolutely, flat-out incorrect."

Whatever the cause, there is money to be made in the pastureland north of the Dallas North Tollway. People are throwing disproportionate cash at speculative development, says Ted Wilson a partner at Residential Strategies Inc., a market research firm specializing in serving homebuilders.

"There seems to be a disconnect with values of land versus what's happening with housing," Wilson said, emphasizing lagging numbers in new home construction. "The day and age of some local farmer holding land is pretty much gone."

All about access

One factor clearly driving interest in Denton County land is the extension of the tollway, which is set to grow to six lanes from S.H. 121 to U.S. 380 around September. The next phase of the tollway may stretch from U.S. 380 north to the Grayson County line, though financial commitments have not been made.

Cynthia White, Denton County Commissioner, said her Precinct 1 portion of the county is "pretty much a high-growth area," with the tollway extension buoying land sales. U.S. 380 also has recently been expanded from two to four lanes.

"That quadrant is growing very fast," White said. "When you have the infrastructure in place -- or shortly will be in place -- that's always a positive as well."

Throughout his 45-year real estate career, Orr has seen wild oscillations between ups and downs. In 1963, he sold a tract of land in Frisco for $275 an acre. In the early 1990s, it went for $35,000 an acre. If it were available today, he says, it would run a buyer $75,000 or more.

Pricing in northern Denton County and nearby parts of Collin County are not comparable to other parts of North Texas, Orr said.

"It's significantly more expensive," he says. "The only thing close would be some areas in Southlake and Grapevine and northeastern Tarrant County. They've also seen strong growth there."

In the past, it was mainly wealthy individuals who invested in land. Today, all types of buyers are flocking to the market, including institutional and public buyers. They're buying for investment, not development purposes, and they're attracted by solid returns, Beckman says.

"There is a far greater number of buyers in the market than there was even five years ago," he says. "Anytime you add more buyers it creates more competition. Prices go up and returns go down."

Many of the land buyers -- about 20% in Denton and Collin counties, Beckman and Orr say -- are "1031" buyers. That refers to a real estate transaction that allows sellers to defer capital gains made on real estate sales by using the proceeds to buy a like-kind property. The term 1031 comes from the section of the tax code that allows the practice.

Ten-thirty-one sellers have money burning in their pockets, and the pressure's on to find a replacement investment.

Not selling

Regardless of sky-high prices, not all owners are willing to part with their properties.

Robert and Marilyn Rountree's 40 acres on FM 428 in Celina are not for sale. The land has been in his wife's family for six generations and has too much sentimental value, Robert Rountree said.

The parcel's financial value, according to Denton County records, has more than quadrupled since 2003. That year, its market value ran $158,446. By 2006, records show, it was worth $724,050.

"It would take a miracle for anybody to buy it," Rountree said. "We're not trying to make a buck."

Ryan Brown, president of Talley Land Development, whose Talley Ranch consists of 3,700 acres from FM 455 south to Moberly Road, said the Talley family does not intend to sell. However, Brown said, the family has recieved frequent offers, "from the insulting to the absurd." He declined to give specifics.

Buyers "have an interest in purchasing, but we do not actively have it for sale," he said.

Instead, Brown said, the vision for the property is a new urbanism-style development aimed at families who would want to walk to grocery stores, dry cleaners and restaurants nearby.

Talley Ranch has taken steps to create a Water Control and Improvement District, a government unit with taxing power and the authority to build water and sewage systems on the 3,718 acres Talley Ranch controls in Denton County. In its proposal for creating the water district filed in March 2006, Talley Ranch estimated that the water development project will cost about $154.7 million.

A second group managed to get a local bill passed by the state Legislature to create Denton County Municipal Utility District No. 7, a utility district that also has taxing and eminent domain authorities to build infrastructure in a part of northeastern Denton County. That district was created to support the development of a residential community, a spokesman for bill sponsor and state Rep. Tan Parker, R-Flower Mound, said in an e-mail.

Orr says the outlook for the area is strong for the foreseeable future. But real estate is a cyclical business.

"People are clawing with both hands to grab onto anything that's in the path of relatively-soon development," he said. "But there are cycles. Someone is always going to profit and someone is always going to lose. The big gamble is when that downturn is going to happen, because it will."

Staff writers Christine Perez and Chad Eric Watt contributed to this report.

ldavolio@bizjournals.com | 214-706-7113