“Vacant lot sales are up 120 percent over last year,” Lee Riley, of Jann C. Pitcher Real Estate said, comparing 2004 sales to 2003 sales. “Inventory on vacant land is down 23 percent. Home sales are up 55 percent from last year and inventory is down about 38 percent.”
Riley has more room in his real estate ads these days for animals from the Humane Society because the inventory of available properties has decreased dramatically. Yet, as of January 2005, there were still 704 vacant lots, from a quarter of an acre to 34 acres on the market available through the dozens of real estate agents in Pagosa.
In this series of articles, I’ve discussed the baby boomers buying up second homes and investment property. I’ve profiled Great New Homes, the first production builder to stake their claim in the Pagosa land grab. Now I will discuss what realtors Lee Riley, Jim Smith, Mark Espoy, Stephanie Hill, Mike Heraty, JoAnn Laird, Susie Long and Todd Shelton all mentioned as the single reason land sales have increased at such a sizeable percentage—National Recreational Properties, Inc. (NRPI) and their purchase, in 2004, of approximately 332 lots of which 83 are undeveloped.
“It’s really only about 250 improved lots in Pagosa Lakes and 83 unimproved lots in Chris Mountain II,” said Jim Smith of Jim Smith Realty who brokered the transactions. “But it wasn’t as many lots as they wanted to buy.”
A few years ago, according to Smith, the Pagosa Area MLS had over 1000 lots for sale, most of which were in the Pagosa Lakes Area. More than a few speculators, investors and individuals have been buying up these cheap lots for several years.
“NRPI is a late arrival here, but took what was left,” Smith added.
NRPI is a real estate acquisition company founded eight years ago by Robert Friedman and Jeffrey Frieden. Based in Irvine, California. NRPI has various operations in California, Washington, Florida, Arkansas, Arizona and now Pagosa Springs, Colorado. Friedman and Friedan are also the co-founders of LandAuction.com, Land Disposition Co. and Real Estate Disposition Corp.
From slick websites to television infomercials, NRPI typically has potential buyers pay a $295 travel deposit, which is put into a real estate trust account. The deposit is then applied to a purchase or refunded after a fly-before-you-buy trip to the property, paid for by NRPI. A buyer selects their lot from a licensed real estate agent. After signing a contract, the buyer has 72 hours to back out of the deal. NRPI provides the financing. In Arizona City, Ariz. an NRPI lot sells for $24,900. The buyer puts $1,295 down and makes payments of $329 a month at an Annual Percentage Rate of 14.9 percent. This excludes property taxes, Property Owner’s Association fees, and a one-time $995 documentation charge. In Ocean Shores, Wash. the lot price is $39,900 with $1,195 down and payments of $498 at an interest rate of 13.75 percent excluding a $500 one-time documentation fee and 1.53 percent real estate excise tax.
I contacted NRPI to ask them about their business model for Pagosa Springs. “We don’t discuss our business practices with the media,” Friedman said. Yet it was Friedman who Associated Press writer Brian Melley recently quoted as saying: “We are riding on the coattails of developers from the ’50s and ’60s. We identify these things, we re-expose them to the world, and our clients in the long run get incredible values.”
These “things” that Friedman refers to are the thousands of lots across the country in subdivisions that predate planning laws requiring sewer, water and power. Developments that were platted, but never completed. In many cases, NRPI doesn’t improve the lots, they just sell them, flipping them to new buyers if an owner defaults, usually at a higher price.
“NRPI offers no money down, high interest rate, installment land contracts. We don’t know how it will work in this market. Colorado doesn’t allow that type of contract, they frown on installment land contracts. If you foreclose on someone, it will take 3-6 months to get the property back,” Lee Riley said.
So will we see that infomercial they filmed with Erik Estrada on TV anytime soon? Are they opening an NRPI sales office in Pagosa? Will they be flying in prospective buyers from California shortly? Not according to Jim Smith.
“All of the developed lots are back on the local MLS,” Jim Smith said. “We are trying to keep it local. If they set up shop, the local realtors are out of the loop and so are the local customers. Right now a local customer can buy the properties versus all of the buyers being from out-of-state.”
Smith advised that this arrangement could change at anytime. NRPI could decide next month to begin their fly-in program. If that happens, Smith expects a significant price increase. He also anticipates that all of the lots will be sold within three to five months.
“So far to date, we have received over 16 offers on NRPI properties, most of which are under contract and some have closed. This is not bad for the middle of winter,” Smith said. “Each week we are getting more offers. I expect that by the end of summer, a large number of these properties will be sold.”
“When you look at the market they can target—California—a ten million person population base with expensive TV marketing, where $400 a square foot buys a junky tract home, it’s not unreasonable to think they could sell those lots in six months,” Mike Heraty said. “It’s the same principal as Fairfield with the timeshare sales.”
What about the 83 unimproved lots in Chris Mountain II purchased by NRPI? Will they just turn around and sell them as is, without water, sewer, power, roads to some unsuspecting client hoping to cash in on the Pagosa Springs real estate boom? Again, Smith says no, NRPI intends to improve those lots in that subdivision, a possibility that excited Smith, and his associate Mark Espoy, who both believe, such improvements will be a good thing for the market.
“Development costs are about $35,000 a lot, a tap fee alone is $10,000,” Smith said.
“That is a beautiful area,” Espoy added. “Very high end. It helps the economy to do improvements.”
It appears, that the NRPI business plan for Pagosa Springs is similar to that in Arizona City, where according to the NRPI website Arizona City has grown 126% since 1990. “This population explosion has resulted in families moving here from major cities to enjoy a lower cost of living and a better quality of life.” Since 1990, the population of Archuleta County has grown 110 percent, with thirty percent of buyer’s being second homeowners.
“People around here have been spoiled by the supply and demand; an over supply means that value stays down. Now that those property values have gone up, those who purchased lots in Pagosa Lakes 10 or 20 years ago, might break even,” Smith said.
“The purchase prices for lots in Fairfield were higher between 1979 and 1983,” JoAnn Laird concurred. “The prices are just now catching up to where they should be. Raising the pre-owned home prices is good for sellers.”
Not everyone agrees. “The average price for a lot that NRPI purchased was $15,000.” Lee Riley said. “Jim Smith just put all of the lots back on the market and the average price is $40,000. I think they are overpriced.”
“I don’t like it,” Susie Long of Galles Properties said. “From a seller’s standpoint, a lot of them paid $18,000 for a lot in 1978 and they sold that lot to National Recreational Properties for $10,000 and now that same lot is back on the market for $40,000.”
“From the angle of supply and demand, the inventory for lots, usually you had one on the market for a year. In the last couple of months, they’ve been on the market for a month or two because the inventory wasn’t out the
re. Now we have 350 lots out there at way over inflated prices and I don’t know what that is going to mean. We’ve always had more modestly priced lots, and maybe we are playing catch up and I’m the one behind the times. But I have a hard time selling something I don’t believe in. I don’t want to be avoiding the owner in the supermarket next year if they want to put it back on the market,” Lee Riley said.
“The days of millions of transactions are gone. The $4,000 lots are gone. In the future there will be fewer transactions, but the dollar volume will be higher,” JoAnn Laird said. “If you are going to buy, buy now, it’s not going to get any cheaper. Buy the vacant lot next to you. Right now the prices are fair and equal for both the buyer and the seller, but I don’t know how long that will last.”
NRPI is reaching out to the community, and recently donated $5,000 to the “Seeds of Learning” campaign to help build a new building for Archuleta County’s only non-profit childcare center catering to low-income families. In a company press release, Friedman said: “As a new neighbor to Pagosa Springs, we are fulfilling our quest to do our part for the disadvantaged children in this community.”
“We think Pagosa Springs is a gorgeous area, poised for growth,” Robert Friedman did say to me on the phone. “The town is filled with nice people.”