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AUGUST | SEPTEMBER 2008
YOUR ACCESS TO THE LAS VEGAS MULTI-FAMILY HOUSING MARKET
The Next Boom Approaches ... Ready For High Occupancy Problems? Multi-family housing owners may have big problems soon, high occupancies. Ready for those problems? Despite high gas prices, falling home prices and an economy which resembles the aftermath of an earthquake, Las Vegas is still a sea of cranes. Construction is booming and the largest private investment in Las Vegas history continues, with tens of thousands of jobs to follow. An estimate is currently weighing in a massive 113,000 by 2012. Jobs, money and another speculation of “more” is on the horizon. The next tidal wave of the “bigger, more extravagant” Las Vegas is rolling in, and with it will come a flood of occupancy problems. Yes, occupancy problems. Follow the thought process below: Huge projects will start to open beginning in late 2008, starting with Eastside Cannery. Cannery Casinos was recently purchased by Australian media and gaming giant Melco PBL, owned by the Packer family. They have also purchased partial ownership of Turnberry's Fountainbleau (next to the Riviera)
and the recently approved Crown Las Vegas, on the former Wet & Wild water park site. They partnered with Texas developer Chris Milam who had been vying for the 2nd tallest building in the world at 1888'. The FAA recently approved a height much shorter, 1064' and slightly less than the Stratosphere Tower, but still would become the tallest 'building' in Las Vegas. After the Cannery opening there will also be the opening of Station Casino's Aliante Station, in North Las Vegas. Even later in 2008 Steve Wynn plans to open Encore, an all suites addition to his property. This would bring the room total to 10,000+ for the Wynn projects. Also, a 20-acre lake (twice the size of Bellagio’s lake) with special effects, will fill the gap between the convention and the existing hotels. The Exhibition hall and ballroom will be on the lake. CONTINUED ON PAGE 4
ACCESSLASVEGAS August | September 2008
REALITY CHECK: Multi-Family Owners See Foreclosures Hurt Renters, Too A recent report shows it's not just homeowners that are hurt by the foreclosure crisis. Renters face tougher competition for affordable apartments, or they can lose their home with little warning when their landlord faces foreclosure. Source: Amy Hoak, MarketWatch
The rise in foreclosures isn't just affecting homeowners, it's also putting pressure on renters, according to a report released at the end of April by the Joint Center for Housing Studies at Harvard University. For one, the uptick in foreclosures is prompting more households to compete for low-cost rentals. Also significant is the number of renters who face sudden eviction when properties they're living in are foreclosed on, the report found.
involved with the study stressed that renters should not be forgotten as housing issues take center stage on Capitol Hill. "The debate on national housing policy must not exclude the more than 35 million renter households. We clearly need policies that honor the role of rental housing as well as homeownership," Fanton said in a news release.
"Today, investor-owned one- to four-family rental properties account for nearly 20% of all foreclosures," Nicolas P. Retsinas, director of the Joint Center for Housing Studies, said in a news release. An abundance of capital available during the housing boom years led to a substantial rise in high-risk lending to these absentee owners. "Moreover, because many of the high-risk home-purchase and home-refinance loans now in default are concentrated in low-income and minority communities, the fallout from foreclosures is hitting the same neighborhoods where many of the nation's most economically vulnerable renters live," he said. The number of renter households rose by nearly 1 million last year, which is more than four times the pace of renter growth between 2003 and 2006, according to the center's report, "America's Rental Housing: The Key to a Balanced National Policy." The U.S. median monthly gross rent reached a record high of $775 last year. Plus, the turmoil in the credit markets has raised the cost of financing rental-housing construction and preservation, causing completions of multi-family units to fall to 169,000 -- two-thirds of the number seen in 2002, according to the report. Call to Action In short, the study shows that the demand for affordable rental housing is increasing while the supply of low-cost units is declining, said Jonathan Fanton, president of the MacArthur Foundation, which helped in funding the report. He and others
Retsinas advocated a "balanced national housing policy" that would preserve the stock of subsidized rental housing, limit the losses of privately owned, low-cost units and eliminate land-use restrictions and other barriers that increase the cost of housing production."Not only for the last decade, but I could make an argument for the last century, this nation has genuflected at the altar of homeownership," he said during a presentation of the report in Chicago. "You want to fix a neighborhood, make them homeowners. Whatever it was, that was always the
answer. "As we have found so sadly and tragically over the last year or two, it is not for everyone and it isn't always the answer and it is not without risk," he said. More Statistics The study also found: • Foreclosures are adding to the number of units that are held off the market, in part because of the long foreclosure disposition process and also because some who are buying the foreclosed properties are waiting for conditions to improve before putting the units back on the market. • In 2006, 42.6% of all working families didn't earn enough to afford an appropriately sized housing unit. Nearly half of all renters paid more than 30% of their incomes for housing in 2006 and a quarter spent more than 50%. • The minority share of renter households increased from 37% in 1995 to 43% in 2005, and Hispanic renters accounted for nearly half of the gain. • Newly built apartments in buildings with five or more units had a median asking rent of $1,057 in 2006, a record high. The median gross rent for all units that year was $766. Only 20,000 new, unfurnished apartments renting for less than $750 were completed in 2006, even though these units were most in demand. • Condo conversions rose from a few thousand in 2003 to 235,000 in 2005. Only 60,000 units were converted from rentals to condos in 2006. Virtually no conversions were completed in 2007. • From 1995 to 2005, two rental units were removed from the inventory for every three units built. The losses to inventory were the highest in the Northeast; there, two rental units were lost for every one built. Making Lemonade The current conditions provide an opportunity to transform the inventory of foreclosed and vacant properties into affordable rental housing, Retsinas said. In some parts of the country, foreclosure problems aren't new: Serious mortgage delinquencies and foreclosures have been on the rise in Ohio, Michigan and Indiana for the past decade, according "If the lemons are all these houses
coming into foreclosure, the lemonade is that a large chunk of American housing is going on sale," said William C. Apgar, senior scholar of the Joint Center for Housing Studies, who spoke at the Chicago presentation. The silver lining to the current foreclosure issues may be an opportunity to "use those discounted prices as one of the important subsidies to develop the next generation of affordable housing," he said. The tactic is far from a cure-all to the problem, but could provide needed additions to the affordable housing stock, Apgar said. Currently adding to the rental inventory on the higher end of the rental market are the vacant condos and houses that owners are renting out because of weak home-buying conditions. However, many renters don't have the income required for those rentals, according to the report. But some Americans who are losing their homes because of foreclosure may not be springing back immediately into the rental market anyway, perhaps doubling up for a period of time by living with friends or family while they recover from their financial stumble, said David Schwartz, managing member of Waterton Associates, a Chicago-based apartment firm. He's actually seeing softness in apartment markets on a national basis; areas that are experiencing the greatest housing problems right now also have some of the highest rental vacancy rates, he added. "There's some misconception out there that this is great for apartments because people are losing their homes -now they have to rent, and it's putting upward pressure on rents and filling up apartments," Schwartz said. But that isn't the case right now, perhaps also because of job losses in some
markets as well as the supply of "shadow condo rentals" created when owners rent out their units instead of selling them in this market, he said.
Despite Slowing Economy Apartment Vacancy Rates Remain Stable Source: Anuradha Kher, MHN Online Editor
Amidst headlines of doom and gloom in the economy, the multifamily industry is holding relatively strong. “Vacancy rates in the apartment sector have been stable in the last three quarters and apartment rent growth in the second quarter of 2008 has seen the strongest gain as compared to all other types of commercial real estate,” Dr. Sam Chandan, chief economist and senior vice resident for research at Reis Inc. said today in a virtual conference hosted by Reis. “Overwhelmingly and in all parts of the country, buyers are preferring to rent now as a result of which effective rent growth is expected to keep going up. The overall slowdown and situation in the slowing labor market will negatively affect apartments and in some markets, the condo shadow market will compete with the apartment sector with more units coming online,” he said. As a result, asset prices for apartment units have been falling from their peak period to the first quarter of 2008, by 13.3 percent. Chandan also talked about the ongoing housing crisis, resulting financial troubles, low consumer confidence levels and slowing labor market and then went on to outline how this will affect commercial real estate. He said there will be greater regulatory oversight, more significant intervention in the housing market as is already happening and tighter credit conditions in the housing market. With regard to Fannie Mae and Freddie Mac, Chandan said that Government Sponsored Enterprises (GSE) financing for multi-family mortgages as a share of overall or even absolute has become a dominant source for multi-family as other sources of finance have slowed down. “The multi-family sector is critical not only to bring affordable housing but
ACCESSLASVEGAS August | September 2008
also because it is a strong source of growth in commercial real estate. As a result, the industry needs to closely watch the availability of agency financing,” he said.
Las Vegas Update: Apartment Rents Flatten in 2008
Chandan warned that just as a credit market of abundance has the ability to inflate asset prices, a depressed credit market has the ability to depress asset prices below the cash flow levels and that is something that needs to be monitored.
Observer Expects Properties to Face Competition from Condos to Single-Family Rentals
Comparing this slowdown to previous ones, Chandan noted that while consumer confidence levels are lower than what they were in 2001, and almost as bad as they were in 1981, the forecast for the commercial real estate industry suggests that the industry will be in a much better position as the country starts emerging from the downturn than it has been in the previous recessions.
No Melt Down: Fannie Mae Vows to Increase Participation in Multi-Family Housing Market Source: NAA The Industry Insider
Despite a near melt down, Fannie Mae has vowed to increase its participation in key segments of the multi-family housing market. The government-sponsored enterprise (GSE) invested approximately $20 billion in multi-family housing during the first six months of this year. The GSE's plan now is to increase its commitment to purchase small multifamily loans of up to $3 million, or to $5 million in certain markets. Additionally, Fannie Mae has pledged to help restore stability to the military housing market by buying up to $1 billion in military housing bonds. It provided more than $1 billion in financing for seniors housing in the first half of the year and continues to devote more staff in that segment.
Source: Applied Analysis
A souring economy, rising unemployment, and a housing downturn are negatively affecting Southern Nevada's apartment market. The valley reported flattened rent growth in the first quarter, along with rising vacancies, says Applied Analysis, a Las Vegas-based financial consultancy. Valley wide vacancies were 7.3 percent in the first quarter, same as the previous quarter, and 1.4 percent higher than a year ago, Applied Analysis adds. Rents, meanwhile, have stayed flat at about $888 a month (99 cents per square foot) during the last six months. The southwest submarket commanded the highest rents at $1,016 a month; the northeast had the lowest at $771 a month. The north submarket had the strongest annual rent growth at 5.3 percent; the central/east submarket was poorest at a negative 0.4 percent. "While current conditions remain somewhat challenging, the apartment sector is anticipated to experience a supply shortage during the next several years," Applied Analysis principal Brian Gordon said. "More dramatic demand for housing is possible starting in 2010, depending on the performance of land prices, construction costs and other factors." While 319 units were absorbed in 2007, marking the fourth consecutive year of decline, the market's softening became evident in the first quarter with 1,678 move-outs, reports Hendricks & Partners, a national multi-family real estate specialist. And things could worsen in the future with 1,300 non-farm jobs lost during the last 12 months, and a glut of new inventory, totaling some 2,725 units that came on line last year. "Apartment properties will continue to face significant competition in 2008 from condo and single-family rentals," said
Carl Sims of Hendricks & Partners. "The average apartment vacancy rate will remain elevated and is expected to settle at 7.5 percent by year-end, while in 2009, stronger employment growth and an absence of new apartment deliveries will help drive the average vacancy rate down to 6.3 percent. Average rent growth will range from 2 (percent) to 2.5 percent over this period."
The Next Boom Approaches ... (Continued) Following these openings will be MGM's City Center, a massive $8 billion-plus project between the Monte Carlo and Bellagio. Planet Hollywood is building away with their tower by Westwood. Just down Harmon at the Hard Rock, their $850 million expansion is underway with new a new tower and expansion of the podium level. Although not under construction, Robert 'FX' Sillerman has purchased the 18 acres on the corner where Harley Davidson Cafe now stands, and has announced he plans to have an Elvis themed property located on the land. Back to the north Strip, there were two casino implosions in 2007. The Boyd Gaming's Stardust went first to make way for the $4.8 billion Echelon Place. Later that year the Frontier was brought down after being purchased by the Elad Group, who owns the Plaza Hotel in New York. They have been fast tracking the site and the needed approvals to get underway. Of course, with all these new rooms and more visitors the Las Vegas Convention Center felt they needed to expand. So, a $890 million project is underway and should be completed by 2012. McCarran Airport also has to expand to meet those rising numbers. Already the 5th busiest airport, it is racing to build a 3rd terminal to handle the traffic flow. A good thing, as Las Vegas has been projected to become the leading worldwide travel destination in 2008, beating Los Angeles for the first time. Yes, the next boom is approaching and fast. Before you know it there will once again be housing issues in Las Vegas, only this time we will be talking about high occupancies, not foreclosures...
Bug Nuisance? Pest Control, a Property Priority
MANAGEMENTMEASUREMENT
Measuring Your Property Management Team: Are They Working for You or Are You Working for Them? Warmer weather makes outdoor activities possible but it also tends to increase pest pressure, too. Providing for pest management service is a fact of life for most property managers. In multi-unit housing settings, a variety of micro-environments, such as kitchens, bathrooms and garbage collection areas, elevate the potential for pest infestations. While the occasional pest problem is common, a serious infestation can lead to lost reputation and, by extension, lost revenue. Besides being a nuisance, some pests cause serious health effects. For example, scientific studies have shown a strong correlation between cockroach populations and increased symptoms of asthma, especially in children. Fire ants are aggressive and inflict painful stings. Flies are known to spread disease-causing germs associated with food such as salmonella and dysentery. Termites can cause extensive property damage. Last, but certainly not least, bed bugs are making national headlines. While they do not spread disease, bed bugs can take a physical and mental toll on their victims through sleepless nights, stress and general embarrassment. In some cases, residents have sought legal damages in response to living with an infestation of bed bugs. The good news is there are proactive steps property resident managers can take to help prevent pest problems. Integrated Pest Management Because your residents’ homes are considered sensitive environments, assign a Pest Management Liaison (PML), who can recommend an “Integrated Pest Management” (IPM) approach to your property. IPM relies on a combination of different control techniques that get results and minimize people’s exposure to pesticides. Cockroach and fly control can be enhanced by resident education
regarding the following: • Keeping kitchens and bathrooms clean plus reducing clutter whenever possible. • Storing food in airtight containers. • Placing garbage and recycled products in containers with tight fitting lids. • Outdoor dumpsters should be cleaned regularly with soap and water. Bed bug prevention starts with staff education. Your PML can teach your staff to recognize bed bugs and telltale signs of an infestation. As more people become familiar with these pests, property management must also be able to address concerns from residents and answer questions. Options for Control Today, insecticide baits are the formulation of choice for controlling cockroaches, and are also available for ants and filth flies. Baits are effective, require less advance preparation, and can usually be applied discreetly to “out of the way” places. Some are even specially formulated to be more attractive to pests than alternative food sources commonly found in the kitchen. Cockroach Control: Ask your PML for a bait solution that will provide quick knockdown and long-term control. In some cases, these baits exploit cockroach behavior by employing a delayed-action kill, allowing one roach to spread the active ingredient to other members of its colony, which is known as the domino effect. In addition, some cockroach baits also provide a contact kill, which will control cockroaches whether or not they consume the bait. Outdoor Fly Infestations: Ask your PML for a liquid bait that can be sprayed onto dumpsters and / or around outside picnic areas.
Bed Bugs: Not the sort of pest that can be eliminated easily with an over-thecounter insecticide. Working in conjunction with your PML, a successful bed bug treatment requires: • A thorough inspection. A clean room to work in. Bed linens should be placed in a plastic bag until washed so as not to transfer bed bugs to other areas. Vacuum bags should be discarded immediately. • The treatment of headboards, bed frames, baseboards, and all cracks and crevices with a broad-spectrum, pyrethroid insecticide that provides residual control of adults and eggs and is labeled for use in all areas where bed bugs hide. • The inspection and treatment of perimeter walls, wall voids and surrounding units as necessary, as bed bugs tend to migrate to adjacent units. • Follow-up inspections, and treatment if necessary, because bed bugs can live for up to one year without feeding. A Pest Management Liaison should be able to identify different pests and treatment options that best meet your needs. Once you have contracted with a company, establish a schedule for regular service. If possible, ask the company to assign one or two PML’s to your account so that you are dealing with the same individual(s), who can become familiar with your staff and establishment, on a consistent basis. Above all, it is critical to make pest management a priority, provide full disclosure of the infestation to your PML, allow them to access any and all problem areas, and commit yourself and your staff to becoming your PML’s “partner in pest management.” This collaboration with your PML will go a long way toward preventing infestations and addressing problems quickly.
ACCESSLASVEGAS August | September 2008
Winds of Change, Gulf Coast and Carolina Now the Strongest Housing Markets Source: Reed Construction Data
The rapidly growing resort and retirement centers along the Carolina coast continue to have the most intense housing development in the US. This is followed closely by the hurricane rebuilding region on the Gulf Coast, including Houston and the manufacturing and business centers in the North Carolina Piedmont area plus Austin Texas. No Florida metro areas remain in the list of the twenty five cities with the most intense housing development.
INVESTORUPDATE Residential construction starts activity was marginally higher during the first four months of 2008 than the low point last December but activity continues to decline in the most distressed markets and home prices continue to decline in most markets. Adding to homebuilders’ problems, construction materials costs are soaring due to developments overseas, consumer confidence has fallen to a recession level in the high 50s and mortgage rates remain near 6%. Houston is by far the largest single family housing market. Atlanta, Dallas, Las Vegas and Phoenix have fallen well behind. Houston largely escaped the rapid run up in home prices earlier in the decade because of its builder friendly zoning and permitting practices. Houston homeowners have relatively few problems now with adjustable mortgage rate resets and plunging home prices. New homes for New Orleans refugees and the booming energy industry are also contributing significantly to strong home demand. Houston has also moved to #2 on the list of top multi-family markets. Multi-family permits have nearly doubled since 2005 in contrast to 50-70% declines in 2005’s hottest condo and apartment markets. New York City is still the top market although permits are declining with deeper cutbacks are expected soon following layoffs in the city’s financial markets. Permits are up from a year ago in many college and oil patch towns that escaped both the 2005-06 housing boom and the worst of the ongoing economic recession. New Orleans, El Paso and Louisville are the only large metro areas with a growing housing market. This is due to hurricane rebuilding and a booming energy market in New Orleans, immigration and Mexican trade in El Paso and a diversified economy and low and stable home prices in Louisville. Each of the smaller cities on the list has a unique source of job and income growth. Four are being boosted by hurricane rebuilding and most of the rest are college town with more stable jobs or oil towns with rising energy industry employment.
Atlanta leads the list of cities with the largest drop in housing permits from the peak in the housing boom two years ago. Excessive inventory is a bigger problem than declining home prices. Excepting Dallas and Houston, the other hard hit markets have experienced price declines that are causing a postponement in home purchases. Southwest Florida, Las Vegas and Phoenix will be the last markets to recover because the collapse of the local housing markets has led to significant local economic recessions.
Apartment Deliveries to Slow Rest of 2008, Stop in 2009 Source: Applied Analysis
New apartment projects are popping up around the region, mostly around the Interstate 215 beltway, to meet the anticipated demand expected from all the resort development occurring on the Las Vegas Strip. With only the Palazzo -- the first of four major Strip developments done and open -- supply is currently out-pacing demand, according to a new report on the local apartment market by Hendricks & Partners (H & P). H & P is forecasting that new apartment deliveries will slow to 2,300 units in 2008 -- from 2,725 units in 2007 -- and that approximately 1,200 units will be absorbed. In 2009, H & P is expecting no new significant apartment deliveries and absorption will total 1,600 units. In 2007, a total of 319 units were absorbed. In the first quarter of 2008, net move-outs totaled 1,678 units, according to H & P. Apartment properties will continue to face significant competition in 2008 from condo rentals and single-family rentals, states the report. The average apartment vacancy rate will remain elevated and is expected to settle at 7.5% by year-end, while in 2009, stronger employment growth and an absence of new apartment deliveries will help drive the average vacancy rate down to 6.3%. Average rent growth will range from 2.0% to 2.5% over the forecast period, according to H & P. On the investment front, only five or six apartment properties over 100 units changed hands in the first quarter, even as 29 properties are listed for sale, according to H & P. Last year 12 plus- 100-unit properties changed hands in the first quarter, according to research by local apartment broker Michael Belnick. H & P says part of the reason for the slowdown is that lenders are underwriting off of actuals and not pro forma, and are requiring larger down payments. Fears related to the problems in the single-family market and falling NOI have resulted in a significant bid-ask gap. Despite that, prices and cap rates for Las Vegas assets have seen little change in recent months, hovering between 5.5% and the mid-6.0% range, according to H & P. One of the more recent transactions was the $35.85 million dollar sale of the 288-unit Villa Serena Apartments in April. The 1996 apartment development in Henderson, Nevada, was sold to Fairfield Residential by Sentinel Real Estate Corporation.
OCCUPANCYCORNER
Las Vegas Metro Occupancy May 2007 through April 2008 94% 93% 92%
92.44%
92.17%
92.26%
92.30%
92.10%
91.99%
91%
91.89%
92.02%
91.97%
91.61%
91.60% 91.01%
Source: CB Richard Ellis (101,375 Apartment Units Surveyed in April 2008)
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ACCESSLASVEGAS August | September 2008
MARKETACCESS
Las Vegas Snap Shot KEY INDICATORS
1Q 2008 RESULTS
Source: Red Capital Group
YEAR OVER YEAR CHANGE REMAINDER OF 2008 OUTLOOK
Vacancy Trend
6.50%
UP 1.4%
STABLE
Effective Rents
$ 820
UP 2.5%
SLOWING GROWTH
Cap Rate
4.80%
DOWN 0.8%
STABLE
923,900
UP 2,200
SLOWLY INCREASING
Employment
Access Investment Offerings COMMUNITY (UNITS) The Reserve at Arrow Canyon (426)
ASKING PRICE $ 76,650,000
PER UNIT PRICE BROKER / CONTACT INFORMATION $ 179,930 The Bentley Group / 702.855.0440
Augusta Apartments (272)
$ 42,160,000
$ 155,000
The Bentley Group / 702.855.0440
Portofino Villas (280)
$ 35,500,000
$ 126,786
The Bentley Group / 702.855.0440
Palm Village (156)
$ 13,000,000
$ 83,333
Hendricks & Partners / 702.866.6333
Bradford Place (35)
$ 5,500,000
$ 157,143
Elite Realty / 702.360.9003
Summerplace (112)
$ 5,050,000
$ 45,089
NAI Horizon / 702.938.6561
Stewart Arms (71)
$ 3,900,000
$ 54,930
RE | MAX Commercial / 818.205.2188
Access Recent Transactions COMMUNITY (UNITS) Villa Serena (288 - Conversion)
CLOSING PRICE
PER UNIT PRICE
CLOSING DATE
BUYER
$ 35,800,000
$ 124,306
April 3, 2008
Casa De Alicia (50)
$ 3,679,245
$ 73,585
March 27, 2008
Fairfield Residential Broder & Sachse
The Retreat (120)
$ 15,000,000
$ 125,000
March 20, 2008
Acacia Capital
Siegel Suites Twain II (228)
$ 14,500,000
$ 63,596
March 13, 2008
The Siegel Group
Copper Hills (272)
$ 32,900,000
$ 120,956
February 29, 2008
Artisan Real Estate
Casa Palms (201)
$ 4,285,000
$ 21,318
February 28, 2008
Pacsun Management
Rancho Destino (184)
$ 24,472,000
$ 133,000
February 6, 2008
Colony Realty Partners
For additional information and / or broker information on Access Investment Offerings and / or Access Recent Transactions contact Bret Holmes at 702.401.4674.
Siegel Group Dominates Purchases In Las Vegas Multi-Family Market Belief in Vegas “Long-Term” Fuels Ongoing Buying Spree Source: eMediaWire
The Siegel Group Nevada, Inc., a Commercial Real Estate & Business Development Company and Great American Capital announced that in partnership the two companies have completed the acquisition of the Deer Creek Apartments; a 330 unit apartment complex situated on approximately 6.68 acres of land adjacent to the corner of Flamingo and Swenson in Las Vegas, Nevada. The Siegel Group had previously been negotiating the purchase of Deer Creek back in late 2007 with the prior owner of the property, Atherton Newport Investments, which acquired the property in February of 2006 with the intention of demolishing and constructing a condominium development for which it submitted for the required entitlements. In early 2008 the property was put into bankruptcy and assigned to a Trustee by the Bankruptcy Court with whom The Siegel Group and Great American Capital continued negotiations with; ultimately settling on a purchase price of $19.10 million. SASCO Properties, an affiliate of the Siegel Group, will assume operational control and immediately begin to correct the numerous deficiencies that the previous owner and property management company failed to address which resulted in high vacancy rates and numerous tenant delinquencies that are months in arrears. The property will be re-tenanted followed by a substantial renovation to correct years of deferred maintenance and cosmetic issues and renamed Siegel Suites Swenson and operate under the Siegel Suites brand which provides quality residential accommodations throughout Nevada. Additionally, The Siegel Group plans to construct additional apartment units with a retail component or a flagged business hotel on excess land located on the southeast corner of the property.
HOTHEADLINES
Stephen Siegel, President and Chief Executive Officer of The Siegel Group, said: “I am happy to announce that this newest acquisition marks our 16th Siegel Suites location in Nevada. We have worked diligently over the last 9 months with the prior
seller, bankruptcy court and trustee to finalize this transaction. As a result of our proven business model and track record in the Las Vegas market we are able to acquire properties at a substantial discount and secure competitive financing despite today’s increasingly tough credit market and are excited to have acquired a property in such an excellent location. Deer Creek is just blocks from such well-known landmarks as UNLV, the Las Vegas Convention Center, McCarran International Airport and the Las Vegas Strip and is situated directly across the street from the Vegas Grand; a luxury condominium development that is nearing completion and a perfect example of the tremendous redevelopment that is occurring in the area.” The Siegel Group also recently announced that it had completed its acquisition of Casa Palms, a 137 unit apartment complex situated on approximately 1.33 acres of land on Las Vegas Boulevard in Downtown Las Vegas, Nevada. The purchase price was $5 million which equates to approximately $36,500 per unit and reflects The Siegel Group’s proven strategy of acquiring value-added assets at below-market prices which it is able to quickly renovate and reposition. Additionally, plans are also underway to landscape the grounds and construct both a new pool and a retail component to attract residents. Due to the existing deferred maintenance combined with a 50% occupancy rate and the previous owners neglect and mismanagement of the complex, the property possesses significant upside potential. Judith Perez, Executive Vice-President of SASCO Properties states that, based on the company’s proven business model, occupancy will quickly fall in line with that of other Siegel Suites locations, increasing to 93-96% once the renovation is completed. The property will be renamed Siegel Suites Las Vegas Boulevard and operate under the Siegel Suites brand which provides quality accommodations to customers seeking short and long-term residences that provide flexible terms as well as a host of amenities and services without the constraints of a long-term lease agreement. Despite the challenging credit markets of today, The Siegel Group’s unwavering and ongoing focus of purchasing only value-added multi-residential properties at discounted prices in this turbulent environment demonstrates the strength of its business model as well as its belief and long-term commitment in the viability of the Las Vegas market. Siegel said: “This acquisition is situated directly on Las Vegas Boulevard and is located just one block from another of our Siegel Suites locations and these economies of scale will reduce our operational costs, further strengthening our presence in the area.” Siegel added, “Additionally, this property is in walking distance of the many hotel-casinos that make up the Downtown Gaming District, including the Gold Spike Hotel & Casino which we recently acquired and are in the process of renovating, enabling us to cater to the employees that support these establishments who are integral to the success of our business model. Furthermore, as our recent acquisitions demonstrate, we firmly believe in the potential of Downtown Las Vegas which currently lacks renovated and secure rental housing options and we are committed to filling this void and providing quality residences to the growing workforce that continues to expand as investment in the area increases.”
ACCESSLASVEGAS August | September 2008
Cosmopolitan’s Credit Collapse Accentuates Positive Outlook Interest of Prominent Buyers Suggests Long-Term Health Source: Liz Benston, Las Vegas Sun
The Cosmopolitan, which sits half-built in the middle of the Strip, has been held up as a symbol of Las Vegas’ doubtful future. In fact, the $3 billion property -- part of the resort corridor’s largest construction boom, amid its worst economic slump in recent memory -- might better serve as a symbol of the Strip’s long-term economic strength. While Cosmopolitan reps have kept quiet since the project’s primary lender started foreclosure proceedings in January, plenty has gone on behind the scenes.
The resort was the vision of an outsider who financed it when capital was cheap. Where others saw a 9-acre parcel that might have housed a parking garage or a strip mall, New York condo developer Ian Bruce Eichner saw enough space for a 7 million-square-foot resort featuring twin skyscrapers attached to a five-story base. Rather than buy out time share owners at the neighboring Jockey Club, he erected his resort flush with their property and built parking spaces for the Jockey Club residents beneath Cosmopolitan. The towering design tested the limits of county planners, who weren’t entirely comfortable with its density. The design also presents a challenge for potential buyers.
LOCALEFFECTS
The usual hurdles have grown higher amid the economic downturn. Prospective buyers need to come up with several billion dollars during a credit crunch that has made capital cost prohibitive. Owner Deutsche Bank, unwilling to see the costly and complex project that it bankrolled fall into the wrong hands, will be choosier than the typical seller.
The company declined to comment.
Deutsche Bank took possession of the property after Eichner defaulted on the property’s $760 million construction loan. The plans for Cosmopolitan’s rooms -which have the bold look of a rock star’s pad -- are another hard pill to swallow. Hipsters will no doubt welcome the shag carpeting, mirrored walls, glass chandeliers and zebra-print furniture. But what will a conservative hotel company do with such baubles?
All this uncertainty is making a lot of people uncomfortable, including hundreds of condo buyers who plunked down non-refundable deposits. Despite the challenges the project poses, would-be buyers are already at the table.
Evidently, some investors still think Las Vegas is a good long-term bet. Closing a deal, however, will be difficult.
Just how much of a loss the bank will take is an open question. The bigger the discount, the more appealing the prize.
Some casino operators, at least privately, panned the design. Gamblers should expend little effort to get to the casino floor, they said. Guests want to be greeted by the energy of gaming tables and whirring slots rather than the relatively sterile atmosphere of a mall, the insiders said. Others said Eichner was ahead of his time. CityCenter and even the new Palazzo have entrances that lead into malls, and space constraints will require future developers to be more creative with multistory attractions.
Eichner planned to open the property by early 2010, but the foreclosure process might delay its debut.
The centrally located site offers a rare opportunity to buy Strip front property, and experienced hotel operators, including Hilton and Hyatt, are lining up to acquire it.
The difficulty in getting financing, the tourism slowdown and the challenge of reconfiguring an under-construction property to meet a new owner’s needs will likely add up to a loss on the sale for Deutsche Bank, which is owed more than $900 million on the property.
entrance fronted by retail stores.
The wheeling and dealing will continue to be quiet but intense. And it could go on for as long as the credit crunch continues. The winning bidder will gain a status purchase and a potential flagship property, and help continue to fuel the Strip’s growth for decades. The resort stands out on the Strip, where whimsical designs belie a time-tested method for separating customers from their money. Eichner viewed his design, with retail on the first few floors and restaurants and other amenities on floors high above the Strip, as an eye-catching innovation that would appeal to well-heeled city dwellers. The casino is planned for the resort’s ground floor, accessible from a side
The Work Should Not Stop When The Lease Is Signed Closing a lease is not the time to celebrate a job well done. Rather, this is precisely when the sales work is just beginning. Now is the time to ensure your new renter feels welcomed and comfortable in their new rental apartment or home. Doing so can turn the relationship into a long-term rental. One of the most critical times following lease finalization to help establish a good working relationship with new residents is during the actual move in itself. Help make the experience a good one, and you’ve gone a long way toward ensuring
Multi-Family Marketing in the Internet Age
PROPERTYTIP
a successful relationship with your new resident.
and functional. Take the time to do this right and the personal touch will be remembered.
Here is a great idea to help you achieve success with a new resident:
Also, check in on the resident during the move. Stop by and ask if everything is going smoothly. This is the perfect time to drop off the move in gift or even a small bouquet of flowers to help make them feel welcome and appreciated. Every “little” thing you do will be “big”.
• Buy a decent move in gift. Even a $20 gift can go a lot further with residents than leftovers from your property management company promotion(s). Try to make move-in gifts personalized
FUTUREFOCUS
The Internet has emerged as the primary tool consumers use to find their next apartment. More than 70 percent of renters begin their apartment search online, and many firms now report more than 50 percent of their leasing activity is coming from online sources. To capture and convert this traffic to leases, however, firms have to make effective use of the various marketing technology vehicles available today, such as Internet Listing Services, corporate apartment marketing web sites, search engines, lead-tracking software and call centers. To help firms craft effective Internet marketing campaigns, NMHC has published this White Paper titled Multi-Family Marketing in the Internet Age. Authored by John Helm, Founder and CEO of MyNewPlace, the White Paper leverages web usage data from two million Internet users and detailed surveys of 455 online renters to document how consumers use the Internet to find a new apartment home. It uses those results to identify the key elements of an online marketing strategy that reaches prospects and converts them into residents and then how to track the
performance of their online marketing efforts. The White Paper covers how consumers use the Internet and its implications for apartment firms with specific sections on strategy development, lead tracking and maximizing the effectiveness of Internet Listing Services, corporate and property-specific web sites and call centers. Key findings of the report include: • Apartment communities need an online strategy that uses both ILS’s and property-specific web sites to generate leads. • For most communities, ILS’s remain one of the more cost-effective ways to acquire leads and leases. To maximize their effectiveness, however, listings need to include photos, floor plans and detailed rents.
• The top three criteria renters give for choosing an ILS are: number of properties on the site; the amount of detailed information in the listings; and ease of use, particularly the site’s search functionality. • Stale rents and lack of response to e-mail or phone inquiries are the biggest source of renter complaints about ILS listings and will result in lower lead-tolease close ratios. • While renters may begin their search on an ILS, they are increasingly turning to property-specific corporate web sites later in the search process. • Search engine optimization can produce a high return on investment for a corporate property marketing site, but this process can take up to a year to gain traction and requires constant maintenance to achieve appreciable results. Online display advertising is usually the most difficult online marketing channel for generating a positive return. • Call centers are increasingly important in the Internet’s 24/7 leasing environment to ensure timely responses to e-mail and telephone inquiries. They are also delivering unexpected results in terms of lease conversions and help bring a new level of accountability in tracking marketing efforts. The future is now, focus on it!!!
ACCESSLASVEGAS August | September 2008
Advanced Management Group Introduces “Advanced NOI Results”; Moves Office Advanced Management Group Nevada, LLC, a real estate management company providing advanced property management, financial and accounting, and asset management services for multi-family properties, launches “Advanced NOI Results: A Better Design for Your Bottom Line”. Advanced Management Group designs strategies focused on owners profitability through efficiency. By creating obtainable benchmarks, goals are set and managers are held accountable for maximizing their resources to achieve the maximum results. Even the most finite areas to improve an owners bottom line are identified and all actions are monitored to ensure success. At the beginning of June, Advanced Management Group will move their offices to the following address, 2775 South Rainbow Boulevard, #101C, Las Vegas, Nevada 89146. Our new location is bigger, better and centrally located to help better serve you and your property(s). Come visit us to find out more about on how to get your property focused on “A Better Design for Your Bottom Line”. E-mail Advanced Management Group at info@amgnevada.com or contact Bret Holmes at 702.699.9261. For information, article consideration and featured columns Access Las Vegas can be contacted at 702.699,9261. The editor of this newsletter is Michael Fazio.
ACCESSLASVEGAS 8550 West Charleston Boulevard, Suite #102 Las Vegas, Nevada 89117