Tree Section Lot Values Spike Again

By Dave Fratello | February 13th, 2014

When spec builders were running wild in the prior cycle, 2000-2007, Tree Section lot values rose to meet the demand from builders.

Generally speaking, lots gradually began to trade at an average of $1.3M, occasionally climbing higher, to the mid-1.4s. (For instance, 2310 Palm, a standard 4480 at $1.450M, and 2807 Elm, bigger at 5600 sq. ft., at $1.475M.)

When the market took a dump, and spec builders disappeared, a standard lot in an average location in the Trees could be had at or near $800K. It was quite a comedown, but demand is funny that way.

The market for lots has begun to boom after bottoming out like that. Owner/user types came back first, wanting lots for custom builds. Then a high-end spec building frenzy began anew. 

It's almost funny to look back now to the bidding war two (long) years ago for 1805 John, which snapped heads at the time with 20 bidders and a sale at $1.352M. (Sold to an owner/user for a custom project.)

That was a bigger-than-normal lot (5065 sq. ft.) on a prime street with a west-facing backyard.

What would you pay for that now?

Or look back to the average-sized lot (4800 sq. ft.) at 1804 Agnes, which traded last year, in May 2013, for $1.700M (off-market).

That was really rich, but it's a prime street, too, and you pay what you have to pay. (See "Dirt Gets Pricey, Too," from May 2013.)

Call that a 25% markup on prime lots in one year.

More recently we saw the "lot shocker" at 750 30th (5400 sq. ft. lot), which commanded $1.515M in December 2013. (MBC wrote that up as a shocker, but actually Dave's advice to a client was precisely that the lot should settle a little over $1.500M.)

They're already advertising that the new home at 750 35th will be a Plantation home built out with a basement and nearly 5000 sq. ft. of living space.

The builders are looking to two huge Tree Section sales of new homes they sold last year, next-door neighbors at 705 26th (5br/4ba, 4875 sq. ft.) and 709 26th (5br/4ba, 5120 sq. ft.), selling for $3.599M and $3.700M, respectively.

Builders almost seem to see mega-sizing homes like this – with a basement – as a hedge against future price softness for new construction. If you get the lot for $1.5M and later have to sell the new home for the low 2's, it makes no sense. But if you've dug a basement, you have greater square footage and can ask more.

What can they get at 750 30th next year, with precedents at $3.6 and $3.7M? It boggles the mind.

Next in line to boggle: 768 26th.

This one emerged only last week, and already has a deal. (No doubt after multiple offers.) The little 3br/1400 sq. ft. house looks a bit dated, but it almost had some promise for someone who might like to touch up or slightly expand the house. You'd have a nice vintage MB house on a very nice block with a big yard.

The sticker price of $1.699M may have seemed silly, almost.

But the key to it was the super lot size: almost 6100 sq. ft. And it's very nice location, with a sunny, south facing backyard.

Take the raw land value at 750 30th, apply the lot PPSF ($280/PSF) to this lot on 26th, and you get $1.707M. Are the lots and locations comparable? Pretty much.

But at 26th, a builder could go even further to building a megahome than they can over at 30th. The 6000 sq. ft. lot would translate to a very large home in the Trees, even without a basement, and a virtual gymnasium of a home if they do dig down.

It's hard to keep getting shocked, but it is strange to see the market running as if there are no upper limits. The sale at 768 26th is helping to define what's ahead for 2014 – for lots, now, and for new construction up and around the bend.

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