The Far West—the Pacific coast states—is a unique place both on its own merits and due to its demographic dynamics. People want to live there, and Far West cities are perpetually growing.
That is not necessarily good for ranchers since urban neighbors prefer coffeeshops to cattle. Even farmers—specifically vintners looking to expand California’s lucrative wine country—are hungry for cattle pastures to turn into cropland. This continuing pressure has made the supply of good ranching properties far lower than demand.
David Van Cleave of Van Cleave and Associates, who deals almost exclusively with working ranch sales, told WLJ, “The 1031s are still going on, especially in California where farmland and cattle pasture land is now going to vines as they expand into growing grapes. We’re still losing pasture to farmers.”
He added that almost any irrigated ground in his region—Northern California and southern Oregon—is getting bought up, mostly through 1031 exchanges.
“Irrigated ground is going. Sales are all stimulated by those folks moving on in 1031s.”
Ken Bentz, rancher/broker with Bentz Realty and Fay Ranches, said that about half of his buyers are through the exchanges, as well. But the peculiarities of California also play a big dynamic in his area of southern Oregon and northwestern Nevada.
“You still have some underlying pressure on all the properties just from the amount of folks we have coming out of California for the obvious reason of wanting to get away from the politics or the taxes or whatever. That drives a lot of what we’re doing, even if it’s just from the outside putting pressure in on other sides of the Northwest.”
Van Cleave had similar comments, noting that some of the California properties he’s sold came down to people effectively fleeing the state.
“They were really sick of government meddling. Just really sick.”
Water is another massive issue in the Far West rural real estate market, due both to climate issues of almost perennial drought and ever-increasing urban demands on supplies.
“We got absolutely nothing last year, so this year, even if we got a normal amount, it’s going to be very difficult to catch up,” Bentz said of his region. He added that the continued water issues are causing groundwater and water rights problems too, as can be seen in the Klamath region.
“It’s not a positive impact on real estate. You have to pay more attention to that—buyers and sellers both—than they would have years ago. There’s a premium—as there always has been, but more so now—on properties that have more water certainty than others do.”
Water, power, and certainty
Bentz observed that the presence of water, and particularly water that comes with some certainty, has been driving prices of properties in his area higher than what one might expect based on their specific output abilities.
Van Cleave echoed this observation and got into the weeds on the various valuations that must be considered in ranch real estate in the area. It all comes down to water, power, and certainty. Yes, there is a big value on certainty.
“When you have someone like the government controlling your economic outcome every year and never knowing exactly what they are going to do, it’s very difficult to make plans,” he pointed out, specifically offering the example of the Klamath area tribes that can call more junior water rights almost without notice.
“It puts the value of safer water higher.”
Van Cleave said the prices on summer grazing ranches where the water is uncertain “have really plummeted.”
“Basically, if you don’t have water, it returns to sagebrush and what’s the value of sagebrush? That’s really the way you’ve got to look at if you’re a banker, at least I would.”
The inverse is also true, he said; properties with “safe” water have seen values increase.
“So, if you’re selling summer pasture for cattle and it was $3,000 an acre, now maybe it’s $4,000 an acre. Those ranches have been selling.”
But “safer” isn’t the only thing to think about when it comes to water-based valuation. Even if a property has “safe” water, the way it is delivered can have a big impact on the costs of running the ranch.
“Is it flood irrigation? Is it pivots? Is it wheels?” Van Cleave asked by way of offering examples.
“Pivots and wheel lines where you’re pumping a well, well, there’s a power-hungry circumstance there. And you’ll find different power rates as you go into different communities. Those are things you have to look at.”
The cost to pump is also an important consideration. Van Cleave noted that the standard solar array needed to power a single well pump can easily cost hundreds of thousands of dollars to install. And, while some power companies do or have bought back unused electricity from solar arrays—such as when the pumps aren’t running but the sun’s still shining—that is not guaranteed.
“It’s one of those things that you have to consider,” Van Cleave continued. “It all goes into the cost. If you’re buying a ranch that has solar, then you certainly need to know if the buyback contract from the power company can be passed through.”
He summed it up as “water and energy costs.”
“Those are the challenges, and I’m sure they are challenges everywhere.”
The future of Far West
The Far West region is not without its hardships to be sure. Bentz described it as quite different from what it used to be.
“We still have the continuing consolidation of properties, meaning not all, but very, very few of the small ranches are left because people just have to get bigger, even if you’re already in business. You can’t do it with 150 cows and just be a rancher. You can’t do that anywhere.
“When I was a kid, there were a lot of people who raised families with 150 cows. That’s no longer the case, obviously. Not even close. Those smaller opportunities go away and then you still have the continuing pressure of people buying them for other reasons than ranching.”
This was especially the case for young people wanting to get into ranching in the area, he said.
“At the end of the day it just continues on the same path we have been on for some time; if you’re a person who’s trying to get into ranching or farming, the barriers just continually get higher and higher because you continue to get priced out.”
That doesn’t mean there are no opportunities in the Far West, however. Far from it. Given the tightness of the supply of available ranches in the area, it is a seller’s market.
“I look to have another short inventory year, which is unfortunate because I think we could move a lot more property if I had more inventory,” Bentz said.
“It looks to me that 2019 is going to be a pretty busy year. I think that there’s a lot of ranch activity.” — Kerry Halladay, WLJ editor
