John Murphy’s MEDINA REAL ESTATE REPORT

The National Association of Home Builders reported housing starts this week for the month of April 2008:

Single-family housing starts dropped 1.7 percent for the month to a seasonally adjusted annual rate of 692,000 units, the lowest monthly production rate since January 1991 and 42.2 percent below April 2007.

I remember seeing on Yahoo! the positive news story about housing starts being up, but when you look under the hood at the statistics and the details of the release from the NAHB, you see that the multi-family starts overly influenced the report. The fact is, across the country, demand for single family homes remains soft and the builders remain pessimistic about their futures - see graphical display below courtesy of Calculated Risk.

Locally here in the Twin Cities and particularly the western suburbs, while business is certainly softer than many builders would like to see, I am seeing some encouraging activity in new developments such as Prominence Woods (Maple Grove, MN - Wayzata Schools), Taryn Hills (Plymouth, MN - Wayzata Schools) and Bridgewater at Lake Medina (Medina, MN - Wayzata Schools). Several spec homes have recently gone pending meaning someone has purchased the home but it has not closed yet.

In case you missed this headline stories for four days running in the Star Tribune, here is the 4 part series on the problems facing many in Wright County in the Twin Cities.

It’s just more bad news from the Star Tribune.  Any chance you think they take some delight in the problems in the suburbs?

Based upon what sold in the MLS, 2007 was not a good year to be selling lots and land in Medina.  Only one lot sold in Medina in 2007.  That was 20 acres that sold for $750,000.

In 2006, 7 lots had sold for a total of $5,752,000.  If you back out the small single family lot that sold at 2933 Ardmore for $164,000 for a .34 acre lot, that leaves a total of 6 parcels that sold for $5,588,000 representing 70.2 acres.  That amounted to $79,601 per acre.

The fact of the matter is in looking at this data, if you wanted a decent sized lot for your country home in Medina, you were looking at approximately $90,000 - $100,000 per acre in 2006 and in general it would cost you close to $1,000,000 to buy such an acreage lot.

Given the slowdown that occured in 2007, it’s difficult to know what the true cost of an acreage lot is today, but there was one sale as mentioned above for 20 acres and $750,000.  I believe the more important thing to look at in this sale is not the $37,500 per acre, but rather the amount of $750,000.  The reason I say that is that in looking at past history, larger lots in Medina have gone for between $900,000 - $1,200,000 for anywhere between 10 - 20 acre lots.  The key is the overall price of the lot more so than the price per acre.  Some have historically paid close to $100,000 per acre for the smaller parcels and $50,000 to $60,000 per acre for the larger parcels (i.e. 20+ acres).

Here are the list of active lots and land for sale in Medina as of January 18, 2008.

2930 Parkview Drive, Medina, MN is the featured home to be auctioned at the Twin Cities new construction auction scheduled for January 26-27th.

They say the home as a value of $2.5 million.  I’ve been it in.  It’s a nice home with about 4,700 total finished square feet.   It’s located directly across from Baker Park in Medina.  It’s beautiful county out there.  The views are awesome of the sunset and sunrise as this home sits on a hill.  It also has views of School Lake in Medina.  The lot is 6.5 acres.  There is an additional 24 acre, buildable lot that someone could purchase as well.

The Builders Association of the Twin Cities (BATC) has this file stored on their web site.  It’s available to the public.  Builders and developers are able to catalog and list their lots for sale in the Twin Cities metro.  There are also some lots listed for Rochester.  It’s a 19 page pdf file that doesn’t appear to be very well organized or user friendly, but you might be able to find something you’re looking for here if you’re considering building.

Swanson Homes is looking to develop the 80 acres known as Gorman Farms in Medina, MN.   This parcel sits just east of Foxberry Farms development and is best described as east of County Road 116, just south of Hackamore Road, north of Shawnee Woods Road, and west of Wild Meadows.

The development is not imminent, but rather the developer, Curt Swanson of Swanson Homes, has made the request of the Medina City Council to incorporate this parcel in to the 2030 Comprehensive Plan for MUSA.

Swanson’s plan call for 80 homes within the 80 acre parcel.  However, once the City of Medina nets out the wetlands and any other deductions, Swanson’s plan calls for essentially 2 units per acre.   The Met Council is pushing the City of Medina for 3-5 units per net developable acre.  It’s unclear how successful Swanson will be to get this kind of low density project approved.

The minutes from the council meeting where Swanson Homes presented their plan to the City of Medina can be found here.  (item # 9 on page 5 of this web page).

Curt Swanson plans to build homes similar to those found in Wild Meadows South i.e. averaging about $ 1 million per home.  (Considering that the Bridgewater development is similar, it looks like the going rate for a new luxury home in Medina and the Wayzata School district is one million dollars).

Swanson builds some nice homes.  If you’d like to see a sample of his product, stop by his Seven Greens Development next to Providence Academy.

Last fall, the City of Medina embarked on an ambitious plan to hear from as many Medina residents as possible through a variety of venues including public forums at the City Council meetings, neighborhood meetings, and specific public meetings to address the various pieces of the 2030 comprehensive plan update for the city of Medina.

I had the opportunity to attend a few of these meetings.  It was clear to me that the city is very divided on the issue of development.  On the one side are the land owners.  Many of  them have held land for years - sometimes for generations.  They see that land is selling for $200,000 to $250,000 per acre and they would like to cash in.  Who can blame them?

There are those on the opposing side who do not want to see much for development.  Many of the people who hold this opinion are newer residents to Medina.  They purchased a beautiful, expensive home and bought in Medina for it’s rural character.

Given last November’s election, it’s hard to imagine that we will see runaway development in the City of Medina.  However, if we want to have more business services in the city, that’s going to require more roof tops.

During the past few months, the City of Medina has been taking requests from citizens regarding the City of Medina’s plan to update the 2030 Comprehensive Plan.  There are four pages of requests essentially for development.  Many of the requests are asking that the City of Medina include their parcel in the MUSA for 2030 so that they will have sewer and water.  This would increase their land value overnight by a very significant amount.

It will be interesting to watch how this plan comes together over the next several months as the new council begins its work and puts its mark on the City of Medina for the next 20 years.

During the past few months, the business press has been reporting that many of the nations largest home builders may have to write down the value of their land holdings given the softening in the housing market.   Many builders have walked away from millions of dollars in option money they had given to land owners in order to control that land.

USA Today is reporting that builders are indeed scaling back the land they have.  Land contracts signed in the past couple of years will likely be either renegotiated or the builders will walk away leaving their option money on the table.

For more on the story see here.

Based upon my conversations with some local developers here in Northwest Hennepin County, we’re seeing the same thing as is mentioned in the article.  Land owners continue to think their land is worth a premium.  However, developers and builders are very cautious about bringing to market more $800,000+ luxury homes.  It’s clearly going to take months and months to digest what’s currently on the market.

The Wall Street Journal published this story about the challenges builders are facing with the high cost of land that they have on their books.  Some national builders have walked away from their deposits they had on land they had option contracts on for future housing projects.  (WSJ may require a subscription.  Please e-mail me if you need a copy of this article).

It’s interesting to note that this softness in land prices and housing comes just as the City of Plymouth is getting ready to make way for another 1200 acres to be developed to varying densities in the Northwest part of the City.  Many of those land owners hoping to cash out for top dollar are going to find a very different marketplace today that what the news media was report 6-12 months ago.

The Plymouth City Council met on Tuesday, June 27th this week to discuss and approve the current plan for the development of Northwest Plymouth.  Approximately 50 people attended the meeting.  Most people who addressed the council were Plymouth land owners requesting higher densities on their properties.

At the end of the meeting, the City Council amended the land use plan from June 13th and slightly lowered the overall density for Northwest Plymouth.  For a comparison of the plan as it existed on June 13th compared to June 27th, see here.  Click here for a visual of the latest preliminary land use map as adopted by the council on June 27th.

One of the more challenging aspects for land owners and developers is the City’s new requirement for a 100 foot setback.  This is a significant increase from the normal 50 foot setbacks.  The Council did amend the plan to allow property along the Vicksburg corridor to maintain the status quo with 50 foot setbacks.

The next time the City Council will address land use will be in the September/October timeframe.