3rd Jan, 2008

Texas Rural Real Estate Market Remains Bullish On Recreation

Texas Rural Real Estate Market Remains Bullish On Recreation

By Steve Byrns
Extension Communications Specialist

LUBBOCK — The recreational land market is booming in Texas — thanks in no small part to white-tailed deer and bobwhite quail.

“The whole ranch market is focused on recreation right now,” says Sam Middleton, a Lubbock-based farm and ranch broker. “If the economy stays together, I think you’re just going to see a continuation of this trend. The ranch market is pretty well focused on recreation buyers and that spills over into other things. There are quail people, deer and elk people, and people in New Mexico who want trout fishing ranches. But it’s all tied to recreation one way or the other.”

Middleton is a 30-year veteran and major player in the farm and ranch real estate industry. His grandfather, Charles, started the family’s farm and ranch real estate and appraisal firm in 1920. Today, “Charles S. Middleton and Son” reportedly sells several hundred thousand acres of land annually in Texas, New Mexico, Oklahoma, and parts of Colorado. Middleton says the recreational land market makes up fully 75 percent of their current ranch transactions.

“There’s a lot of money out there at this point,” explains Middleton. “Whether it’s the Internet or the stock market or fiber optics, a lot of people have made a lot of money in the last few years. The new land buyers among them are looking principally for scenery, game, and location.

“We had a tobacco settlement attorney who bought a ranch in the Panhandle. It was about a $15 million deal. He bought that ranch totally to hunt bobwhite quail on. I asked this fellow how many days a year he’d be spending out here and he said, ‘well, I’ll be coming out here three or four times a year for a couple of days to hunt quail, and that’s it.’

“You know, you look at spending $15 million to be on a property eight or 10 days a year to hunt quail and you can’t imagine how they justify it, but that shows you the importance people place on recreational land. This spills down into the smaller properties, too. Doctors and lawyers want a weekend ranch that’s 60 miles from home; an hour’s drive from town. They want smaller places, the two, three, five-section ranches. It is a smaller scale buyer, but the same type motivation is driving it.”

Quail are fast approaching white-tailed deer as the fuel pushing the modern Texas land rush. Middleton says South Texas is a popular area for quail, as is the area east of Lubbock under the Caprock and much of the Rolling Plains.

“That Dickens-Matador area through there down toward Post and Snyder is awful good, as is the Eastern Panhandle. I’d say from Amarillo east throughout the Panhandle is recognized as a real good quail area.

“I know a lot of people have real concerns about fire ants killing out quail. I sell ranches in Central Texas around Fort Worth and Stephenville and east of Abilene. In much of that area, the quail have pretty well died out, which obviously is a major concern.”

A recent survey of Quail Unlimited members conducted by the Texas Agricultural Extension Service supports Middleton’s observations on the importance of quail. The survey found that the average member of this national organization of quail hunters and conservationists spent over $10,000 annually on quail hunting. Nineteen percent of the survey participants said they’d bought property for quail hunting in the last 10 years.

“Most of the people buying these ranches are wealthy,” says Middleton. “They just want a place to relax and entertain friends. The income off the property is nothing. There’s just not much of an income stream to it. I’d say the typical ranch we sell today will have a three percent return on the investment. But, if the trend keeps going as it is now, there is very good appreciation value on the property if the owner can afford to own and hold it. I’m seeing some of these prime recreation properties show appreciation of better than 20 percent a year.”

Middleton says ranches are seldom sold to ranchers anymore. The only time such a transaction occurs is when a rancher is about to sell his place to a recreational buyer for a large sum and is seeking to make a transaction on another ranch through a 1031 tax-free exchange.

“True ranchers are being forced more into New Mexico and to those places that have a lot of government lease land,” explains Middleton. “They’re going into that area because of the economics. It’ll come closer to penciling out there than these deeded ranches in Texas will because of the recreational buyers. They’ve just driven these land prices up to the point that the economics won’t work for a cattle producer. On a lot of these ranches today, the lease income from hunting is as much or more than the income from cattle grazing.

“Farming’s worse. We’re concerned about our farmers right now, because of commodity prices, the weather, and fuel costs. I would expect prices on farms with little or no recreational value to probably soften. It will depend on whether or not the government steps in to prop things up. I think we need a little governmental assistance for these farmers right now.”

Middleton comments that what a landowner does with his land in terms of brush control can have a far-reaching impact on its worth to the recreational consumer or prospective buyer. In the past, brush was removed to increase livestock capacity. The same holds true today, but Middleton says most ranchers have realized what brush means to the wildlife business. Today, “Brush Sculpting” is an increasingly common practice on Texas ranges. Brush Sculpting techniques allow for some clearing, but leave many areas untouched for wildlife cover.

“You can sure overdo brush control on the current recreational market,” warns Middleton. “You need to leave a pretty good canopy cover, at least 30 to 40 percent of the country. The other thing I’m seeing is that landowners spend all that money for brush control and I don’t know from the recreational market’s viewpoint if any of it can be justified. The rancher who thought he was doing the right thing may never recoup that money in today’s market.

“I had a ranch listed in the Sheffield area that the owner had gone in with two D-8 ‘Cats’ and cleared some really good white-tailed deer country. He was a sheep rancher and he had some good gas income off the ranch, so he bought the two bulldozers and went to clearing. He thought he had really improved the ranch. He had from the livestock perspective, but he’d gone too far to entice the deer hunters. I remember I asked him how much per acre he was spending to clear the brush, and as I recall, it was in the $65-$75 an acre range.

“I told him he’d enhanced the place from a livestock standpoint, but I couldn’t get him that $65-$75 premium he wanted for the ranch. It just wasn’t there. The ranches around him were bringing around $125 an acre. He wanted to sell his ranch, as I recall, for about $175 per acre and I couldn’t get anybody to even make an offer on it. All that money he’d spent for brush control was gone. He couldn’t recoup any of it in today’s market.”

For those looking for recreational land, Middleton says there’s plenty of loan money available for the qualified buyer.

“There’s no problem getting financing on these ranches for the man with a strong financial statement and a good income stream. We have three major sources financing these deals. The Federal Land Bank and several of the life insurance companies have been real active. Bank of America is another big lender. They have an actual program now called the ‘Recreational Ranch Land Loan Program’ that’s designed just for these type properties and purchasers. They’re making loans for recreational ranches right now, today.”

Middleton concludes by saying that like so much in today’s new economy, the Texas land market is being tossed atop unchartered waters. The decade-long big-money Texas land buyup continues to be fueled largely by the state’s scenic beauty and two major wildlife species, white-tailed deer and bobwhite quail. The trend continues to grow in virtually all areas of Texas with no end in sight yet.

Livestock Weekly 1-3-2008

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