Texas Pacific Land Corporation (TPL)

[Enterprising Investor]

Seeking Ranchland in Texas, Where Wealth Is Measured in Acres (1/18/16)

By Sarah Max

Jay Ellis, an investment fund founder, may be the only person in Texas who is giddy about collapsing oil prices.

“Oil is $33. Markets are in turmoil. The timing couldn’t be more perfect,” he wrote in a recent email. (Oil has continued its slide since, settling below $29 on Monday.) Although many in his state fret about the implications of cheap oil, Mr. Ellis sees it as an opportunity to buy another crucial asset: ranchland.

“Right now, you’re seeing the first signs of panic,” said Mr. Ellis, who started Sporting Ranch Capital, based in Dallas. In 2012, the group, which is backed by the Texas billionaire T. Boone Pickens, opened its first private equity fund to buy and restore ranch property throughout the West, including Colorado, Idaho, Utah and New Mexico.

Now, Mr. Ellis is raising a $100 million, Texas-only ranch fund. The first fund focused on restoring and enhancing ranch property to improve hunting and fishing habitats, but the new fund is aimed at scooping up $15 million to $25 million “trophy ranches” from owners who want to sell quickly and quietly. “When you make your giant hit down here, you buy a ranch and a jet,” Mr. Ellis said. “The ranch goes first because your jet goes with your obituary.”

In Texas, where wealth is measured not in dollars but in acres, land prices have for decades followed the price of oil. “There is this ongoing love for the land among Texans, to the point that if you are a Texan who gets wealthy, one of the first things you start to look at is a ranch,” said Charles Gilliland, a research economist with the Real Estate Center at Texas A&M University.

Oil money helped drive statewide rural land prices to a record high of $2,354 an acre in 2014 — more than double the price per acre in 2004.

Now, after the collapse of oil prices from more than $100 a barrel 18 months ago, Mr. Ellis is wagering that this link between land and oil will create opportunities to buy premium ranches at 2008 and 2009 prices, or about a 25 percent discount.

“Texas pride is going to be a big part of this,” said Mr. Ellis, who said he had identified two ranches that fit his criteria but declined to offer details. The fund will offer sellers a quick close — 30 to 60 days — and spare them the indignity of listing their ranch at a reduced price. Investors will have access to hunting and fishing on fund-owned ranch properties during the holding period. The minimum investment is $1 million.

Historically, rural land prices have closely tracked oil prices, typically with a one- to three-year lag, according to Texas A&M data going back to 1966. The starkest example of this link is the late 1980s oil shocks, when land prices plunged 30 percent in two years.

Oil prices dropped 67 percent from November 1985 to March 1986. “It wasn’t just oil,” Mr. Gilliland said. “Tax laws changed to make real estate less attractive as an investment, and we had the savings and loans crashing and burning.”

Over the last couple of decades, the Texas economy has benefited from the discovery of oil from shale. This has been a boon for land prices. Although mineral rights are part of the equation, the bigger component is recreation. “In Texas, everybody wants to own some dirt,” said D’Ann Harper, a broker and owner of Coldwell Banker D’Ann Harper Realtors, based in San Antonio.

Land is also the preferred asset. “A lot of old Texas ranchers don’t trust the stock market, and they aren’t crazy about bonds, either, but they do understand land,” Mr. Gilliland said.

Statewide land prices increased 79 percent from 2004 to 2008. After a 6 percent decline in 2009 — oil dipped below $40 a barrel during the financial crisis — land prices kept rising, increasing 31 percent from 2010 to 2014.

“There were a lot of people after 2008 betting it would be like the 1980s. That never happened,” said David Burgher, a broker associate with the Ranch & Land Division of Briggs Freeman Sotheby’s International Realty. “I think people have gotten smarter and not knee-jerking.”

http://www.nytimes.com/2016/01/19/business/dealbook/seeking-ranchland-in-texas-where-wealth-is-measured-in-acres.html