Builder David Scaggs has been surprised lately to find land in Twin Falls isn’t any cheaper than it is in the Treasure Valley, even though the latter is widely regarded as a national growth hotbed.
In some cases, Scaggs, owner of Boise-based Summit Development, said he’s had to a pay more for Twin Falls land, compared with the cost of land in the Boise area.
Scaggs believes property owners have a good understanding of what their land is worth and doesn’t believe the area’s land is overvalued at the moment. The problem, in his view, is that appraisals of finished developments in Twin Falls have been greatly undervalued.
“It’s an uncharted area right now,” Scaggs said.
In smaller communities, such as Twin Falls, Scaggs explained there are often no comparable properties available on which to base property values. Following the Great Recession, Scaggs said appraisers have become reluctant to set higher values until “somebody comes in and sells
For example, Scaggs is building an 80-unit project of fourplex townhomes near the new St. Luke’s Magic Valley Hospital in Twin Falls. He estimates that project has appraised for about 40 percent less than the same project would have been valued in the Boise area. But he paid between $5 and $6 per square foot for the land in Twin Falls, which he said is about the same price he’d pay for prime land in Boise. He’s heard of some land in Twin Falls selling for as much as $13 per square foot.
Scaggs said building costs, in general, are running a bit higher in Twin Falls than in Treasure Valley, where there’s a far bigger construction labor force and a larger pool of subcontractors.
“We’ve got a shortage of labor in Boise, but Twin Falls has a severe shortage of labor,” Scaggs said.
Scaggs acknowledges there’s been a flurry of recent growth in Twin Falls – especially around the new hospital, the new Walmart, Magic Valley Mall and the Chobani yogurt plant. He said growth has included apartments, larger commercial tenants, restaurants, storage units and new food manufacturers that capitalize on the region’s extensive agricultural production. Nonetheless, he said some of the more risk-averse builders have been avoiding Twin Falls.
He believes low appraisals have stymied growth in Twin Falls, and bankers have been hesitant to make loans for local construction.
“That’s the big thing that’s going to hold up Twin Falls,” Scaggs said. “Once they sell and get what they should, you’ll see more activity.”
In September, Scaggs will start construction on 112 fourplex units on farm land near Chobani. He’ll have to build costly infrastructure to ready the field for development, including a large road and a regional pump station.
“In Boise, there’s infill and infrastructure in place,” Scaggs said.
Scaggs acknowledges land prices have also risen significantly in the Boise area. Two years ago, he paid $2.50 to $3 per square foot for Ada County land. Prices have doubled since then.
Andrew Propst, CEO of the Boise property management company HomeRiver Group, agrees land prices have been a deterrent to development in Twin Falls, as more builders reason potential rent doesn’t justify the expense.
“I think (Twin Falls) land in general has been a little more pricey based on conversations I’ve had with local builders,” Propst said. “They seem to be paying a buck or so more per square foot for raw dirt in certain parts of Twin Falls than they are in areas of Ada County.”
Mark Jones, with Robert Jones Realty in Twin Falls, who specializes in agricultural and commercial real estate in Magic Valley, said the strongest demand is for property within city limits.
“In Twin, what is happening is our local developers had ground from 2005, 2006 or 2007, before the market crashed, and they’ve held onto that ground, and now they’re doing infill on all of that ground,” Jones said.
Jones believes new food manufacturing companies will continue to be drawn to the Magic Valley, driving new growth. But Jones said growth hasn’t spread much to agricultural land surrounding the city, which is still being valued based on its potential for crop production, rather than development.
“I have a 72-acre farm with a preliminary plat ready to go for 60 lots,” Jones said. “I’ve had it on the market for quite a few months at a very reasonable price, and no takers. The demand is in city limits.”
Rob Pfister, with Pfister Land Co. based in Buffalo, Wyo., specializes in the sale of farm and ranch and recreational property in the West.
In general, Pfister believes banks are becoming more willing to make building loans. He said “transition” properties – farm ground located adjacent to cities – that haven’t been worth developing in the past are now generating increased interest among regional builders.
Pfister anticipates a lot more land will soon become available for development in the West, as investors become convinced that the stock market may have reached a peak and invest more wealth in property. Pfister added that he’s seeing aging ranchers sell land for development as they retire.