Impact of Natural Disasters on Texas Farm & Ranch Market

After a natural disaster or catastrophe, such as a hurricane, farm and ranch real estate markets in the impacted area typically pause for a period of time. Tyler Jacobs of Hall and Hall explains on “Texas News and Views” a radio program by Texas Farm Bureau.

Buying a Ranch vs. Resort Life

By: Jim Taylor

This is the classic dilemma for a family looking to make an investment that will double as a place for the family to convene. How often does one hear from members of families that have had family retreats of one kind or another “we loved it” “we went every year” “everyone in the family came”. These are places where memories are made and they often represent the “glue” that holds a family together.

So, do you buy a place in a private residential community/resort or do you buy a family ranch? If you opt for a classy resort like the Yellowstone Club, Aspen or Jackson, the cost is likely to be about the same even though the ranch might have hundreds or thousands of acres for every acre one buys in the resort.

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Put very simply, a resort is a place where one goes to be entertained. A ranch is a venue where one can entertain oneself.  The resort is the easy answer because there is something there for everyone, from a latte to all forms of cultural and social entertainment. In this day and age of people having the ability to be instantly gratified, it is difficult to sell anyone on the concept that there is value in waiting and working for one’s gratification – much less selling the entire family on the concept.

Every successful development has been forced to become family friendly – to serve all the generations. Family offices set up to service the needs of extended families are proliferating and are reported to have over $4 Trillion in investable assets. Family offices are the obvious home for these types of investments and they tend to impose an important discipline on the process of making the resort versus ranch decision.

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The bottom line we would contend is that the resort “investment” choice is hardly an investment. The bulk of any resort property is generally tied up in a structure which tends to either depreciate or require a high level of maintenance. All expenses related to ownership are not business expenses – rather they come out of after tax income. The real difficulty is that during periods when the families’ use of the property is limited, the maintenance goes on.

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A family ranch, on the other hand, is a true investment in itself. The family is buying a piece of land at its lowest use that, quite apart from being loaded with wildlife, is being operated as a cattle ranch. Land of this type is in increasingly short supply and there is growing demand for the high-quality protein it produces. These factors cause it to have a high probability of increasing in value. The fact that it is beautiful and might have a trout stream passing through it is simply an added bonus that allows its owners to derive a lot of pleasure from being on it.

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The benefits for the coming generations of children to appreciate nature and experience the ranching life style is impossible to calculate. And, if there is a period when the family does not use it, a ranch has a productive life of its own. In fact, there is really no comparison between ranch life and resort life. While compelling and stimulating, resort life is not real.

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Mineral Rights as They Relate to Your Property

A basic understanding of mineral rights can be important to evaluating your property.  One common source of confusion when buyers or landowners contemplate value is the concept of the split estate.  “Split estate” refers to the separation of surface and mineral ownership, whereby two or more individuals own separate rights in the same land.  Split estates are quite common throughout the American West, and many landowners do not even realize that their homes, businesses, or ranches are subject to the mineral rights of third parties.  Understanding the relative rights of split estate owners, knowing where mineral ownership may be uncovered, and understanding how to investigate the likelihood of mineral development, can help landowners negotiate risks and properly assess land values.

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Split estates come in several forms.  With regard to private lands, split estates commonly result from a prior owner’s reservation of mineral interests or prior transfer of rights to a third party. Such transfers or reservations occur in deeds, leases, royalty carve-outs, assignments, or other documentation throughout the chain of title.  These can generally be found at the office of the local county clerk and recorder.  While surface ownership may usually be verified by simply looking up tax records or visiting the possessor of the property, determinations of mineral ownership require a much deeper investigation.  It should also be noted that under most state laws the mineral estate is considered dominant over the surface estate, which means that once a mining project or oil and gas operation is properly permitted, the rights of the mineral owner may take precedence over the surface owner’s operations or use of that land.  The rights of private surface owners relative to those of mineral and royalty holders has been a topic of much discussion and litigation over the years.

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Another form of split estate ownership occurs when minerals have been retained by the federal government. Many lands in western states were previously transferred into private ownership through patents.  These patents were issued under congressional acts like the Stock-Raising Homestead Act of 1916.  Some of these historic laws and patents reserved mineral rights to the federal government.  As a result, Stock-Raising Homestead Act lands, for example, are subject to the location of mining claims by third parties.  These lands may also be subject to the possibility of leases if the government grants leasehold rights to third parties. Determining whether your property was patented under the Stock-Raising Homestead Act, or some other law whereby the federal government reserved mineral rights, would be advisable prior to committing substantial investment in surface operations. The Stock-Raising Homestead Act provides specific protections to surface owners, but those who are unaware of these provisions may find themselves at a disadvantage in the event of mineral entry or development.  Master title plats and federal patents can reveal whether the federal government holds mineral rights to your particular piece of property.  These may be obtained from the Bureau of Land Management for review.

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As a general rule, title policies and commitments from title insurance companies do not insure surface owners against possible mineral development.  Some title companies are still willing to run mineral ownership reports which is one way of finding out who owns the mineral estate. However, these reports come with no guarantees and virtually all title companies specifically list mineral ownership and mineral rights as an exclusion to their insurance coverage. Another way to determine mineral title and evaluate ownership risks would be to hire a landman or a title lawyer who can assist with a review of public title records.  Title opinions issued by a law firm are supported by that firm’s malpractice insurance, and landmen often have extensive experience reviewing and interpreting mineral ownership issues in the county records.  Their reports are usually quite comprehensive and dependable.

One way to evaluate your property and understand the possibility of mineral development is to retain the services of a geologist, mining engineer or other mineral resource specialist. These professionals, trained in geologic mapping and mineral identification, can evaluate your land to identify likely mineral deposits beneath the surface and the possibility of future mineral development.

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It is not uncommon, in split estate situations, for both the surface and mineral owner to fully enjoy their property rights without interference from the other.  New technologies and advancements in the mineral extraction industry benefit many who might otherwise be adversely affected.  As just one example, most horizontal drilling, currently taking place in North Dakota, extends up to two miles underground.  The result of this development is that surface lands are rarely disturbed even though petroleum products are being drained from beneath the surface.  Similar types of accommodations are often made by mining companies.  Knowing that these accommodations exist is helpful when a landowner is approached by a developer of the mineral estate.

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It should also be noted that just because lands were once mined or disturbed by mineral operations does not mean those lands are useless.  Strict reclamation and permitting requirements imposed by both state and federal governments require mineral developers to fully restore lands to their original condition.  In some respects, surface owners may also have the opportunity to participate directly in this reclamation process.  Depending on the natural state of the land, and the commodity mined, it is possible to fully mine a valuable deposit and subsequently develop other valuable resources within the mined area.  Some examples where this has occurred include Lake Oswego, Oregon where a former iron mine was transformed into an area of high-value real estate.  Other examples include the Butchart Gardens in Victoria, British Columbia and the Quarry Amphitheater on the campus of the University of California, at Santa Cruz, both of which were originally limestone quarries.

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In short, most lands throughout the West consist of split estates. Prudent buyers and owners today begin with an assessment of whether there is potential for mineral development in the area of their property. If there is that potential, then one needs to undertake the analysis outlined above to determine mineral ownership and what the impacts might be.  The existence of a mineral deposit beneath your property does not necessarily mean your land cannot be fully enjoyed.  It is important to keep in mind that mineral developers are generally required by law to pay damages, and these can be significant. Also useful roads and water development can be beneficial to ongoing agricultural operations.

By John Childs
Childs Geoscience Inc.
1700 West Koch Street, Bozeman, MT 59715
&
Joshua Cook
Crowley Fleck PLLP
490 N 31st Street, #500
Billings, MT 59101

The Value of Land Leases on Private Property

Leases on private property come in a variety of shapes and forms. These can include but are not limited to agriculture, livestock/grazing, oil & gas pad sites and pipelines, wind turbines, cell towers, power transmission stations and lines and of course hunting and fishing leases. For many landowners, especially new landowners and/or absentee landowners and estate executors the details of lease development, management and administration is not their specialty. In this situation, not only can money be left on the table but security regarding how the property will truly be used/taken care of is skeptical.

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If negotiated and managed correctly, leases can be a valuable source of income and assist in maintaining and/or increasing the value of the property. For example, separating a recreational lease into four distinct leases (deer/turkey, quail, fishing, waterfowl) creates more income than a single all-inclusive lease. Leases should be a win-win, if at all possible but a general lack of knowledge by one party can lead to a continued state of discontent. Poorly negotiated and developed leases can lead to many years of headaches for a landowner and loss of property value.

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Issues can arise at not only the pertinent locations of work but also along the routes traffic utilizes to access those locations. In addition, poor on-site “use” policy and adherence to agreed upon rules by the lessee or contractors often creates tension and lack of appropriate onsite supervision can lead things astray quickly.

A major concern, especially to rangelands is the accidental introduction of non-native vegetative species of forbs, grasses and brush that can be detrimental to the native terrestrial and aquatic sites. The improper reclamation of soils, especially around pad sites and pipelines can greatly decrease the value of those locations; which for pipelines can extend for many miles impacting large amounts of acreage. Likewise overharvesting of game species and rangeland grasses will negatively impact a property while poorly chosen locations for new roads, pad sites, pipelines and powerlines can unfortunately be detrimental to beautiful views, the health of streams/creeks/ponds and cleanliness of the property. Even simple items such as who is responsible for maintaining fences, barns and roads or what happens if a wildfire occurs on the property or the property is sold during the term of the lease all need to be negotiated.

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Fortunately, there are companies such as Hall and Hall that can provide a team with a diverse knowledge base regarding all facets of leases. A knowledgeable team understands how to look beyond the scope of the project itself and understand the bigger picture and how a lease and its expanding footprint may impact the ranch as a whole. A good team also understand how and when to “give and take” during negotiations, what hills are worth fighting for and which ones are not, in order to meet the goals of the property representative.

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Randy Shelton Interviewed by “City Streets and Country Roads”

Hall and Hall Partner Randy Shelton was interviewed by “City Streets and Country Roads.” He discusses the ranch real estate market and Hall and Hall’s history at the 14:45 mark.

City Streets Country Roads – Real Estate from Community Seven Television on Vimeo.

2016 Southeastern Land Sales

In 2016, we sold 11 southeastern properties totaling 16,000 acres. Each property presented unique challenges requiring an intimate knowledge of the land, as well as our client’s individual goals. We are grateful for the opportunities to work on these diverse landscapes throughout the South.