The temperatures are cooling down quickly in the high country, but not the demand for good working ranches.
“I would say it’s white hot,” explained John Knipe, president and managing broker at Knipe Land Company, when asked about the state of the markets in his territories that overlaps the Intermountain region; Idaho, Montana, Wyoming, Nevada, Utah, Colorado, Arizona, and New Mexico.
“There’s good demand, there’s 1031 money looking to be placed, but finding the right place with a good return or that’s big enough for economies of scale—that is a challenge. That is an absolute challenge.”
Patrick Bates, owner/broker of Bates Land Consortium, had much the same to say. His territory covers Idaho, Nevada, Utah, and Arizona.
“It’s very hard to find an operating cattle ranch today that will truly run, let’s say, 2,000 animal units year-round,” Bates said of the supply-side issues.
However, when there’s not enough supply to meet demand, it’s hard to see much price movement in the data.
According to the most recent USDA Land Values report (August), overall farm real estate values—a measurement of the value of all land and buildings on farms and ranches—was up 1.9 percent from 2018 across the country. While pastureland (vs. cropland) was slightly higher at an average of 2.2 percent across the country, these gains were in keeping with the relatively flat gains seen for the past five years. The high demand and tightness of supply of working ranches has been an ongoing problem.
The Intermountain region saw some of the lowest relative gains and raw values seen in the country. Average per-acre pastureland values for the Intermountain states were as follows:
• Idaho – $1,560 (+4.7 percent);
• Montana – $680 (+1.9 percent);
• Wyoming – $575 (+2.8 percent);
• Utah – $1,240 (+6.9 percent);
• Colorado – $845 (+1.2 percent);
• New Mexico – $417 (+5.8 percent).
Nevada and Arizona had no price data due to too few reports.
“They’ve been snapped up by other ranchers, sometimes neighboring ranchers, but oftentimes ranchers who are hundreds of miles away,” said Bates of the few available working ranches in his territories over the recent years. He described this as consolidation, not so much in a geographic sense, but rather in an operational sense. Older landowners with the wherewithal to expand are looking farther and farther afield from the home ranch to effectively establish satellite ranches run by an interested son or daughter.
Knipe also spoke of consolidation and competition crossing hundreds of miles, particularly when it comes to 1031 Exchanges
“You’re competing with people hundreds of miles away for that buyer. There are a lot more people out there with property than there are with cash for that 1031, so you are competing,” he told WLJ, adding: “There’s a lot more 1031 money looking to be placed right now than there has been in years.”
Knipe also explained that a lot of the 1031 money he’s seeing has been ranchers selling elsewhere and buying more ranches or investment properties in areas of the less expensive Intermountain region with an eye for the future.
“A lot of people who are selling are buying for the next generation,” he explained. “They’re looking forward into the next generation saying, “Hey, I’m going to leave this to the kids or grandkids” and they want something bigger to leave.
Bates agreed that there has been an uptick in 1031 Exchanges happening in his territory. However, he also noted that 1031 buyers tend to be a savvy lot.
“The people who have some 1031 money, in my view, they’re buying but they’re not overpaying. They read the newspapers. There are no fools. When I started in this business 50 years ago, sellers would always say, ‘You just need to go find a fool for us.’ In the last 20, 15, 10 years, there’s so much information readily available to potential buyers. I’ve never seen potential buyers better equipped and more knowledgeable.”
Cows vs. deer, and prices
Despite Bates’ and Knipe’s reports of strong demand and short supplies of working ranches on the market, both men, as well as Brian Ripley, broker and ranch sales specialist with the Paoli Group, noted that prices have started coming down and some listings have been expiring unsold.
“If the prices are out of whack, they won’t sell,” Knipe laughed. “The year 2007 was probably our best year out here and people forever want those prices, but the market won’t bear it.”
Ripley, who focuses on Colorado, said he thinks the region is starting to see some market adjustment in terms of prices.
“I have a listing we just reduced $700,000 and there’s a neighboring property they just reduced a million dollars. So, you’re seeing more significant price reductions starting to occur right now.”
He also pointed out that more than memories of better markets and good commodity prices can skew a seller’s asking price into the unrealistic. Though both working ranches and recreational ranches fall under the description of “ranch property” they are very different.
“The recreational-type property drives prices up as well and it kind of has this trickle-down effect.”
He explained that even if a seller has a working ranch to sell, if prices are being compared to recreational ranches—which often go for cash to people who are not primarily concerned with a property’s earning potential—it has the potential to inflate market or seller expectations.
“There is this gap in the price influence.”
Markets of uncertainty
Despite the price adjustment, all three men commented on the general strength of the economy and the impact the outside markets have on the ranch real estate markets.
“We’re seeing so much better market right now than we’ve seen in years. Since 2007 really. This has been the strongest year since 2007. I think the economy’s been pretty good—well, I think it’s been very good—and it’s going to stay strong for the next few years,” Knipe predicted.
“Overall, 2019 was a pretty active, solid year,” commented Ripley. “Probably a reflection of trends in the overall economy and people’s comfort level with their position and investments that they can make.”
“In the last 10 years, these farmers and ranchers have been in better shape economically. They’re debt ratios are lower,” observed Bates.
“Some of them will incur some debt with this trade war, but up until this trade war, the debt ratio on farms and ranches has been lower in the last 10 years than it was in the previous 30 or 40. Which is a good thing.”
Though many elements of the overall economy and outside markets have a positive impact, not all are good. For Bates, the trade war and general economic uncertainty are making themselves felt.
“The trade war has seriously affected commodity prices including anything you grow and livestock,” noted Bated, who characterized the situation as “high stakes poker” where no one is sure who will blink first.
Ripley also noted a bit of a lull in the summer.
“I would say people are still looking at and questioning where the economy is headed, what interest rates are doing, and those sorts of things.”
The political situation also is a source of market uncertainty as far as Bates could see.
“This nation, regardless of one’s political persuasion, is in such a hell of a state of turmoil that people are deferring decisions. They don’t know what the hell to do.”
Despite the uncertainty, there are still opportunities to be had, both for buyers and sellers. On the one hand, demand for working ranches is strong and unmet; an opportunity for potential sellers.
“We are still seeing money coming into the really prime stuff,” said Bates. “It has been quite well absorbed. When a reputation ranch that’s been held for 30, 50, 70 years get to the market with all the underpinnings with water rights and access and all that, then they will sell and they’ll sell quick, quick, quick.”
On the other hand, prices do seem to be adjusting to a more reasonable level; an opportunity for potential buyers.
“From a buyer’s perspective, there could be some opportunities and we’re seeing that—as we’re getting the competition to get some ranches sold continues—these price reductions are starting to pop up,” Ripley summarized.
“That is going to enable some of these buyers to maybe find a few deals here and there. Relatively speaking.” — Kerry Halladay, WLJ editor