The housing bust and commodity boom have altered land-use patterns at the edge of suburbia.
The pavement comes to an abrupt end on Lenox Drive in Waconia's Waterford development, new houses segueing to farmland.
Only 40 percent of Waterford -- about 60 acres -- was developed before the housing market imploded. Land slated for new houses went back to the Waconia farmer who had long owned it, some of it repurchased at a fraction of the lofty prices developers originally paid.
Sell high, buy back low -- it has become a winning investment strategy for some farmland owners in recent years.
Housing developers vacuumed up farmland in Twin Cities exurbs and nationwide during the housing boom, only to see demand for homes vanish. Now, with housing still struggling and agriculture booming, some dead developments are sprouting crops again.
The farming boom is a "silver lining" to the housing bust, said Keith Kern, assistant county assessor in Carver County. Granted, farms don't produce as much tax revenue per acre as houses do. But "it's better to see some part of the market increase as opposed to everything going into the tank."
Farmland demand has soared in tandem with historically high crop prices. For farmers scrapping for space, some land that seemed destined for housing just a few years ago now has more value for farm use.
Data are scarce, but the assessors' offices for Carver, Scott and Wright counties -- all bridges between city and country -- report instances of prospective development sites moving back to farmland. The same sort of shift has been occurring nationwide.
"We have had a handful of developments go back to agricultural production, and with ag markets going so strong we could see more of that occurring," Kern said. "Certainly the ag market is the only market we have that is doing quite well."
Plowshares Development and Centex Homes planned to carve Waterford from 160 Carver County acres known as the Siegle farm. The developers bought options on the Siegle property, as farmer Dennis Siegle wanted to continue farming the land if Waterford couldn't be completed, said Todd Simning, Plowshares' president.
In May 2005, Plowshares purchased almost 60 acres, paying the Siegle family $6.02 million or $102,000 per acre, county property records show. About a year later, Centex paid the Siegle family $2.2 million for 18 more acres, about $120,000 per acre.
But by the end of 2006, "nothing was making sense -- land prices or home prices," Simning said. Waterford's progress stalled with 60 acres actually developed.
Options the developer bought from Siegle were left to expire, Simning said. Centex in 2007 put its remaining Waterford land into a national portfolio of "underperforming assets," which was sold to Corona Real Estate. In 2010, the Siegle family bought 16 acres from Corona for nearly $106,000 or $6,500 per acre.
Siegle, who lives in a new home in Waterford, declined to comment for this article.
"Dennis is a very intelligent farmer and businessman," Simning said. "We kind of joked [when housing was still booming] about some of the farmers who wouldn't sell."
Fairway to farmland
It's not just failed housing developments that are now home to corn and soybeans. The housing bust combined with a weak economy to soften the golf market in the past five years. A proliferation of courses in the 1990s and earlier 2000s didn't help matters, either.
In Owatonna, Minn., after the troubled Hidden Creek Golf Course went back to the bank, the 151-acre property was sold to farmers Kevin and Kris Deml in 2009 for $650,000. The greens are now home to corn and soybeans, the clubhouse converted to a residence.
In Hayward, Minn., just east of Albert Lea, the struggling 62-acre Holiday Park Golf Course and driving range was sold to a large Iowa hog operator for about $390,000. Hog production, like crop farming, is also booming.
The defunct Hayward golf course is like several nearby tracts of land along Interstate 35 that have been zoned for development, but now are more attractive as farmland, said Ryan Rasmusson, Freeborn County's assessor.
With corn near $6 a bushel, notions of what is the highest and best use of land have changed. "It's kind of turned on its head," Rasmusson said.
Farmland owners who buy back property at a big discount aren't common, assessors say. But the profits can be dramatic for those in the right locations on the suburban fringe.
Jim Vallez and his eight siblings weren't looking to sell the farmland they owned in Scott County, until a developer made the proverbial offer they couldn't refuse. In the end they got the best of both worlds: a nice profit, and the land, too.
Vallez's dad, who was in the hardware business in Minneapolis, purchased 64 acres in Scott County back in the 1960s. For decades, the Vallez family rented out 49 of those acres to local farmers.
Then in 2005, Tollefson Development, eyeing a new planned community, offered $4.2 million or almost $86,000 per acre. "There was no way we'd make rental income that [could compare]," Vallez said. "It was kind of a no-brainer. ... We sold it right when land was kind of peaking."
The development died and the property ended up with M&I Bank. The Vallez family bought it back in 2010 for $437,500, or about $8,900 per acre, and resumed renting it to farmers. "It was nice to have the opportunity to get it back from M&I," Vallez said.
Likewise, Mike Sunderman's family sold 30 acres of their farm near LeSueur, Minn., for $15,000 an acre when Sunderman's dad retired from farming around 2003. But the housing bust scotched buyer Kubes Development's plans, and the Sunderman land never even got rezoned from agricultural to residential.
Sunderman continued farming the 30 acres, renting from Kubes, until last year when he bought the land back. The new price: $6,000 an acre.
"I didn't want to buy it that much, but I didn't want somebody else to buy it," Sunderman said.
Essentially, the outward push of metro areas and even small cities into farm country has slowed if not halted, at least temporarily.
Scott County is home to 130,000 people and bustling suburban areas like Savage, but also had almost 800 farms by last count in 2007. Though parts of the county are within 15 miles of Minneapolis city limits, most of Scott County's land is still agricultural.
As builders expanded the metro area's housing frontier during the 2000s, the most lucrative use of most of Scott County's land was residential, said Michael Thompson, Scott County assessor. "But in certain areas of the county, the highest and best use is for agriculture now."
Some housing developers discovered that the hard way. Tom Gonyea belonged to a partnership that bought the better part of three Scott County farms "back when things were good," as he put it, with plans for a large development, Farmers Ridge, in Belle Plaine.
About 70 lots were platted, and then "the bottom dropped out, to say the least," Gonyea said.
County property records show that his partnership paid about $5.4 million for land in 2003. Over the past 18 months it sold back most of what couldn't be developed -- nearly 400 acres -- for about $2.5 million to William McCue, a local corn and soybean farmer.
Fortunately, with demand for farmland rising, Gonyea could at least command a higher price for Farmers Ridge land than during the depths of the housing bust.
"Your only buyer now for that piece of land is a farm," Gonyea said. "A farmer can pay farmland values."
Star Tribune staff writer Jennifer Bjorhus contributed to this report. Mike Hughlett • 612-673-7003
This is the fourth installment in an occasional series that explores the implications of rapidly rising prices for farmland in Minnesota.
For the previous stories and a video interview with reporters Jennifer Bjorhus and Mike Hughlett, go to startribune.com/landrush.