The Martha’s Vineyard Land Bank does not expect to write any big checks soon. A sharp drop in the value of real estate transfers has sharply affected the public land conservation agency’s income stream.
The Land Bank remains financially healthy. There is money in the bank, and its reduced income stream will fund outstanding debt service. However, without an uptick in real estate, any big new land purchases are doubtful, given the agency’s longtime conservative management approach.
James Lengyel, Land Bank executive director, said the Land Bank’s land purchase planning “ebbs and flows” with the real estate market. “So, that means the Land Bank is in an ebb right now when it comes to land acquisition,” he said.
Mr. Lengyel said the Land Bank had expected revenue to be flat and planned its fiscal 2012, budget projections on that assumption. The Land Bank fiscal year runs from July 1 to June 30, as is the case with Island towns.
“The official projection for the current year was $7,640,000, and so far we are not attaining that,” he said.
Revenues for the period July 1, 2011 to September 30, 2011, the first quarter of the fiscal year, are off from the previous year by $832,645 or about 64 percent.
With a total of 288 transactions, year-to-date revenue for FY 2012, that began on July 1, 2011, is $1,296,680. For the same period in FY 11, revenue on 245 transactions was $2,129,325.
Established by an act of the state legislature in 1986, the Land Bank‘s income comes from a two percent real estate fee on most land transactions. A seven-member commission that includes an elected member from each Island town and a governor’s appointee working in conjunction with local advisory boards is responsible for policy and approval of purchases.
The Land Bank owns more than 3,000 acres of conservation land, open to the public for a variety of purposes. The last major purchase contract was signed in March when the conservation agency agreed to purchase 41 acres on Chappaquiddick for $4,950,000. That deal has yet to be consummated,
Mr. Lengyel said the recent drop in real estate activity set a new low. “The plunge from 2006 to 2009 was deeper than the plunge from 1988 to 1991, which had previously been the benchmark,” he said.
“2009 was the nadir. And then in 2010 there is very healthy growth. 2011 was stable, which we closed a little bit above projection, and then the shift started to occur in the summer.”
Mr. Lengyel added: “It is ordinary for the Land Bank revenues in the summer to dip. “They dipped more than the Land Bank expected. The Land Bank is hoping for a greater recovery this autumn.”
Mr. Lengyel said that historically the biggest sale months are September, October, and January. Those months typically account for about 32 percent of revenue, 10 percent in September, and 11 percent each in October and January.
July and August tend to be moderate to low, he said, and the lowest months tend to be February and March, each accounting for about six percent of activity.
The size of individual transactions can be just as important a factor as the number. One multimillion dollar sale can generate a considerable fee.
Mr. Lengyel explained that he looks at the market in three price segments: zero to $500,000; 500,000 to $1 million, and $1 million and above.
In the current fiscal year, he said, 53 percent of all transactions have occurred in the lower third, 31 percent in the middle third, and 16 percent in the upper third.
In fiscal year 2010, the breakdown was 44 percent, 27 percent, and 29 percent.
Money in the bank
The Land Bank requires income of $5,081,000 million annually to pay its creditors. Total outstanding bonded debt is $73,210,000 million, for which maturities are spread out over 30 years.
Mr. Lengyel said the Land Bank can satisfy creditors now. The Land Bank has $8 million unencumbered cash in the bank and at the current rate expects to take in about $5 million this year.
Asked if any new purchase would have to be looked at carefully, Mr. Lengyel said, “Oh yes.”
Mr. Lengyel said it would be easy to assume that with a slowdown in the market and the decline in prices, there will be properties ripe for acquisition. He said that while prices do drop some, sellers sometimes decide to take their properties off the market.
“When the market slows, not only does it slow the Land Bank’s revenues, but it also slows the seller’s willingness to sell,” he said.