The Sunbelt Land Boom Brings Big Profits and Big Risks

Billionaire distiller Tito Beveridge and golf champion Phil Michelson are among those fueling the land boom. They and other wealthy investors are descending into cities like Miami, Phoenix and Austin, Texas, where the demand for land to build homes and warehouses is growing and the number of vacant lots is drying up.

Land sales grew faster than any other major type of commercial real estate in the U.S. last year, according to the National Association of Realtors. In the Solar Belt, the quarterly number of sales of undeveloped land has more than doubled in the past three years, according to data from Land.com CoStar Group, a land listing website.

Inflation is accelerating the trend because land is considered a hedge against rising prices, brokers and investors say. According to Land.com, the median land sale price more than doubled to $18,083 per acre in the second quarter compared to two years earlier.

Land speculation is much riskier than most commercial real estate investments. Prices are volatile, and prices can fall sharply if developers or developers sour on the square or retreat during periods of slowing economic growth.

"You have to have a lot of courage," said Sebastian Drapak, chief operating officer of investment firm Drapac Capital Partners.

But in recent years, land prices in many Cities in the Sun Belt have been rising much faster than for other types of real estate, brokers say. A favorable state tax regime helps to make investments even more profitable.

Organizations associated with Mr. Beveridge, the founder of Titos Handmade Vodka, have acquired about 13,000 acres of land near Austin since 2020, according to property and corporate records, as well as people familiar with the matter. It's approaching the size of Manhattan.

A group of investors, including Mr. Michelson, his business manager Steve Loy and Arizona developer Spike Lawrence, recently bought a vast site south of Phoenix. The organization, linked to Microsoft Corp. co-founder Bill Gates, owns a large stake of about 25,000 acres of land nearby, according to a person familiar with the matter.

Land investors can play a useful role in the real estate market. They often buy plots that aren't ready for development, add roads or plumbing, and turn to overzoning properties. Sometimes, however, they behave more like speculators, betting that land prices will continue to rise even if they don't improve the situation.

Uruguayan fashion mogul Enrique Manhattan, who made a fortune on a chain of clothing stores, and his partners have bought 27 lots in Miami since 2017. It has often been able to knock out developers for plots because it doesn't have to wait for zoning approval or construction financing, so it can offer a much faster closure, said land broker Estrella Perez, who has worked on many of his deals.

Once Mr. Manhard buys a lot, he usually keeps it largely unchanged and waits for prices to rise, Ms. Perez said. This includes rejecting a large number of proposals from developers. "I have people calling me left and right, but they don't want to sell right now," she said.

Real estate professionals and home advocates are often critical of this buying and holding practice, saying it makes it difficult for developers to find land to build in cities where housing is scarce.

Landowners can afford to be patient because property taxes for vacant lots tend to be much lower than for buildings. Suburban landowners can get their tax bills even lower by keeping animals on their property, declaring its farmland, and collecting tax breaks for farmers and ranchers.

Tax appraisers most recently valued Mr. Beveridge's land holdings in the Austin area, which sit on the edge of one of the hottest housing markets in the country, at more than $220 million, according to state property records.

But because much of it is listed as a ranch, appraisers estimate the taxable value at $6.4 million, public records show. With one lot worth $38.4 million, the last annual estimated tax bill was $2,951, property records show. Without the agricultural tax relief, the estimated bill would have been $726,267, according to the 2022 Appraisal Value Notice of the Central Valuation District of Bastrop.

Land investors in this boom enjoyed some very lucrative flips. In December 2021, Drapac Capital Partners sold a lot in Midtown Atlanta for $19 million, and four years ago it paid $4.7 million for the land.

Arizona Land Consulting LLC, which pools money from professionals such as doctors, lawyers and software engineers to buy land, bought a $40 million plot in Arizona in February. After the firm determined that the plots could be zoned not only for residential but also for commercial use, the land became attractive to developers. One offered $156 million for the land in the weeks following the closure, founder Anita Verma-Lallian said.

The company rejected the application in part because there are tax advantages to owning the property for at least a year, Ms. Verma-Lallian said.

Greater risks for land buyers accompany this potential for excessive profits. Following the subprime mortgage crisis, land prices in the Solar Belt plummeted as home builders stopped buying plots.

Now, some landowners fear that high interest rates and high construction costs could start putting pressure on land values. Brokers say they are already seeing a drop in sales volume and prices may soon follow.

But many land buyers remain optimistic. "It's paying off now," Mr. Drapak said.