Greg Fay’s Bozeman-based real estate business had a record year last year.
Fay Ranches’ sales were up 16 percent in 2012, he said, the best year in the history of the company, founded in 1992 originally to sell fly-fishing properties.
“It appears to us that there is an increasing interest in investing in large production ranches,” Fay said.
Fay Ranches wasn't alone. In 2011 and 2012, Hall and Hall realty based in Billings had back-to-back record years, according to director Jim Taylor. Last year, he said, the company did about $330 million in sales.
Taylor sees investment in working ranches right now as more compelling because cattle prices are good and the prospect of China's growing middle class eating more beef could make those prices rise even more.
"The cattle business has some real legs for the future," he said.
Fay sees the interest in ranch purchases as a play by American billionaires to add a tangible, low-return investment to their portfolios with the idea that land values have bottomed out and could appreciate considerably in the future.
Taylor has been in the ranch real estate business since 1971. In 1972, he sold a ranch for $36 an acre. In 2011, the same ranch sold for $500 an acre. Allowing for inflation, that's still more than double the amount.
On ranches that have amenities like trout streams, wildlife habitat and scenic views, those prices have "gone through the ceiling," he added.
One of the side effects of the American banking crisis in 2008 was that land prices fell. For ranches in Montana, Fay said he saw reductions in prices ranging from 20 to 50 percent. Another estimate put the average decline at 44 percent.
“A good production ranch that can show that it’s on solid financial ground, and throw in a recreational component, that ranch has corrected the least,” Fay said. “Some other sectors corrected significantly more, especially the ones that are highly replicable, that aren’t unique from a recreational, financial or aesthetic standpoint.”
"The last 15 years, operating ranches have had pretty good appreciation values," he said. "That's been fairly steady."
With interest rates at all-time lows, and memories of the stock market's crash still fresh, buyers looking for a safe place to park their cash were perfectly situated to take advantage of lower land values. Billionaires were seeking large production ranches that could offer a return of at least 1 to 3 percent, Fay said.
They were the ones paying $15 million to $100 million for larger properties. Mere millionaires were also looking to buy recreation properties, he added, at prices ranging from $1 million to $5 million.
As Taylor pointed out, few investments are as secure as property, even if the immediate return from a production ranch may only be 1 percent a year.
"They see a storehouse of value, a place to park their money," he said.
Few investments have better returns. According to the U.S. Department of Agriculture, the average value of pasture land in 2012 rose by 4.5 percent to $1,150 per acre.
The ranches and recreational properties also come with the added value of providing a place to hunt, fish and for family and friends to gather and play.
Fay said the sale of ranches was particularly strong for his company in Montana and Wyoming in 2012. The company also has offices in Idaho, Colorado and Oregon.
Texas oil baron T. Boone Pickens took note of the value in ranch properties and last year created Sporting Ranch Capital. Sporting Ranch is an investment fund that buys recreational ranches, raises their value through improvements to amenities like fly-fishing streams, and then sells them at a profit. As an added incentive, investors can enjoy the properties for fishing, horseback riding and hunting, something like a timeshare investment, until they are resold.
Beartooth Capital, headquartered in Bozeman, has been working with a similar model of ranch purchase, improvement and resale since it was founded nine years ago.
Robert Keith, one of the firm's founders, said the business was founded with "the goal of generating a strong financial return for investors through the restoration and protection of ecologically important ranches." An additional benefit for investors is the opportunity to fish, hunt, hike and recreate on ranches owned by the firm.
“Ours is not a pure focus on a sporting property,” he said. "In addition to the fishing and hunting component, we look for and own properties that are more agricultural in nature, that are extremely unique family retreats and best of all, some ranches that have all of these characteristics in one ranch."
Keith said he saw sales of ranch properties grind to a halt in 2008, but noted that the best properties have continued to sell.
In looking ahead to this year’s market, Fay is cautiously optimistic. He said he doesn’t entirely trust the market, although the economy seems more stable. He sees ranch prices as bottomed out, but not yet appreciably rising, making it still a good time to buy. There also could be more ranches for sale if there’s a sense that the market value is increasing.
“There are excellent opportunities everywhere right now,” he said.