A veritable wasteland of overgrown and under improved plots scattered throughout many neighborhoods in Chicago, many of which sit in foreclosure, vacant, boarded up or distressed in one way or another, results in understandable skepticism regarding buying land. However there are neighborhoods in the city where rental growth is on a tremendous trajectory, prices per unit are well into the six-figures for apartment buildings, tenants are reevaluating the rent versus own formula, and liquidity is present and eager to be put to work. As cap rates compress in these neighborhoods and interest rates continue to remain near historic lows, what is the next play to take advantage of these factors? Is land the logical opportunity?
Land purchase/banking has always been a risk; and although I do not have a crystal ball, in the current convergence of trends the potential upside is compelling. By the time an investor/developer waits for the market to completely turn in favor of new construction, then acquires, plans and builds on their site, the risk is that the market will have changed yet again. Opportunity lies in timing. Taking the land-plunge now in anticipation of change, and being mid-process of building when the market is ripe for new construction apartment units or for sale units, results in delivering product at the right time. Real estate is the quintessential risk/reward investment – and the timing equation may be perfect for land.