Undeveloped land selling for record prices

Robust ag sector, strong economy pushing prices higher

By Kathy A. Bolten

In 2012, undeveloped land in Ankeny for Toro Co.’s large distribution center was purchased for $61,434 an acre.

In 2021, less than 2 miles to the southeast, Brown Truck Leasing Corp. paid $108,900 an acre for land in Ankeny it purchased for its new warehouse.

“Everything is running hot right now,” said Steve Bruere, president of Peoples Co., an appraisal, land management, auction and brokerage company headquartered in Clive.

“Some people are saying this is a once-in-a-lifetime opportunity to get out of [landownership]. Other people are saying they better get in now before interest rates get higher. You’ve got a lot of positioning going on.”

Between 2010 and 2012, land values skyrocketed, setting record highs, Bruere said. “We’ve surpassed that, and then some.”

In 2012, the median per-acre sale price of undeveloped land in Polk County was $83,370, a review of Polk County real estate records shows. In 2021, the median per-acre sale price had jumped 62% to $135,165.

Some cities saw larger increases. A snapshot includes:

Grimes, where in 2012 the median per-acre sale price of undeveloped land was $88,187, the review showed. In 2021, the median sale price per acre was $174,182, or 97% higher than in 2012. 

Johnston, where the median per-acre sale price more than tripled to $172,080 in 2021 from $56,305 in 2012.

Des Moines, where the median per-acre price more than doubled to $98,013 in 2021 from $39,501 in 2012.

“It all gets down to supply and demand,” said Mark Rupprecht, president of R&R Realty Group, a commercial real estate company headquartered in West Des Moines. “If there’s demand for a certain product type, and it’s located near the interstate and there’s people who want to buy it, you’re going to see increases in prices.”

What’s pushing values higher

Rupprecht said the demand for warehouse and other industrial-related spaces is likely driving up asking prices for farm and undeveloped land, particularly tracts near Interstate Highways 35 and 80.

In 2018, when Graham Group Inc. purchased nearly 74 acres north of Interstate 80 in Altoona on which to build several large warehouses, the development group paid $46,796 an acre, real estate transaction records show. In January 2021, VanTrust Real Estate LLC paid $58,300 an acre for the 75-acre parcel it purchased less than one-half mile to the northeast at Northeast 62nd Avenue and Hubbell Avenue, also in Altoona.

The 25% difference in sale prices per acre between the Graham and VanTrust land purchases is an indication of the demand for developable land, particularly land that is near major highways or that is designated for residential development, real estate professionals said.

“Big buyers of land by [groups or companies] willing to pay a lot also could drive up the cost of land,” Rupprecht said. “We’ve seen that here and in Omaha with the data centers.”

When Facebook, now known as Meta Platforms, bought its first chunk of land north of Interstate 80 in Altoona in 2013, it paid $25,325 an acre for the 190-acre parcel, real estate records show. Four years later, when the social media giant purchased 184 additional acres for its data center campus, it paid $43,478 an acre for the land, which had been farmed. In 2019, it bought 145 acres adjacent to its data center and paid $78,828 an acre for the ground. 

In that six-year span, the price per acre more than tripled.

Several Central Iowa cities in recent years have diligently worked to build infrastructure – streets and sewers – in undeveloped areas, said Kurt Mumm, president and owner of Cushman & Wakefield Iowa Commercial Advisors.

“People are putting more of a premium on [land] that’s ready to go, more so than they might have done five years ago,” he said. “The whole development process is taking longer now because of supply chain issues, and people recognize that so they are willing to pay more for those sites that are ready to go.”

Farmland’s effect on land values

The value of farmland has also had a big influence on land prices, real estate professionals said.

“If farmers are feeling frothy and the underlying agricultural value is there, it’s hard to motivate them to sell to a developer,” Breure said. “High-quality cropland is trading for $15,000 to $17,000 an acre in some parts of Iowa. You’ve got this challenge of making your development pro formas work and you’ve got this huge appetite for lots because of the housing shortage. 

“How do you motivate farmers or any landowner who has a piece of speculative, transitional land – how do you get it out of their hands for a reasonable price so you can move the project forward?”

The Iowa State University Land Value Survey released in November 2021 showed the state average for all quality of land was estimated at $9,751 an acre, the highest ever recorded by the survey, which began in 1941. In 2020, the average value per acre was $7,559. In Polk County, land values averaged $10,373 an acre. The highest values were recorded in Scott County at $13,852 an acre; the lowest were in Decatur County at $5,062 an acre.

Survey respondents indicated higher commodity prices, favorable interest rates and strong yields were the top factors that influenced land values.

“Future changes in inflation, interest rates and commodity prices will shape the trajectory of farmland market movements,” wrote Wendong Zhang, an Iowa State Extension economist, in the report. “Many agricultural professionals still anticipate a stable and modestly rising farmland market in the near future.”

Typically, when the farm economy is doing well, the general economy is struggling, Breure said. And when the general economy is booming, the farm economy is not doing as well.

“Right now, we have robust agricultural markets and a robust general economy,” he said. “And that is what is helping cause these record-high land values.”

Chris Costa, CEO and president of Knapp Properties, said the high land prices are pushing speculators – those who purchase land and hold on to it for future development – out of the market.

“If somebody is going to pay $40,000 or $50,000 an acre for land, they can’t sit on it for five or 10 years,” Costa said. “They need to get it developed and sold in order to make money on it. Carrying $50,000-an-acre land is tough. You’ve got carry costs; you’ve got interest, if you’re borrowing for it. Those costs add up in a hurry.

“So when you start paying these high dollars for land prices, it motivates you to develop quicker.”  

Rupprecht said he expects land prices, particularly for industrial and residential ground, to continue to inch upward in the coming months. Land designated for retail and office likely won’t see as steep an increase.

Still, with the cost of building materials skyrocketing and interest rates inching upward, there also could be a settling of prices, Rupprecht said.