By MICHELE F. MIHALJEVICH
Indiana Correspondent

INDIANAPOLIS, Ind. — While farmland values remain strong in most areas, the prices commercial or residential developers are willing to pay for farm property have fallen significantly, according to those in the real estate industry.

“I don’t think we’re at the bottom of this yet,” said Ross Reller, a senior advisor with Colliers International, of Indianapolis. “We’re probably 50 to 60 percent through this. What people were paying $100,000 (an acre) for two years ago, they’re paying $50,000 for today, and that could drop to $30,000. It’s not a story you want to hear.”

The housing crisis and economic situation have made credit harder to come by, which limits what developers will pay for transitional farmland – land moving out of agriculture – Reller explained.
“Everything is being re-priced, including wages. The real estate part of this contraction is you have less money available for everything,” he said.

Developers in central Indiana have little interest in buying transitional farmland to turn into a commercial or residential project, Reller noted, adding he doesn’t expect that to change until the credit situation eases.

Investors are, however, taking a big interest in purchasing farmland as an investment and leaving it farmland, he said.

“I think we’re seeing the peak pricing of farmland,” he noted. “Clearly it is one of the hot commodities right now. A lot of investors who historically look at maybe constructing an office building are now looking at productive farmland. There are people interested who have never been in it before.”

The collapse of the housing market and the financial crisis have left the pricing for transitional farmland somewhat chaotic, said Craig Dobbins, a professor of agricultural economics at Purdue University.
“Developers aren’t interested in buying right now, though there’s a lot of variability out there. Development has slowed down a lot, but it’s extremely sensitive to location,” he explained.

Despite the drop in prices for transitional farmland, those prices are still higher than what farmers can get for selling to other farmers, Dobbins said: “Developers, when they want to buy a piece of property, are going to be quite willing to pay more than what a farmer could pay for it. They can outbid a farmer every time.”
It’s going to take some time for the housing market to sort itself out and for prices to rise again, he stated.

“We really did create an oversupply of houses and it will take awhile for that process to get through,” he said. “It’s taken longer than many expected it would.”

The problems with lower prices and lack of developer interest are not limited to central Indiana.

“Developers aren’t purchasing farmland right now,” said Sam Kain, regional sales manager for Farmers National Co. of West Des Moines, Iowa. “It started shortly after the housing crisis began.”
Kain works with farmers and landowners who sell to developers and then look for additional land to purchase.

“The market for land to stay in farming is very strong right now. We’ve had some very good years dealing strictly with agriculture. But if you’re dealing with someone who wants to sell (to a developer), they’re suffering quite a bit right now,” he said.
In a more robust economy, Halderman Real Estate Services, of Wabash, Ind., devotes part of its business to developers looking for farmland. “Nobody is doing that business right now,” said Pat Karst, vice president with the company. “We did it when the market was good, but that market is in the tank. Some development companies have gone out of business.”

Farmland a developer might have paid $40,000 an acre for 2.5 years ago would probably cost that developer $8,000 an acre now, he explained. “Any major city in the Midwest is going through this, though some cities haven’t been hit as hard as others,” he added.
Karst had a client who was asking $40,000 an acre for his property, located at the edge of a town. The client was offered $25,000-$30,000.

“I’ve told them if they want to sell for a reasonable price, they need to wait out the market,” he said. “They need to wait for the market to come to them.”