Seemingly unlimited cash, heightened interest in real estate investment, and the cultural shift to working from home produced another stellar sales year in 2021. The Intermountain West experienced record growth in Denver, Salt Lake City, and Bozeman, as well as the resort markets in the region.
State of the Ranch Market
The resort boom, as it did in 2020, strongly influenced the Intermountain West ranch market, especially recreational properties within an hour of a ski area or town. High demand for these close-in locations led to historic sales records. However, replacement inventory near resorts has not kept pace with the demand, leading many buyers to now consider more traditional cattle and recreational ranches.
This is not to say that ranches and rural properties are appreciating as fast as resort properties, which experienced up to a 30% increase in value last year (see chart). Rural lands in the Intermountain West reported growth in the range of 2-9% for farmland and 4-10% in pasture land, according to the U.S. Department of Agriculture.
At Mirr Ranch Group (MRG), most of the ground we sold in 2021 advanced 8-12% over the previous year, double the traditional annual rate of 4-6%. Generally, agricultural properties are a great hedge against inflation and generate higher returns during periods of high inflation. And ranch properties are a rare class of investment-grade real estate that, by their very nature, are unique and in limited supply.
WATER IN THE WEST
Water has become a critical focus given the drought conditions that have impacted the region for the past two decades. Last year a water shortage was declared on the Colorado River, triggering cuts to many junior water rights owners. Some say the West is experiencing its worst drought since 800 AD, with the last multi-decade drought occurring in the 1550s.
No matter how you slice it water and the right to own and use water is one of the most important considerations when buying a ranch in the West. We have marketed and closed sales on several ranches with water rights that are tributary to the Colorado River. MRG’s deep commitment to evaluating and brokering water, use of proprietary software, and our expertise, gives you certainty when evaluating properties.
PROVIDING VALUE THROUGH CONSERVATION
In Colorado, recent legislation provides greater incentives to private landowners who voluntarily conserve and protect more land. Donors of conservation easements can now receive tax credits for up to 90% of the donated value of the easement, up to a total credit of not more than $1.5 million per calendar year and a total transaction cap of $5 million.
MRG clients have participated in demand management programs that compensate them for temporary and voluntary reductions of consumptive use of water in the Colorado River Basin. MRG has also partnered with experts in the field of ranch management and is poised to provide operational assessments, ecological monitoring, and full oversight of management activities.
EXPANDED BUYER SERVICES
Shrinking inventory has shifted the emphasis for MRG’s robust and deeply experienced buyer services division. Given the supply issues, we are now engaging in more off-market transactions where landowners are selling properties in non-marketed confidential transactions. With the advent of increasing off-market sales, it is more important than ever for buyers to work with brokers such as MRG that have deep connections in the market.
ASSISTING LANDOWNERS
MRG can also assist landowners and buyers seeking income-generating, tax-saving, and ecological enhancing measures to enhance their bottom line. These include conservation easements, ecosystem services (i.e. carbon markets, demand management, mitigation banks), and ranch management practices that improve the bottom line and address the long-term appreciation and viability of the land.
The Road Ahead in 2022
In 2022, we believe that inflationary pressures will increase demand for ranch purchases, while low inventories will continue to frustrate many buyers. Rising interest rates may cool the resort and housing markets, but these rates will not influence ultra-high net worth individuals with cash to spend. Increasing demand and sales will continue in 2022 for larger outlying properties, as will the expertise needed to operate them. Rural lands will remain sought after as a sound investment hedge against inflation and MRG is well-positioned to assist sellers and buyers alike.
Ranch Buying and Selling Advice
Recently, we sat down and discussed the 2022 ranch real estate market at large. From advice for buyers and sellers to answering your questions on inflation and investment potential, we cover it all. Have yourself a listen!