Development Market is Stabilizing

The land development market has been propped up by speculators for the better part of three years.  I’ll define a speculator as anyone who is relying on future appreciation for investment returns and can’t make deals based on current development economics.  Land speculators aren’t any different really than gold speculators, so I am not using the term pejoratively.

So over the past three years the development market really required investment from those who have a lot of faith in the future of price movement.  Some deals that were done “penciled” when they were done, but they were the minority.  However, I will say that I am noticing a shift in the market from a speculator mindset to a user mindset.

It used to be that developers would be sellers of deals and they would be the ones selling to speculators.  The developers didn’t see an upside or an exit from a development standpoint, so why not get rid of a deal and sell to a speculator.  But in the past couple of months I’ve noticed that more and more of the users and developers that I talk to are re-examining their development plans.

The “sell at any loss” mindset is going away and is being replaced by a “we’re re-evaluating whether it makes sense to build right now”.

I don’t expect the development market to catch fire overnight to the point where we’ll see a lot of construction taking place soon.  But things are definitely happening now.  Developers are more serious about build-to-suits, and users are putting a toe in the market when it makes sense.