There will probably be controversy about my answer, buy I don't see the clause as adjectival. I see it as adverbial. I know it is unusual for a form of the verb "to be" to take an adverb because it is usually a linking verb. But it is not a linking verb in this use. It acts as a substitute for "exists". If that is true then the verb can take an adverbial that describes where the land was.
To rephrase it: Thousands of years ago, land existed where there is water today."
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