Investors are snapping up lots near Miami, Phoenix and Austin, Texas, including the founder of Tito’s Handmade Vodka and pro golfer Phil Mickelson
Fast-growing Sunbelt cities are experiencing a land rush, sending investors, moguls and professional athletes rushing to buy empty lots while lifting land values to new heights.
Billionaire distiller Tito Beveridge and championship golfer Phil Mickelson are among those fueling the land boom. They and other wealthy investors are descending on cities such as Miami, Phoenix and Austin, Texas, where demand for land to build homes and warehouses is soaring and the number of vacant sites is running low.
Sales of land last year rose faster than any other major type of commercial real estate across the U.S., according to the National Association of Realtors. In the Sunbelt, the quarterly number of undeveloped land sales more than doubled over the past three years, according to data from CoStar Group’s Land.com, a land-listing website. Inflation is accelerating the trend because land is considered a hedge against rising prices, brokers and investors say. The average sales price for land more than doubled to $18,083 per acre in the second quarter compared with two years ago, according to Land.com.
Land speculation is much riskier than most commercial real-estate investments. Prices are volatile, and values can fall hard if home builders or developers sour on an area or pull back during periods of slower economic growth.
“You need to have a lot of guts,” said Sebastian Drapac, chief operating officer of property investment firm Drapac Capital Partners.
But in recent years, land prices in many Sunbelt cities have been rising much faster than other types of real estate, brokers say. Favorable state tax treatment helps make the investment even more profitable.
Entities tied to Mr. Beveridge, founder of Tito’s Handmade Vodka, have acquired about 13,000 acres of land near Austin since 2020, according to property and corporate records, and people familiar with the matter. That is approaching the size of Manhattan.
A group of investors including Mr. Mickelson, his business manager Steve Loy and Arizona-based developer Spike Lawrence recently bought a sprawling site south of Phoenix. An entity tied to Microsoft Corp. co-founder Bill Gates owns a major stake in approximately 25,000 acres of land nearby, according to a person familiar with the matter.
Land investors can play a useful role in the real-estate market. They often buy sites that aren’t ready for development, add roads or plumbing, and apply to rezone properties.Sometimes, however, they act more like speculators, betting that land prices will keep rising even if they make no improvements.
Uruguayan fashion mogul Enrique Manhard, who made a fortune with a chain of clothing stores, and his partners have bought 27 lots in Miami since 2017, property records show. He has often been able to beat out developers for the sites because he doesn’t have to wait for zoning approvals or construction financing, so he can offer a much faster closing, said land broker Estrella Perez, who has worked on many of his deals.
Once Mr. Manhard buys a lot, he usually keeps it mostly unchanged and waits for prices to rise, Ms. Perez said. That involves rejecting a lot of bids from developers. “I have people calling me left and right, but they don’t want to sell right now,” she said.
Real-estate professionals and housing advocates are often critical of this buy-and-hold practice, saying it makes it harder for developers to find land to build on in cities short of housing.
Mr. Manhard didn’t respond to requests for comment.
Landowners can afford to be patient because property taxes for vacant lots are typically far lower than for buildings. Suburban landowners can get their tax bills even lower by keeping animals on their property, declaring it agricultural land and collecting tax breaks for farmers and ranchers.
Tax assessors most recently valued Mr. Beveridge’s Austin-area landholdings, which sit at the edge of one of the country’s hottest housing markets, at more than $220 million, according to public property records.
But because much of it is listed as ranchland, appraisers put the taxable value at $6.4 million, public records show. At one lot valued at $38.4 million, the most recent annual estimated tax bill was $2,951, property records show. Without the agricultural tax break, the estimated bill would have been $726,267, according to the Bastrop Central Appraisal District’s 2022 Notice of Appraised Value.
Mr. Beveridge and his representatives didn’t respond to requests for comment.
Land investors in this boom have enjoyed some very profitable flips. In December 2021, Drapac Capital Partners sold a lot in Midtown Atlanta for $19 million. It paid $4.7 million for the land four years earlier.
Arizona Land Consulting LLC, which pools money from professionals such as doctors, lawyers and software engineers to buy land, in February bought an Arizona site for $40 million. After the firm determined the lots could be zoned not only for residential but also for commercial use, the land became attractive to developers. One offered $156 million for the land within a few weeks of the closing, said founder Anita Verma-Lallian.
The company rejected the bid in part because there are tax advantages to holding a property for at least a year, Ms. Verma-Lallian said.
Big risks for land buyers accompany this potential for oversize gains. After the subprime mortgage crisis, land prices in the Sunbelt plummeted as home builders stopped buying lots.
Now, some landowners worry that high interest rates and steep construction costs could start weighing on land values. Brokers say they are already seeing a drop in sales volume, and prices could soon follow.
But many land buyers remain bullish. “It’s paying off now,” Mr. Drapac said.
By Konrad Putzier
Sunbelt Land Rush Number of sales of undeveloped land in Sunbelt states, by quarter Source: Land.com, a CoStar Group company