Lots worth a little: Subdivision developers see value of properties plummet
If you build, it doesn’t mean they will come.
Many developers of housing subdivisions on the Western Slope learned that in recent years.
While the weeds grew taller, the housing market and lot prices shriveled, leaving some development companies to go belly-up and others struggling to come up with the needed taxes and tap fees to stay afloat.
“We were booming just like Grand Junction,” said Montrose real estate agent Pat Cohen. “They were building all over; they were annexing everything into the city, and then it came to a screeching halt. We were getting so much information saying that the market was foolproof that we all started to buy into it.”
Cohen is only one of many people in the region who have become frustrated with the depressed housing market. And like the others, she’s wondering when things will improve.
The problem is, having so many undeveloped subdivisions and unsold houses in the area is keeping the market from rebounding, she said.
“In 2005, things were going like crazy. We were selling houses off of plats,” Cohen said. “In 2008, the subdivisions came to a screeching halt, and now everything has come to a halt. Everybody and their uncle jumped on the bandwagon for subdivisions. Now, we have too much inventory.”
In Montrose, there are a number of large subdivisions that saw only a few homes get built before the housing crash. One in particular, Estates at Stone Ridge near the city’s south side, has more than 90 undeveloped lots. Roads, power and utility lines were installed, but only nine spec homes were built.
The homes were foreclosed on by the bank that held the loans, First National Bank of the Rockies, which ultimately sold them last year for between $235,000 and $271,000, according to the Montrose County Assessor’s Office. A 2009 appraisal of the subdivision said the homes, which would be up to 2,850 square feet, would sell for as much as $459,000.
The remaining lots are still owned by Grand Junction-based Pinnacle Homes, a company that no longer exists, according to state and county records. Repeated attempts to contact its listed owner, Howard William Grace II, were unsuccessful.
“It was just poor management of that project from the start,” Montrose County Planning Director Steve White said. “They overbuilt. They did the whole subdivision, instead of phasing it out, so you could see what the market’s going to do. They built it out, put all the infrastructure in, but they didn’t even have a house up for sale.”
In 2009 and 2010, the Montrose County Treasurer’s Office was forced to sell thousands of dollars worth of tax liens on the remaining lots, further mounting the debt on the property, which initially sold for $7.7 million in 2007.
On Oct. 27, the office will hold its third lien sale on the properties to collect unpaid 2010 property taxes.
PAYING THE TAXES
Delta County rancher and farmer Andy Crawford is facing a similar challenge.
Four years ago, he subdivided about 800 acres of his land east of Delta into 68 lots, adding water and sewer taps, paved roads and other infrastructure.
Like professional developers, Crawford expected to make a tidy profit. He doesn’t expect that anymore.
“If I can sell the lots at 50 cents on the dollar, I’ll just about break even,” he said. “It’s pathetic, it really is. Now, not only do I get the privilege of paying all the water-tap fees, I get to pay the taxes and everything else. In two years, I have not had a single person some to see the property to buy. Nobody even wants to look at them.”
Crawford has until 10 a.m. Nov. 3 to come up with $22,479 to pay the property taxes. That’s when the Delta County treasurer has set a tax lien sale on the lots.
“The reason that I did what I did was so that I could sell it, collect the money, and do other things in life,” he said. “Well, guess what? Beware.”
Grand Junction Planning Director Linda Cox said the city isn’t facing those kinds of problems. While there are some stalled developments in Grand Junction, most are only a few lots here and there.
She said people here who were considering subdivisions smartly slowed those efforts just before the housing market collapsed.
“There’s been one or two that got started and then kind of abandoned, but what we’ve really seen is the abandonment process happened on paper,” she said. “Rather than getting started with construction, we just haven’t seen subdivisions getting started, and in some cases people just let those projects expire. People started to see the change in the market.”
Regardless, the county has seen the number of property owners owing back taxes increase threefold over the past four years, going from about 500 in 2007 to more than 1,600 this year, Mesa County Treasurer Janice Rich said.
THE MARKET WILL BEAR
Grand Junction developer Ronald Abeloe likes to think of himself as one of those smart people.
A builder for about 30 years, Abeloe has seen the market do this before, including watching would-be developers who had never been in the subdivision business before jump into the fray.
“This cycle has happened many times over the years when real estate is in high demand, and everybody gets into the business because you can make money at it,” he said. “Most of the time these people do not have their own money, they leverage to a very high degree. When things slow down, the people who go broke are those who are highly leveraged.”
Abeloe and his business partners learned years ago not to do that.
He said the new housing market likely will remain slow as long as there are so many vacant homes for sale. But whether it will take a couple of years or five for things to turn around, even he doesn’t know.
“It depends on the absorption rate of the existing home market,” Abeloe said. “Plus, the lending standards are tighter than they used to be, which is not all bad. Nevertheless, it does affect the number of people who can buy.”
Rep. Ray Scott, R-Grand Junction, admitted he was one of those newcomers to the business.
A few years ago, Scott tried his hand at developing homes and found himself holding the bag. He has 11 properties in Montrose County that he has tried to develop for resale, but he can’t find any buyers.
“The property values that I’m seeing are approaching what (they were) selling for in the early ‘80s. It’s unbelievable,” Scott said. “It’s killing me. You go from having a property that is supposed to be worth $40,000 as a lot, and if you can get $20,000, you’re doing great.”
Scott said many people who had little previous experience in developing, as he did, got into the business without any idea the economy was about to tank. As a result, those people are struggling to keep their heads above water, hoping the housing market improves, and right soon.
“It’s a risk-reward game,” he said. “You either strike out or hit a home run.”