June 27th, 2011 3:19 PM by Eileen Denhard
RISMEDIA, June 27, 2011—(MCT)—Farmers, who bet on the weather each growing season, have emerged as the shrewdest gamblers in the housing industry.
A decade ago, they began seeing land values escalate as homebuilders needed raw land to satisfy demand. They sold land to homebuilders at high prices, took their profit and invested in land downstate that they leased to local farmers. Now they are back in Chicago’s far-flung suburbs, spending a pittance of what land sold for five to 10 years ago, planting crops and profiting from surging commodity prices.
“Farmers have been the wisest investors, especially in the collar counties,” said Mark Goodwin, president of Goodwin & Associates. “They were smart enough to hang on to their money and reinvest it in the land. It’s like any other business: Invest in what you know.”
Brothers Bob and Ed Baltz are two who have capitalized on the dramatic turn of events. More than five years ago, they had all the hard-charging, prominent local and national builders, including Neumann Homes, Del Webb, Centex Homes and Pasquinelli Homes, knocking on the doors of their family farm.
“We had everybody coming in and making offers,” Ed Baltz said.
The last offer they received, in 2008, never closed, because of the housing industry’s crash, but a developer wanted to purchase 600 of their acres in Will County for $72,000 an acre, or more than $43 million.
The two had already sold slightly more than 300 acres outside Chicago, at an average of $25,000 per acre.
They took those proceeds and bought 4,000 acres, in 17 downstate counties, that they rented to other farmers. That left them 1,800 acres to farm corn and soybeans in Chicago’s exurbs, including fewer than 1,000 acres they owned.
That’s when fate smiled on them.
During the past year, corn prices have doubled on increased demand for use as livestock feed and biofuels, and soybean prices have also risen.
As those prices rose, the Baltz brothers began selling their fertile land downstate that they paid $2,500 to $4,000 an acre for and which is valued at as much as $8,000 an acre. During the past 12 months alone, they’ve sold more 2,000 acres. Now they are more active farmers in their own backyards.
During the past three months, they’ve purchased from lenders almost 1,000 acres of farmland in Will and Kendall counties that were once scheduled for homes, paying a fraction of what developers paid years ago.
“A lot of (banks) just want it off their books,” Ed Baltz said. “We got a little more power because we got the cash to spend.”
On a recent warm afternoon, the brothers stood behind a weathered, vacant white-frame home and barn in Shorewood, Ill., on 246 acres that, at their peak, sold for $65,000 an acre and in 2005 were annexed by the village and zoned for more than 400 single-family detached homes.
The Baltz brothers paid $3.6 million, or about $14,500 an acre, for land that already has subdivision utilities brought to the property line. This year, though, the only thing rising out of the dirt will be the corn that Bob Baltz planted last month.
The Chicago-area acreage won’t yield as large a crop as the more fertile soil downstate, but the Baltz family is looking past corn and soybeans to the eventual return of homebuilders.
“Even if corn tanks, it benefits us because we sold high,” Ed Baltz said. “We’re more banking on the housing market recovering,” but he added, “Until the foreclosures stop and the empty lots are built, I don’t foresee this changing.”
At the Fields of Shorewood, an 80-acre subdivision on the eastern edge of the Baltz farm, more than 45 of the almost 170 lots are vacant.
The Baltz brothers are hardly alone in taking advantage of the laws of supply and demand. With farmland values 75 percent off their 2005-06 peak, there are multiple stories of farmers doing much the same thing. And there continue to be new parcels brought to market as lenders tire of carrying them on their books.
“We’re at the high end down there. We’re at the low end up here,” said Mark Brummel, a real estate agent with Barrett & Brummel Farmland & Commercial Real Estate, a division of Barrett Realty Co.
Private investors with no hands-on farm experience also are opting to buy land and rent it to farmers rather than invest in a one-year certificate of deposit, for which yields are currently less than 1.5 percent.
“A lot of these farms that are selling today are averaging a return of 2 to 2.5 percent and they’re buying a finite commodity, something they can touch and feel,” said Tim Greene, executive vice president of John Greene Realtor. “People that like land feel very comfortable in a future growth area, and they’re getting a nice return on it. If they have liquid capital, buying a substantial amount makes sense to them today.”
Land prices are expected to favor buyers for some time, particularly because more supply keeps coming online and there’s a limited pool of primarily cash buyers and farmers who’ve already hit it big once.
Bob Dhuse, whose family has been farming southwest of Chicago since the 1850s, decided to split up the family’s Kendall County land seven years ago, selling 90 acres for $34,000 to a housing developer. He too went downstate and bought farmland, for $4,000 an acre.
A year ago, he sold some of that land for $7,200 to $7,500 an acre, and last fall he paid $12,000 to $15,000 an acre for land on the west side of Joliet that was to be a project of Neumann Homes, which, like competitors Kimball Hill, Kirk Corp. and Pasquinelli, all went bankrupt.
With 450 acres owned in the Chicago area and an additional 366 acres downstate, he’s farming more acres than he ever has, despite the fact that the well-timed land sales have him “set for life.”
“I don’t golf,” Dhuse said. “I don’t have any hobbies. Farming is all I’ve ever done. This isn’t all because I’m so smart. Some of it is dumb luck. But they don’t make land. It’s just a no-brainer now.”
Land brokers, who spend their days crisscrossing the countryside to show land to potential buyers, agree.
“Out of everybody in the housing boom and bust, the farmers probably came out ahead of everyone,” said Dan Flanagan of Flanagan Realty LLC.
(c) 2011, Chicago Tribune.