Greg Fay's Bozeman-based real estate business had a record year last year.
Fay Ranches' sales were up 16 percent in 2012, he said, the best year in
the history of the company, founded in 1992 originally to sell fly-fishing
properties.
"It appears to us that there is an increasing interest in investing in
large production ranches," Fay said.
Fay Ranches wasn't alone. In 2011 and 2012, Hall and Hall realty based in
Billings had back-to-back record years, according to director Jim Taylor. Last
year, he said, the company did about $330 million in sales.
Taylor sees investment in working ranches right now as more compelling
because cattle prices are good and the prospect of China's growing middle
class eating more beef could make those prices rise even more.
"The cattle business has some real legs for the future," he said.
Fay sees the interest in ranch purchases as a play by American
billionaires to add a tangible, low-return investment to their portfolios with
the idea that land values have bottomed out and could appreciate considerably
in the future.
Taylor has been in the ranch real estate business since 1971. In 1972, he
sold a ranch for $36 an acre. In 2011, the same ranch sold for $500 an acre.
Allowing for inflation, that's still more than double the amount.
On ranches that have amenities like trout streams, wildlife habitat and
scenic views, those prices have "gone through the ceiling," he added.
Land Slide
One of the side effects of the American banking crisis in 2008 was that
land prices fell. For ranches in Montana, Fay said he saw reductions in prices
ranging from 20 to 50 percent. Another estimate put the average decline at 44
percent.
"A good production ranch that can show that it's on solid financial
ground, and throw in a recreational component, that ranch has corrected the
least," Fay said. "Some other sectors corrected significantly more, especially
the ones that are highly replicable, that aren't unique from a recreational,
financial or aesthetic standpoint."
Taylor agreed.
"The last 15 years, operating ranches have had pretty good appreciation
values," he said. "That's been fairly steady."
With interest rates at all-time lows, and memories of the stock market's
crash still fresh, buyers looking for a safe place to park their cash were
perfectly situated to take advantage of lower land values. Billionaires were
seeking large production ranches that could offer a return of at least 1 to 3
percent, Fay said.
They were the ones paying $15 million to $100 million for larger
properties. Mere millionaires were also looking to buy recreation properties,
he added, at prices ranging from $1 million to $5 million.
As Taylor pointed out, few investments are as secure as property, even if
the immediate return from a production ranch may only be 1 percent a year.
"They see a storehouse of value, a place to park their money," he said.
Few investments have better returns. According to the U.S. Department of
Agriculture, the average value of pasture land in 2012 rose by 4.5 percent to
$1,150 per acre.
The ranches and recreational properties also come with the added value of
providing a place to hunt, fish and for family and friends to gather and play.
Fay said the sale of ranches was particularly strong for his company in
Montana and Wyoming in 2012. The company also has offices in Idaho, Colorado
and Oregon.
Seeing Opportunity
Texas oil baron T. Boone Pickens took note of the value in ranch
properties and last year created Sporting Ranch Capital. Sporting Ranch is an
investment fund that buys recreational ranches, raises their value through
improvements to amenities like fly-fishing streams, and then sells them at a
profit. As an added incentive, investors can enjoy the properties for fishing,
horseback riding and hunting, something like a timeshare investment, until
they are resold.
Beartooth Capital, headquartered in Bozeman, has been working with a
similar model of ranch purchase, improvement and resale since it was founded
nine years ago.
Robert Keith, one of the firm's founders, said the business was founded
with "the goal of generating a strong financial return for investors through
the restoration and protection of ecologically important ranches." An
additional benefit for investors is the opportunity to fish, hunt, hike and
recreate on ranches owned by the firm.
"Ours is not a pure focus on a sporting property," he said. "In addition
to the fishing and hunting component, we look for and own properties that are
more agricultural in nature, that are extremely unique family retreats and
best of all, some ranches that have all of these characteristics in one
ranch."
Keith said he saw sales of ranch properties grind to a halt in 2008, but
noted that the best properties have continued to sell.
Looking Ahead
In looking ahead to this year's market, Fay is cautiously optimistic. He
said he doesn't entirely trust the market, although the economy seems more
stable. He sees ranch prices as bottomed out, but not yet appreciably rising,
making it still a good time to buy. There also could be more ranches for sale
if there's a sense that the market value is increasing.
"There are excellent opportunities everywhere right now," he said.
Distributed by MCT Information Services
