ACCESSLASVEGAS YOUR ACCESS TO THE LAS VEGAS MULTI-FAMILY HOUSING MARKET
June | July 2011
Misperceptions About Vacancy
Las Vegas Occupancy Corner
page 8 Bouncing Back from the Bottom
Is Your Property Management Company Unique? Advanced Ideas for Your Asset Increase Your Bottom Line, Lower Vacancy and Cash Flow Better Today
Finding a good property management company is critical. The right management company can make your life as a property owner bliss - the wrong one, a nightmare. This is not an area that you want to choose to skimp on costs. Some property management companies are simply hired by their sheer size, others for their outstanding eye for detail (in all facets of management) and some are chosen by referral. However you decide to choose your management company, you must choose wisely. As an owner due diligence is important. While owners seem to be over cautious and spend a lot of time doing due diligence on a property they are purchasing, so many owners FAIL to do due diligence on who is going to care for their asset(s). So many owners do not align themselves with a property management company properly, thus creating an everlasting headache. There are two critical things owners should never fail to do while considering a property management company or management change: â˜… Drive around buildings owned by these management companies - see if they are the type of company you would want managing your building. While you are out, speak with the tenants of some of these building - let them know you're doing a survey of management companies in the area and would like to know their opinion. â˜… Critical areas to consider are: Thorough tenant screening procedures, consistent rent collection and eviction procedures, detailed leasing contracts, prompt response times to tenant requests, appropriate (up-to-date) tenant forms and reporting procedures. So, is your current management company unique? Are you managing your asset more then they are? Who is really working for who? Ask yourself these questions as you receive pages of ideas to help build your asset value in these tougher economic times.
June | July 2011
Changing Your Thinking: Misperceptions About Vacancy Your current mindset can play tricks on you regarding your occupancy numbers
There is a misperception about vacancy. The presumption is that vacancy is bad. Not true. Eliminating vacancy is often a property management company’s number one goal. Sometimes vacancy is good. Really. For example, vacancy (turnover) allows property management to bring lower revenue/under-market units up to current market rents. It’s also an opportunity to improve interiors. An Easy Vacancy Example A tenant is $200 under current market rent. A renewal is offered with a $72 monthly increase (a 6% increase). The tenant declines stating the increase is too high and gives notice to leave. This unit will now be rented at market rents-$200 higher. If the tenant had remained, the twelve month rental income increase is $864. Re-rented at market rate, the twelve-month rental increase is $2,400. Vacancy is good. A Hard Vacancy Example A long-time elderly tenant living on a fixed income breaks a hip, has huge medical bills and is just barely keeping rent current. At time of renewal, while the decision point may be kicked up a few layers, the probability of a rental increase is limited. Thus, rent maximization is not going to occur on this unit at renewal. Whereas it would be in the best interest of the property owner to request an increase (thus, in essence, forcing a move-out) most property managers will defend their decision to allow this tenant to remain at the current rental rate for another year until the person can recover from their medical emergency. This is an example where vacancy would be good from a purely financial perspective as the unit would likely be re-rented at a higher rate. But in the end, it doesn’t matter because humans are still more important than money and a forced vacancy is not the appropriate call. In this example rent maximization gives way to common sense. Different Types of Vacancy Significant annual turnover is bad, of course. It’s difficult to make money at any property where annual turnover approaches fifty percent. One potential positive to high turnover is allowing an owner to perform needed interior upgrades. This is only good if the upgrades bring stabilization versus continued high turnover. Vacancy is often seasonal. Generic seasonal vacancy follows the school year whereas families move during late spring and summer prior to school starting back in fall. This can be good for smaller property’s allowing an owner to hire seasonal help to address turnover while not having to staff year round. In other words; seasonal vacancy can be a good thing. Consider then that not all vacancy is bad as the vacancy event can be utilized to make improvements and increase rents on units vacated by long-term residents. Yes, we all want long-term tenancy. Ideally, we strike a balance between length of tenancy and keeping pace with market rents. Article Written By: John Wilhoit Jr. Digested from Multifamily Insight Blog
Five Easy Phone Tools to Convert Your Phone Leads into Appointments When your phone rings, the goal is to set an appointment so the prospective resident comes out to see you and rents an apartment! While attitude is key; there are some things that you can do to make your phone interaction more successful. 1) Smile on the phone: It sounds simple and it is. People can hear the warmth of your smile over the phone. Remember, the majority of prospects have already narrowed their choice down to a final few. Their goal now is to find the right ‘chemistry’.
2) Use the name exchange: “By the way, my name is Jim and you are….?” End with an upward inflection and then just wait. The vast majority of the time your customer will fill in the blank. Once they do, use their name in conversation. Every time you use their name it brings their focus back to the call and it takes the conversation to a more personal level. 3) Sell the benefits: Take some time to write down a list of everything your current residents like about your property. Then note why they like that specific item. This is the benefit to them. For example, many of your residents comment that they like your Indoor Pool with an adjacent outdoor tanning deck. Help your customer understand why this is a good thing. “Our residents love the indoor pool because you can always use it -- not
just during the warm weather months. And tanning is a dream because it’s steps away. You know how it works…’Bake, dip, flip, dip!’” Not everyone will want the same features so think about who is attracted to which feature and keep a list close to your phone so you are always prepared. Other items that people want to know about include anything that makes life easier: washer and dryer in the home, ice maker, self-cleaning ovens and so on. Convenience factors including bus stop nearby, adjacent parks, fitness facilities, free cappuccino in your lobby, anything “unique” you can think of to show convenience. Social opportunities, like happy hour by the pool on Thursday nights, free movie
nights, yoga classes, you get the picture. 4) Discover hot buttons: your job is to ask questions. This will help you better know and understand your customer. Examples include: Is the home just for yourself? Is there anything special you are looking for in your new home?
increase the number of appointments you set -- and more appointments mean more opportunities to lease an apartment! Article Written By: Jim Baumgartner Digested from Rent Soda
Renting an Older Property? No Problem Five Tips on Renting an Aging Community A client recently asked, “Do you know of any information on how to rent older properties?” Her property was built slightly before most of us were born. Early in my career I was spoiled rotten. I did lease-ups of new construction luxury sites. When I had to do an analysis on an aging Class C property I turned my nose up and sniffed, “They should just invest in a flame-thrower.” My cronies and I were amused; however, several years later I had several of these little flame-thrower targets in my portfolio. Imagine my shock (and embarrassment) when I realized that these were the assets that threw off the majority of cash in our organization. So what do you do when you find yourself adrift on an aging property (not old enough to be charming or cool but too old to be hot and trendy)? Do you wallow in self-pity and stare in envy at your new, amenity-rich neighbors? No way! Beat up the new kids on the block with a stripped down, value approach! 1) Rent the basics: ... and not the bells and whistles. Why pay for what you don’t need? Remind your customer that they are not paying for amenities that they will never use. (How many people actually use the pool or cardio room?
5) Ask for an appointment: “You have to come see us! Would 5:15 tonight or right now be better for you!” (The goal is to get them to see you as soon as possible. The longer they wait to visit, the less excited they are.) Start integrating these tools into your telephone technique and you will be surprised at how positively your customers respond. These tools will
June | July 2011
ACCESSLASVEGAS They may say they will but end up not having the time.) Remind them that “The money you save on rent can be applied to the things you really want!” 2) Buy the upgrades you will actually use: Want a kick-butt health club with spin and Pilates classes and machines that actually work? The health club industry is suffering just like the rest of us and they are offering deals! You can get a membership very inexpensively. Better yet, negotiate a property or portfolio discount and create resident clubs (boot camp, spin, Pilates group, yoga group) to go to the health club together. 3) Mature landscaping is GREEN! Highlight the fact that you have mature landscaping that adds beauty to your residents’ world. Older properties often have extensive grounds; do you have an area that could be dedicated to a community garden? Garden plots and compost piles are easy and inexpensive to create. 4) Focus on design plusses: * In the Pre-ADA years room sizes tended to be larger. While unit square footages may have stayed pretty consistent, where space is allocated has not. New construction design mandates larger bathrooms and kitchens to allow for wheelchair access. This has resulted in smaller bedrooms. Families and roommates will appreciate more space in these rooms. * Older properties tend to have larger balconies. In some communities this is not an issue but many people enjoy the opportunity to step outside -- whether for a cigarette or fresh air break. Due to the costs of balconies, often these are value-engineered out or downsized today. * Galley kitchen? We have heard a lot lately about ‘foodies’; however, consider your demographic: do they eat in or out? Many of our residents never use anything but the refrigerator and microwave. So if they comment on the small size of the kitchen, determine if they are asking out of habit or if they do like to cook. If they are foodies, all is not yet lost -- advise them on how they can extend their kitchen into an adjacent dining area through the use of butcher blocks, microwave carts, IKEA
June | July 2011 islands and so on. 5) Focus on what you can do to be better than your competitors: * Focus on EXCELLENT customer service. Can you get your work requests done faster? Can you offer custom painting at renewal time? * Add conveniences for your customers: free use of the fax machine, selling stamps, free movie rentals or free photocopies. * Create regular resident events like book clubs, biking, a sand volley ball team, etc. to encourage community. * Solid construction is an older feature you should brag about! It is unlikely that any of your parts were pre-fabricated off-site. Everything was carefully handcrafted with pride right there! This means that your building is probably solid and relatively quiet.
“ Focus on what you can do to be better than your competitors ”
Maximize what you have! Be proud of the value you represent! And don’t forget to ask for the sale! Article Written By: Jim Baumgartner Digested from Rent Soda
Making the All-Important First Impression Count Low-Cost Ways to Upgrade Your Leasing Office When you’re meeting someone for the first time, you only get one chance to make a good impression. That’s also true when someone sees your rental-leasing office. How your office is arranged and the ambiance it presents will leave a lasting impression on owners, prospective residents and potential employees. So, without further ado let me share with you some inexpensive ways to upgrade both the looks and the feel of your office.
* Older properties tend to be in great locations closer to business and entertainment centers. Promote neighborhood ‘walk-ability’, convenience to business centers, nearby green spaces, entertainment venues, transportation and key arteries.
If you have a reception room or lobby you can spruce it up easily. Consider a display case to show off company awards, publications and services. You can accomplish the same thing by framing and strategically placing your licenses, property management credentials, or photos of properties that you manage and are especially proud of.
* Got charm? Sell it! Anything that is different sets you apart from your competitors. Your job is to draw attention to it and tell your customer why it matters to them.
Area rugs or runners can add some color to wood or cement flooring, and tiles are another option that provides a polished look. Although fluorescent lighting saves energy, a few well-placed lighting fixtures
5 or track lights can provide your lobby with a style update and call attention to your most pleasing artwork and wall presentations. It may seem obvious, but a new coat of paint is a simple way to brighten up your workplace without having to fork out a lot of money. While mainstay shades like traditional white or gray are more subdued, branching out with a bold color -- be it a vermilion red wall or a sunny yellow pastel -- can really liven up a lobby or waiting area.
“Let your office say to visitors, ‘we care about our work environment like we care about the homes we lease.’ ” I’m a big fan of thoughtfully placed indoor plants and trees. Select some nice looking planters for your lobby and use them for items that you can rotate seasonally. For example, in the winter they can hold Christmas trees or poinsettias, and in the spring, you can fill them with sunflowers and tulips. In addition to being inexpensive and low-maintenance, plants and indoor trees will keep the air fresh and oxygenated, and can even decrease the temperature in your office, lowering heating costs. Let your office have some quality touches and accent points. Some Crown Molding can accomplish this brilliantly. They come in a wide variety of styles, materials and prices -- from standard unfinished wood molding to pre-finished polystyrene that looks just like wood. Even nicely stained floor moldings can go a long way to spice up walls and give a room some character. The idea is to reflect what a quality management business you are operating. Let your office say to visitors, “we care about our work environment like we care about the homes we lease.” Article Written By: Marc Courtenay Digested from “ Low-Cost Ways to Upgrade Your Leasing Office ” at PropertyManger.com
Six Simple Actions That Keep Your Apartment Community On The Tip of Everyones Tongues For a lot of people, searching for an apartment is one of those dreaded but necessary experiences you have to go through from time to time. It ranks up there with paying taxes, putting gas in your car and getting a haircut. People are busy and the process of searching for a new place to live just is not that much fun. Do a simple apartment keyword search on Twitter and watch for nearly any bit of time and you will see it.
unstructured environments. And, more times than not, your apartment community is not a part of the conversation, not in a physical sense anyway. That is to suggest that your voice is reliant on the voice of others -- the tip of their tongue, if you will. For that reason, I suggest that apartment communities that work to become tip of tongue in the moment of truth will have a leg up on making their markets in lieu of competing in them.
I went through the experience myself recently and, in retrospect, it does not fit my idea of a good time. And, I work in the business. I used all the traditional forms of search from the ILS to multifamily print magazines to Craigslist but in the end I simply asked my friends to recommend their favorite places. In the process of doing so something interesting occurred to me.
Being the tip of the tongue is not as hard as you may think. The following are six simple actions that will keep you at the tip of the tongue: 1) Meticulously manicured landscapes free of trash and clutter 2) Curbs that are kept freshly painted and free from marks of any kind 3) Not just a friendly property management team but a responsive, service oriented, always looking for another way to enhance your experience kind of team
Time after time my friends, in and out of the apartment business, had a community ready to refer at the tip of their tongue. Some because they knew the area of town I needed to be in, others because they thought the on-site management team was simply superior. And, still others because of the lifestyle one community offered over another. All the reasons had merit but more important to me was the fact that each community sat at the tip of their tongue. And, it came out in the moment of truth. Moments of truth happen every day. They happen online and offline, in passing, by text and over the phone. The conversations occur most often between friends, family and co-workers in loose
4) Service requests that are done the same day they are turned in and work areas left cleaner than they were prior to the work being complete 5) Remembering that a person’s name is the most important word in the world of spoken languages -- use it often 6) Remembering that, “I’m sorry, let me see what I can do for you” goes a whole lot further than “That is our company policy and so on and so forth….” What are you doing to ensure your apartment community stands out from the crowd and is the tip of the tongue in a moment of truth? Article Written By: Mike Brewer Digested from “ Six Simple Actions That Keep Your Community ‘Tip of Tongue’ “ at PropertyManger.com
June | July 2011
June | July 2011
Las Vegas Metro Occupancy Trends May 2010 through April 2011 91%
Source: Spencer Ballif and Jeff Swinger of CB Richard Ellis (Las Vegas) (114,873 Apartments Surveyed in April)
Las Vegas Snap Shot
Source: Colliers International
MULTIFAMILY MARKET REVIEW – Q1 2011 The multi-family market in Las Vegas and Southern Nevada has experienced a roller coaster ride over the past five years. When the ‘Great Recession’ started in 2008, some pundits were proclaiming that the eviction of people out of their homes would make multi-family renting the obvious and most affordable living arrangement. But in reality the 2008 call was too early as the rental competition heated up while nearly 85 percent of singlefamily rentals on the local MLS system sat vacant. The large shadow inventory owned primarily by all-cash investors temporarily kept a lid on rental pricing and caused concessions to swell. However, as we enter 2011, the pendulum has swung in favor of multi-family investments and a rental lifestyle that is poised to take hold. In 2011, the plethora of single-family foreclosures is finally giving leverage to occupancy and rental rates for Las Vegas’ multi-family market. Despite foreclosing banks efforts to mitigate the problem of delinquent mortgages and repossessions; their strategy has been loan modifications with existing borrowers as they deal with the backlog of future foreclosures. In the short-run this strategy has been successful in not flooding the market with homes and driving prices down further. However, as the spring buying season begins and the second wave of foreclosure soon to follow, the first-time homebuyer has been noticeably absent. The reason is obvious; home values may continue to fall and new down payments can be easily wiped out in a declining market. Buyers have no confidence in current pricing and are better off renting until the storm passes. And for those future homebuyers, renting an apartment is much cheaper than a single-family house. Thus, the multi-family sector continues to experience stronger occupancy levels and a decrease in concessions to new renters. Apartment rents have adjusted to the point that they are now competitive with single-family rentals, driving more of those former homeowners into multi-family projects. The primary beneficiaries of this trend have been class A and B multi-family projects (i.e. those constructed after 1989. Former homeowners and folks who rented in class C projects are using the current rent climate to migrate westward and into class A and B projects. Most class A and B properties are 90 percent or more occupied, and rents in those properties have started to increase as much as $120 per month. Class C/D properties, on the other hand, are still experiencing very high vacancy rates and concessions. The improved demand for class A and B multi-family has not only sent rents up, but concessions are starting to burn off. Properties that used to offer free rent are now offering move-in specials. Core investments in Las Vegas and Southern Nevada are now ranging from 6.5 to 7.0 percent cap rates based on actual income projections. Many analysts are looking back to 2009 rent levels to establish their proformas. Proforma results are usually 200 basis points higher. A total of 638 units were sold in the first quarter of 2011 at an average price per unit of $73,221. This represented a significant drop in volume from last quarter, when 2,594 units sold at an average price per unit of $74,734. One year ago, 488 units were sold in Southern Nevada for an average price per unit of $29,766. In general, the volume of units sold is bouncing around a bit, but the average price per unit has improved significantly from one year ago. Indications are that 2013 will be a great time to be a multi-family owner in Las Vegas. Higher classes of properties have nearly stabilized and concessions are lessening and rents rising every month. As the national and global economies continue to improve slowly, Southern Nevada will likely follow suit. Locally, many economists are projecting an improved employment environment for Southern Nevada by mid- to late 2012. Job drivers such as the proposed federally funded high-speed rail between Las Vegas and Victorville, California has the potential to generate over 30,000 jobs for Southern Nevada. Any new job growth will certainly ignite household growth and rental pressures. More jobs will bring those people who are sharing living quarters with others (whether friends or parents) back into the market for apartments of their own. This increase in demand could be the beginning of a commercial real estate renaissance in Southern Nevada.
Access Investment Offerings ASKING PRICE
PER UNIT PRICE
Rancho Alvarado (305)
NAI Global / 702.383.3383 x1
BROKER / CONTACT INFORMATION
Rancho Vista (168)
Hendricks & Partners / 702.866.6239
Sky Court Harbors (86 of 184 will be sold)
NAI Global / 702.383.3383 x1
Pacific Harbors at Sunrise (87 of 168 will be sold)
NAI Global / 702.383.3383 x1
Regency Place (136)
Sperry Van Ness / 702.765.6005
Access Recent Transactions CLOSING PRICE
PER UNIT PRICE
Colonial Grand at Palm Vista (341)
March 14, 2011
Tara Hils (140)
January 26, 2011
The Croix Townhomes (137)
December 1, 2010 Cornerstone RE Advisors
Sun Gardens (300)
December 1, 2010 Hypericum Companies
Las Residencias (232)
November 30, 2010 The Siegel Group
Colonial Properties Trust Western America Properties
For additional information and / or broker information on Access Investment Offerings and / or Access Recent Transactions contact Bret Holmes at 702.699.9261.
June | July 2011
June | July 2011
LOCALEFFECTS Bouncing Back from the Bottom in Las Vegas “For many years, we were the fastest-growing city in the nation,” recalls Debra Kopolow, regional vice president of Pinnacle’s Las Vegas operations. “It’s quite a paradigm [shift] for us in Las Vegas.” The metro is currently ranked the fifth-worst economy in the world, the lowest of all U.S. metros, according to a Global MetroMonitor report. “We used to be at the top of the list for all the good reasons, and now we’re at the top of the list for all the bad reasons,” points out Kathleen Raffinello, investment manager, Pinnacle, Las Vegas. Indeed, prior to the recession (1993-2007), Las Vegas was ranked number 14 in terms of strongest performers, the highest of any U.S. metro. Nevada continues to post the nation’s highest foreclosure rate, with the most recent numbers showing one in every 35 housing units with a foreclosure filing -- a 10 percent decrease in foreclosure activity from the previous quarter -- according to RealtyTrac’s first quarter 2011 U.S. Foreclosure Market Report. From February to March, Nevada’s foreclosure activity increased 35 percent, after two consecutive monthly decreases. At the same time, Las Vegas-Paradise posted the nation’s highest metro foreclosure rate, with one in every 31 housing units receiving a foreclosure filing in the first quarter of 2011. The latest unemployment figures from the Department of Labor show the Las Vegas-Paradise rate to be 13.7 percent, better than its high of 15.7 percent but still triple the rate of its 2005-2006 range, when unemployment remained between 3.9 percent and 5 percent (a one-month abnormality in July 2005). Meanwhile, the Sahara Hotel & Casino, which, at press time, was scheduled to close in May, may add its 1,050 employees to this unemployment rate (though its 8
owner, SBE Entertainment, has said it will try to place the employees elsewhere, so the true effect remains to be seen). However, Raffinello points out, “We are seeing that the casino industry cut too far into the bone when they laid off people” and that the industry is beginning to hire back slowly -- though often at half the pay. The investor of the stalled Fontainebleau, Carl Icahn, meanwhile, has no imminent plans to resume construction, but The New York Post recently reported that he partook in a fire sale of furnishings in what would have been the 3,800-room condo-hotel resort. Many believe this shows that Icahn is looking to unload the asset rather than resume construction. At the same time, Boyd Gaming suspended construction of Echelon for several years.
The good news, however, is that hotel-room rates are slowly ticking up, points out Ballif. Hotel / motel room occupancy was 80.6 percent in February 2011, compared to 79.0 percent and 72.4 percent in January 2011 and December 2010, respectively, according to the Las Vegas Convention and Visitors Authority (LVCVA). Meanwhile, gaming revenue is up 1.1 percent month-over-month from January 2011 to February 2011, according to the Center for Business and Economic Research at the University of Nevada, Las Vegas. And while the leisure and hospitality industry certainly lost its share of jobs, the number of employees totaled 257,400 employees in March 2011 (compared to the 276,100 that was seen in June 2007). Apartment Fundamentals
Any real construction won’t start anytime soon, “which is good for real estate but bad for jobs,” adds Spencer Ballif, senior vice president of CB Richard Ellis’ Multi-Housing Group in Las Vegas. At the peak of the market (June 2006), there were 112,000 employees in construction-related positions; as of March 2010, that number was 40,700, according to the Department of Labor.
“One of the challenges, from a marketing standpoint, is the jigsaw of the ownership and ownership’s objectives, and those objectives are not always consistent with what’s best [for] the overall marketplace,” says Nick Alicastro, regional vice president of Las Vegas for Western National Property Management (WNPM). Despite last year’s losses of approximately 13,000 jobs, vacancy rates in the apartment market declined, from 10.7 in 2009 to 10.15 in 2010; thus far this year, the market is experiencing vacancies of 9.5 percent, reports Ballif. “The best way I can explain that is there were more single-family homes that were in the rental pool that are being foreclosed, that were bought by investors that are being purchased. … People are less inclined to rent single-family homes than they were initially because they had bad experiences.” However, many others continue to point to the shadow market as one of the greatest threats to the multifamily industry. “We’re back to prices from 1994. Median home prices are $115,000,” points out Pinnacle’s Raffinello. “Investors who are buying single-family homes can rent them for the price of [an apartment], and owners trying to cling on, who purchased during the peak time, cannot compete with those rental rates and still make their debt service.”
9 right now; the problem is the product,” adds Kopolow. But while there is not a shortage of buyers interested in the market, there is certainly a shortage of sellers. (Typically the market trades about 40 to 50 assets, over 100 units, annually; in 2009, only two properties traded, while 2010 saw 14 assets trade.) “There are plenty of people who believe in the market, believe in the long-term side of it, and especially like the discounts,” Ballif adds, pointing out that the market is about 60 percent off of the peak pricing seen in 2007.
Additionally, she notes, many single-family investors have “loosened up their criteria to match multifamily,” she says. “So in addition to our normal 158,000-170,000 apartments in Las Vegas, you have to throw in 15 percent of our single-family homes that are vacant that could potentially be competition.”
Average monthly rents, however, declined 1.76 percent from 2009 to 2010, compared to a 14.16 percent decline the year prior. Northeast Las Vegas, however, showed a 6.92 percent increase in 2010 -- but that is compared to the largest rental decline the year before: 20.89 percent, according to CBRE’s 2010 Market Review.
Alicastro has observed market-wide occupancy in the high-80s to low-90s. “Right now we are still seeing a struggle to stabilize rents. In certain pockets of the Valley we see some strength, particularly in the mid- to higher-end properties, which tend to run higher occupancies,” Alicastro observes. “There are also pockets where we have seen concessions increase in the last few months.”
“On one end of the spectrum, you have people trying to maintain the value of their assets with a long-term approach. Their philosophy is to run lower vacancy with higher rents or fewer concessions in an effort to preserve asset value,” says Alicastro. “There are other owners that are focused on occupancy to maintain cash flow, which does not always equate to value from an asset standpoint and often adversely impacts the surrounding submarkets.”
The difference in performance among asset classes is clear. Class A product is currently running 6.9 vacant, while Class C assets are more than double that, at 14.12 percent, according to CB Richard Ellis’ Vacancy Survey. Most markets are burning off concessions, with average concessions down from two months to one month of free rent.
Investment Opportunities Alicastro notes that there are a variety of opportunities in Nevada, particularly in Las Vegas, for multifamily investment. “There is great value for investors in Vegas right now. We think there are [acquisition] opportunities given the right product and the right area of town. It just depends on the investment criteria and how much risk someone is willing to take.” The market is mostly dominated by private capital, but while this has been the historical trend in the Las Vegas market, Ballif observes that some institutions are starting to dip their toes in because of the affordability. “The interesting anomaly is … the institutional buyers are the ones who will be first and foremost in grabbing these deals [in other markets]. In Vegas, that has not hit yet. … The problem isn’t the money
“When they have a building up on the market … it’s like a bunch of piranhas to a piece of meat,” notes Raffinello. “We just don’t have the product, [but] there is money out there trying to buy in Nevada,” she adds. “We would gravitate more toward newer or higher-end product,” says Alicasto. With the newer product, he adds, investors “have a little more protection from a capital standpoint and long-term asset preservation, as opposed to if you’re buying older product in Nevada. Although the price per door may be [lower], more emphasis needs to be placed on long-term and short-term capital needs.” A product does seem to be the most desirable, agrees Raffinello. “C product, which you can’t put a cap rate on right now, is getting hit the hardest. A product seems to be the only thing that’s shuffling.” Class A assets, she notes, are trading between $90,000 and $120,000 per unit, while Class C may be as low as $15,000 per door. For stabilized assets, CBRE’s Market View estimates that Class A assets would trade between 5.75 percent and 6.25 percent, while Class B would achieve between 6.5 percent and 7.25 percent. Class C product would trade at 8 percent cap rates -- and higher. Outlook for the Future While the market is still not in full recovery mode just yet, it appears to at least be at its bottom. In addition to the employment rate leveling off, Raffinello points to an increasing number of small businesses in the market and the fact that some home builders are gearing up to finish their once-abandoned product as positive signs of the market’s thaw.
June | July 2011
ACCESSLASVEGAS “People aren’t as afraid anymore,” she notes. “We’ve seen the slow-down; we’ve seen the halt. The scare factors are gone; people are quite resilient in Las Vegas. I think whoever is gone is gone; whoever is going to stick it out is going to stick it out.” “You can go to Macau, Singapore, Pennsylvania,” she adds. “But it’s still not Las Vegas. You’re not going to get the glitz and the glam. [The recession] has slowed down international travel slightly because [casinos in] Singapore and Macau have opened … [but] I think people … are still going to come to Las Vegas.” Meanwhile, much like many other cities around the country, the challenges to Las Vegas will continue to be employment, housing prices and the lending market for multifamily, Alicastro predicts. “Years ago, Vegas used to be the affordable place for seniors to retire because it was cheap,” recalls Raffinello. “When the market spiked, we no longer were affordable. An affordable destination was Arizona, which always lags behind us. “[Now] we are actually marketing to Arizona,” she notes. “It’s going to take a little [while] to get the reputation back that Las Vegas is once again an affordable retirement destination because we just got so blown out of the water.” Additionally, people are not retiring or selling their homes as quickly as they were at the market’s peak. Meanwhile, the city is attempting to diversify. “It would be ideal if [the city could] create some more stability that’s not so predicated on how many people are moving into the state on a weekly or monthly basis and how many people are visiting on a weekly or monthly basis,” Ballif notes. “There needs to be some continued efforts in stabilizing all the job sectors, particularly increasing the institutional sectors that are non service-related, non casino-related and non construction-related.” A new $600 million VA hospital, slated to open in 2012, he believes, demonstrates the city’s interest in expanding its medical industry, for example. Additionally, Ballif says, the city is trying to lure small companies, with 50 to 100 employees, from neighboring states. “We have to do a better job diversifying
June | July 2011 our economy by bringing smaller companies out of California,” says Ballif. “If we can’t make the case that now’s the time to bring those 50- to 100-employee companies to Nevada because land rates are cheaper than they’ve been in the last 10 years, and leasing rates are cheaper than they’ve ever been … we never can.”
way for construction once the economy improves.
He points out that, despite the state budget shortfalls, the tax environment -which includes no state income tax, no corporate tax and no inventory tax -hasn’t changed. “We haven’t thrown a lot of taxes at small business,” he notes. Bright spots for the city include its relative low cost of living, Alicastro notes. “There need to be continued efforts to stabilize all job sectors and continue to make available entrepreneurial opportunities to outside markets, specifically catering more to the local economy versus the travel- or casino-related economy. Creating more of a solid backbone and more stability for the local core economy,” he adds, “is essential.”
That’s evidenced by the 6.7 percent vacancy rate in the valley’s Class A complexes and the 9.9 percent vacancy in the Class B complexes. In contrast, Colliers reported, the aging Class C properties have a 17.4 percent vacancy rate. Class C properties are offering large concessions to attract tenants, while some higher-end properties are starting to increase rents because of the high demand.
Article Written By: Erica Schnitzer Digested from “Bouncing Back from the Bottom in Las Vegas” on MHNOnline.com
The decline in rental prices in so-called Class A (newest) and Class C (older) complexes prompted renters to move out of their apartments and into newer complexes.
“Former homeowners and folks who rented in Class C projects are using the current rent climate to migrate into Class A and B projects,” said John Stater, research director at Colliers. “In the process of the flight to quality, some older properties are simply becoming obsolete.” Some of those older projects are being condemned for health and safety reasons. That trend may continue for some time, Stater said. As many as 3,000 Class C properties could face demolition or substantial renovation, he said. “This suggests that an improved job picture in Southern Nevada will spark a revival of multi-family construction, which has effectively been nonexistent for the past three years,” Stater said.
As Apartment Rents Drop, Tenants Look for Upgrades A decrease in rental prices in some high-end apartment complexes in Las Vegas has made older properties obsolete, according to Colliers International. That trend has paved the
Costs are currently $7,000 per unit for raw land, and about $125 per square foot to build a Class A project, Stater said. Investors bought 638 apartment units in the first quarter for an average price of $73,211. That’s down from 2,594 units sold during the fourth quarter at an average price of $74,734 per unit, Stater said. The southwest valley had the lowest vacancy rate, 7 percent, as well as the highest rents, $726 for a one bedroom. The northeast had the lowest rents at $500 a month for a one bedroom, Colliers reported. Article Written By: Buck Wargo Digested from “As Apartment Rents Drop, Tenants Look for Upgrades” at VEGASINC.com
NATIONALNEWS Empty Houses: The Ownership Society is Over Multifamily upside is huge with more people deciding to rent While the overall number of empty homes rose nationwide, the biggest vacancy jump was in what's called "principal cities." These are the lower income, higher crime areas that Fannie Mae and Freddie Mac and prior administrations tried to bolster homeownership in. It's close-in areas that are not attractive, according to Stephen East of Ticonderoga Securities. Vacancy rates actually fell in the suburbs to 2.3% in Q4 2010 from 2.5% a year ago and 2.4% in Q3. The increase in the overall rate was really driven by a 3.6% vacancy rate in "principal cities," up from 3.1% a year ago and 2.9% in Q3. "The increase in the vacancy rates in principal cities continues to illustrate the hangover from the 'ownership society' supported by the Clinton and Bush administrations," notes East. "We speak often to clients about the dichotomous market that does not get enough attention. Draw concentric rings around a city center. Two primary areas that drive the housing malaise â€” in close, out far. The sweet spot belt in nearly every city is seeing a significantly better housing market than broad numbers show. Fortunately, this is where most of today's qualified buyers want to live."
Fannie Mae recently announced it was really gearing up its commercial, multi-family mortgage backed securities business, offering new products. "Fannie Mae Guaranteed Multifamily Structures, or Fannie Mae GeMSTM, an expanded multifamily mortgage-backed securities (MBS) execution that will include DUS Megas, DUS REMICs and syndicated DUS Megas." In other words, they're getting behind the apartment boom.
I also believe it's not just the inner-city, low-income resident who is renting; renting is now much more acceptable to affluent younger workers and ever more enticing to empty-nesters. Given the rise in both those populations, multi-family has nowhere to go but up and ownership will need something of a makeover. Article Written By: Diana Olick Digested from USA Today
"Fannie Mae is a leading provider of capital and liquidity for affordable workforce rental housing, and our role is more important now than ever," said Kenneth J. Bacon, Executive Vice President, Multifamily Mortgage Business. "When many financial institutions pulled out of the multifamily financing market during the financial crisis, we stayed and increased our participation to help keep credit flowing." Fannie is putting more than $20 billion behind multi-family financing, as builders ramp up production. The reason rents are rising so much is because there is not enough stock, unlike the single-family market. During the housing boom, many developers did condo-conversions, turning apartment rental buildings into condos to meet the over-exuberant demand. Now developers are rushing to build as fast as they can. Reis Inc. predicts 51,314 units will be completed in 2011, and 82,971 units in 2012, and CoStar predicts over 100,000 will be completed in 2012 (many of those likely starting now). All because the inner-city ownership society is no more.
10 U.S. Cities Where Renting Beats Buying City
10) Boston, Massachusetts 9) San Francisco, California 8) San Diego, California 7) Portland, Oregon 6) Kansas City, Missouri 5) Sacramento, California 4) Omaha, Nebraska 3) Fort Worth, Texas 2) Seattle, Washington 1) New York, New York
20.45 20.50 21.26 22.21 22.55 23.35 25.37 29.67 30.97 35.18
I am not sure why that's fortunate. The "sweet spot belts" around the country have not seen nearly the foreclosures nor the price drops that the close-in and far out bands have seen, so we don't need so much demand there. There needs to be more demand in the "principal cities," but it's just not there. Prices have dropped the most, and most borrowers there are lower income and cannot qualify in today's tough mortgage market. That's why, again, apartment rentals are seeing such high demand.
June | July 2011
June | July 2011
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