Herriman » At one time, these quarter-acre lots in a quiet neighborhood with a community pool and playground were a home buyer's dream.
Now the nearly five acres of dry weeds are a banker's nightmare.
They are among nearly 6,000 vacant single-family lots in Salt Lake County that are not being built on despite the fact many have the improvements such as roads, utilities and sidewalks needed to erect a home tomorrow. There are another 12,000 or so in Utah and Davis counties.
Like so many other parcels, the 18 subdivision lots in Herriman were purchased and improved by developers hoping to cash in on the valley's once-hot real estate market, only to be left holding an overpriced asset after the Wasatch Front's boom went bust in 2007. Unable to sell the lots, and unable to keep up with their bank loans, many let the properties fall into foreclosure.
Today, the land, which is offered in groups of a half-dozen to several hundred lots each, goes for a discount of a third to 50 percent from what is was selling for at the market's peak in 2006 and 2007.
"Land is one of the most troubled, toxic assets in real estate," commercial real estate agent Patrick Juhlin says as he steps through knee-high weeds on the Herriman parcel he is marketing to prospective buyers with Bruce Zollinger, a vice president with CB Richard Ellis.
A key reason many lots are languishing is a concept as basic as the time value of money. Any company that buys a group of lots now may have to wait years to recoup its investment. So prices have to be low enough to make a deal worthwhile.
For many buyers, prices aren't there yet. "We've looked at a lot of those lots," said Christopher Gamvroulas of Ivory Homes. "In this environment, you have to be more careful than ever" not to buy at too high of a price. "If they aren't priced right, they won't sell."
Another obstacle in getting land sales moving again is financing. Many banks, stung by the real estate downturn, are reluctant to finance land purchases, deeming them too risky. And there are simply too few cash buyers interested in raw land. Many developers and builders have been hobbled -- or destroyed --by the downturn.
Eric Allen, director of the Utah/Idaho region for real estate market research firm Metrostudy, said the lack of financing has shrunk the pool of available buyers dramatically.
"There are quite a few good deals out there, but it's hard to get financing for them," Allen said. Most of the buying today is by a fairly small pool of buyers with cash.
"Banks are definitely going to be more cautious going forward," Allen said. "It's hard to justify lending more money to buy real estate when they are writing down [the value of] millions of dollars in real estate."
In Murray, Juhlin and Zollinger are marketing a group of five lots ranging from a quarter-acre or less just off the Mick Riley Golf course. At the height of the market, these lots sold for as much as $300,000 to people who built high-end homes on them. Juhlin thinks the unsold lots eventually will sell as a group for a price that could work out to $150,000 for each lot.
That could be a problem for area land owners because distressed properties and foreclosures are figured into appraisals, lowering the value of their holdings.
In the same high-end On the Green subdivision, builder Kay Barton owns six lots financed by Washington Federal Savings.
Since the downturn began, Barton of KB Builders said he had held on to those lots, waiting for better times. But several months ago he said he decided he needed to get serious about selling.
"This downturn is much deeper and longer than anyone would have anticipated," he said. "We just got to the point where we know we're going to lose money, but this is something we need to do."
Barton said he sees all the other fully developed lots around the valley being marketed at a deep discount. He's discouraged on two counts -- one, by how low land is priced and how far he'll have to discount his lots to get them sold, and second, he doesn't have the resources to take advantage of the buying opportunity that exists.
"There are some truly outstanding buys out there," Barton said. I'd like to purchase some of those, and I wish I was in a position to do that."
Bill Perry, CEO of privately held Perry Homes in Salt Lake City, is in the position to buy. The Utah home builder has been stung but not disabled by the downturn because he didn't take on much debt to buy overpriced properties during the boom.
In recent months, Perry has been out bargain shopping, picking up distressed parcels, including the last six lots left in a subdivision in Herriman. A bank had foreclosed on those lots.
His company also has purchased the Temple Ridge subdivision in American Fork. The 28-lot parcel had been developed by a company that ended up in financial trouble after the market tanked. Perry said he bought the parcels as a group as a short sale after the bank holding the mortgage agreed to accept less than it was owed on the property.
Perry Homes also has purchased 60 lots in Cedar Hills in Utah County. Those lots are part of a 100-lot-plus subdivision that stalled once the downturn hit. "A builder came to us, said he was quitting the business, and asked us if we wanted to buy," Perry said, adding that he made the deal at a deep discount.
"There's all kinds of deals out there."
Purchases by Perry Homes and others represent a rebirth of sorts for parcels caught up in the boom and bust of the real estate sector nationally and in Utah.'
But most agree that recovery in the residential sector may be more than year away because of the challenges facing Utah's deteriorating economy and job market, and the rising rate of foreclosures.
"For the housing market to really begin to rebound, we're going to have to see the job market begin to grow again, and we'll have to see how the foreclosure issue plays out," said Jim Wood of the Bureau of Economic and Business Research. "It's not going to be a quick rebound."
And that means all those lots for sale may remain empty for some time.
