Terraqua - Land Investment

The Land Investor

News and Commentary on Land-based Investment

What is the State of the U.S. Ranch Market?

The answer can vary from “good” to “in the tank” depending upon who you ask, and their definition of this often blurred real estate asset category.

The market for investment-quality, productive ranchland can be described as robust, and there have been numerous significant sales over the past twelve months in the Rocky Mountain region, California and Texas.   The 290,000 acre Bell Ranch sold at a value in excess of 70 times the cash rent payments that could be garnered by its owner on a passive basis, leasing out the ranch to cattle and recreational operators.  This is impressive when you compare to cash rent multipliers for other land asset classes.  To put this into perspective, the very best productive farmland in Iowa; which has reached all time record heights this year, commands a multiple of 27 times cash rent value.

While the yields aren’t impressive, investors are looking to their investments in ranchland as an asset allocation play, and a place to store and protect wealth.  Landscape size ranch investments are appealing bringing scale to non vertical development options and conservation finance schemes, which boost returns and diversify revenues from the land derived from traditional ranching operations .  

As the tax noose tightens in many areas, the 1031 tax deferred exchange remains in the toolbox, which makes the investment in large landscape ranches appealing.  In this sense ranchland ownership is a great place to be for capital preservation to ride out this challenging time in the U.S. and world economy.

The same can’t be said for the “ranches” in these same regions, that are “ranches” of a different ilk – the properties which are basically homes on acreage in the rural west.    I will include the ranch preservation communities in this category.  These are “ranches” that may have sporting attributes; limited ranching income opportunities, but year in, year out, represent a negative operating margin to the property owner.  The activity and interest in this segment of the market is thin.

The market no longer factors into the value equation the expected certainty of future appreciation and capital gains.  With these expectations out of the picture, this category of “ranch” is dead for the foreseeable future with a void of buyers who will consider a non producing asset that is also an operating burden.  At the same time, many of the sellers are frozen in the denial zone.  It is ironic that many of these same owners are super sharp, smart decision-makers in industry, but have a hard time being objective with their own real estate.  Also coming into play are demographic trends working against second home ownership and the trend toward rural retirement has abated – both factors which have reduced the replacement buyer pool for this class of real estate asset.

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