Land Has No Value

Sorry I have not been posting much. The end of the quarter is coming up quick and numerous deadlines are hitting me all at once.

At the NAIOP conference I went to in Long Beach this week a member of the crowd asked about land values.

It was not pretty.

Land is a 4 letter word, and from what I have been seeing and hearing is that land has no value right now.

It may have investment value if you are a speculator.

It may have utility value, if you want to grow something on it.

It may have sentimental value, but in the Inland Empire, right now, land does not have actual, "I am going to pay for this" value.

The reason is, many of the buildings that have sold over the past three months, on a per square foot basis, were sold below what it would cost to build a new building.

Below replacement value. Ouch. This means that land might actually have a negative value, if the following equation holds true.

Building Cost = Building + Land

This is a pretty simplified formula, but basically the cost of a building will include construction cost and the land cost.

If the building is less than the building cost, then land is negative.

Another thing that was discussed at the conference had to do with what things are worth, and that is appraisals.

I do not envy these guys, everyone wants to know but the data is not there. They are under a lot of scrutinity and lawsuits, since people tend to blame them for inflating the value of the real estate.