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December | January 2011

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Report: Apartments Outrank All Sectors

page 7 Q3 Vegas Apartment Market Update

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Las Vegas Property Tax Assessments

Multifamily Sector Posts Record Occupancy Gain In Third Quarter

Real estate economists bullish on apartments for 2011, forecast full employment recovery by 2015 The multifamily real estate sector posted its greatest quarterly occupancy gain in the third quarter and is poised to continue to benefit from single-family housing market decompression throughout 2011, commercial real estate economists stated in recent forecasts delivered by New York City-based REIS and Washington, D.C.-based Jones Lang LaSalle. While anemic GDP growth continues to hamper improvements to the unemployment picture, jobs are being added, and optimism of broader economic recovery is giving renters -- particularly in the Gen Y millennial demographic -- the confidence to double-down out of roommate and live-at-home situations. “National vacancy levels fell by 70 basis points from 7.8 percent to 7.1 percent,” said REIS director of research Dr. Victor Calanog. “This is one of the sharpest drops in vacancy on record, and pent-up demand from renters [opting out of] living with their families or other roommates seems to be driving these results.” According to REIS, the third quarter also saw record net absorption of 94,000 units, with 90 percent of absorption coming from existing buildings leasing empty units. “With job prospects improving, double-up and move-back-with-the-parents millennials are feeling more confident in entering the rental market,” noted Jones Lang LaSalle multifamily director of capital markets research Josh Gelormini. “Multifamily is also benefiting from difficulties still facing the housing market, and there is limited fear among renters of being priced out of the housing market moving forward. We expect more of the same positive trends impacting the apartment sector in 2011.” According to Jones Lang LaSalle forecasts, GDP growth will continue at its slow pace next year, with acceleration up to 2.5 percent growth towards the end of the year. Unemployment, consequently, is expecting to remain static for most of 2011, with possible improvements towards the second half of the year pushing the jobless rate down into the 8.5 percent to 9 percent range.



December | January 2011

Apartments Outrank All Sectors According To Emerging Trends in Real Estate® 2011 Report Favorable demographics and the housing bust should increase renter demand next year Source: PricewaterhouseCooper LLP and Urban Land Institue (ULI)

Emerging Trends in Real Estate® reflects the views of leading real estate executives from around the world who completed surveys or were interviewed as a part of the research process for the reports. Interviewees and survey participants represent a wide range of industry experts -- investors, developers, property companies, lenders, brokers, and consultants. The report also: • • • • •

Elaborates on trends in the capital markets, including sources and flows of equity and debt capital. Indicates which property sectors offer the best opportunities. Provides rankings and assessments of a variety of specialty property types. Discusses which metropolitan areas offer the most and least potential. Describes the impact of social and political trends on real estate.

In an ‘Era of Less,’ Flight to Quality Accelerates by Investors to Coastal Gateway Cities and Prime Class Assets After three years of dislocation and unprecedented loss, commercial real estate industry investors and professionals hint at hopeful signs of tempered commercial real estate market improvements. Survey respondents indicate a lowering of performance expectations, anticipating high single digit returns for core properties and mid-teen returns for higher risk investments. Without ample leverage and attendant risk, real estate assets cannot sustain higher performance, according to survey respondents. The survey finds that lenders with strengthening balance sheets finally step up foreclosure activity and dispositions of properties during 2011 and 2012, helping values reset 30-40% below 2007 peaks. “The market is predicting extreme bifurcation as the capital flight to quality creates a greater separation between the trophy and less desirable assets,” said Mitch Roschelle, partner, US real estate advisory practice leader, PwC. "Well-located and well-tenanted properties that can generative strong cash flow over the next several years are exactly what buyers and lenders want, according to survey respondents. As a result, prime apartments and office buildings in gateway cities are generating the most attention from the increasing pent-up sidelined capital.”

Debt Market Loosens Further in 2011 The report indicates debt markets thawing further in 2011 as banks continue to strengthen balance sheets, take their losses and step up lending, resulting in higher transaction volumes. Borrowers are expected to have improved chances to obtain refinancing if they own relatively well-leased cash flowing properties. But overleveraged owners dealing with high vacancies and rolling down rents may face more uncertain prospects in the credit markets, including the increasing likelihood of foreclosure. “Real estate market participants continue to see a gulf between buyers and sellers, however, there is an expectation that the 'bid-ask" spread will begin to close in 2011 as selling sentiment improves dramatically from last year’s all time survey lows and buyers temper expectations for giant discounts,” said ULI Senior Resident Fellow for Real Estate Finance Stephen Blank. “Investors with cash could have excellent opportunities to seize market bottom plays by recapitalizing cash-starved owners or buying foreclosed assets." Respondents to the Emerging Trends cite the best investor bets for 2011 which include: • Temper expectations - Buy well-leased core assets and look for 6 to 7% cash flows. • Lock-in leverage - Mortgage rates can’t get much lower and cyclical bottom is the optimum time to leverage properties in order to magnify future value gains as property fundamentals ameliorate.


3 • Provide debt and recap equity Players who fill the gap on assets with lowered cost bases can obtain excellent risk-adjusted returns up and down the capital stack, including mezzanine debt and preferred equity, if not loan to own opportunities. • Focus on global gateways, 24-hour markets - Everybody wants to be in the primary coastal cities with international airport hubs. • Favor infill over fringe – The ‘move back in’ trend gains force as twenty something Echo Boomers want to experience more vibrant urban areas and aging Baby Boomer parents look for greater convenience in downscaled lifestyles. • Patience is a virtue - Transaction activity will increase and more value add and distressed deals will appear. • Buy or hold REIT – Survey respondents expect solid cash flowing returns. • Buy land – It won’t get any cheaper than now, but prepare to wait for the right development opportunity. • Exercise caution on distressed loan pools – They could be a recipe for disaster if you don’t underwrite the assets properly.

Markets to Watch Survey participants believe the 24-hour cities will always dominate and outshine secondary markets. This year, the top Emerging Trends markets selected by survey respondents offer no surprises -Washington DC pulls away from the pack, followed by San Francisco, Boston and Seattle, as the pre-eminent gateway cities. Houston and Denver solidify rankings and respondents show faith in South California’s resiliency, despite recent setbacks. While ratings improved for markets from coast to coast over 2010’s results, the gap between top and bottom continues to widen, and more than 60% of surveyed cities still fall below “fair” ratings for commercial and multifamily investment prospects. A snapshot of the top five markets ranked by survey respondents: Washington DC: Never far from the top, the nation’s capital is expected to hold onto its top ranking as long as the economy labors. Survey respondents do not expect the federal government to downsize while lobbyists and consultants swarm legislators and agencies hoping to influence or stop regulatory changes. All the activity is expected to cushion


property markets and attract investors and no market benefits more from core buyers’ recent flight to quality, driving prices back up.

Seattle: Seattle gets a boost from in-migration to the area adding 160,000 new residents since the recession. Despite upper-teen vacancies after an ill-timed development spurt, office face rents have held up. Industrial markets firm with the Puget Sound continuing to solidify its position as one of the nation’s most important shipping hubs. Housing prices fell as much as 30% off record highs, but now prices tack back within more rational 15-year trend lines. Rounding out the top ten markets to watch: Houston is expected to come out stronger from the recession than most states, creating more real estate demand.

New York: TARP and Fed funds directed at banks helped financial markets and eased job cuts, triggering the biggest ratings jump for New York. As major financial employers enjoy record profits, ramp hiring and foreign investors remaining active, lenders are loosening purse strings for trophy office owners. Apartment rents rebound along with co-op / condo prices, which registered only minor drops in top neighborhoods, and retailers begin to fill in gaps in empty streetscape storefronts. New hotel completions could temper a recovery in occupancies and room rates, but tourists and business travelers are back in droves. San Francisco: The country’s most volatile 24-hour market, the City by the Bay now offers investors excellent near-market bottom buying opportunities, particularly in apartments and hotels (ET survey #1 buy), office (ET #2), and retail (ET #3), according to survey respondents. The market also sidesteps some of its state’s fiscal issues, performing better than Southern California. Tech and life science industries flourish around top flight universities (Stanford, UC Berkeley), help attract brainpower, and sustain expensive regional living standards. Boston: This venerable 24-hour city registers high marks for livability, controlled development, and a highly educated labor force, but lacks economic vibrancy. Office rents didn’t drop precipitously off pre-crash 2007 highs, but remain well below 2000 peaks, and local brokers predict only a slight turnaround in 2011. Apartment rents are expected to track back up, as expensive for sale housing keeps tenant demand high for multifamily units, and hotels show life.

Los Angeles remains an attractive location with Southern California serving as an important gateway to the Pacific Rim and Latin America. San Diego tracks closely to Los Angeles with its desirable climate albeit the gateway status.

Denver demonstrates 21st century growth by strengthening its downtown core through a new light rail and railroad hub to serve surrounding suburbs. Dallas attracts businesses with its low costs, low taxes and sizeable talent pool. Among property sectors, the survey finds that apartments outrank all other sectors — favorable demographics and the housing bust should increase renter demand and some interviewees forecast rent spikes by 2012 in some infill markets where development activity has ground to a halt. Readily available financing from Fannie Mae and Freddie Mac bolsters buying activity. Core players also like warehouses and infill grocery anchored retail, while full service center city hotels remain the top choice for opportunity investors. Suburban office gets the cold shoulder in the survey.

December | January 2011


December | January 2011

NATIONALNEWS Jobs, Uncertainty Holding Back Multifamily Bull Run Source:

The multifamily industry is heading for its next bull run, but hesitancy on the part of the business world is a major obstacle. Still, investors should begin to prepare themselves for the next cycle. That was the message from a trio of executives at Marcus & Millichap Real Estate Investment Services Inc., who delivered a special presentation, “US Economic, Capital Markets and Apartment Market Overview and Outlook,”. Beginning with a broad look at the economy, SVP and managing director of research services Hessam Nadji pointed out that the crawling pace of job growth is the primary reason behind the fears of a double-dip recession. In the 2001-2003 recession, the US lost 2.7 million jobs, but gained 8.1 million between 2003 and 2007. This latest downturn saw 8.4 million positions terminated between 2007 and 2009, but has only seen a net gain of

723,000 since year-end 2009. But that figure isn’t going down anymore, and that’s good news, said Nadji. When it comes to job losses, “it looks like the worst is over,” he said. “We’re not moving forward quickly, but at least we established a base” when it comes to employment growth. What’s needed, he noted, is a confidence boost for corporate America, which has been hesitant about its growth. “Until confidence shifts, we will not see growth,” said Nadji. “And the growth has to be led by corporate America, because it’s not going to be led by consumers.” Programs to spur job creation, such as the SBA, are helpful in starting momentum, he added, but are not a panacea. Nadji also cited an increase in economic activity on the part of the consumer, namely, a recovery in retail sales excluding automobile and gas purchases, as a bright spot. Another positive is that there are no fears of inflation, though “the Fed is still not convinced the recovery is sustainable, and is ready to do something about it,” he relates. But with interest rates already at record lows, the government may be “out of ammunition.” The yield curve continues to fall, but it’s still far above the recessionary level, and it’s expected that job growth will pick up in 2011 and 2012. So the comeback, Nadji concluded, is going to be gradual, and not the massive snap-back that was experienced in prior upturns, due to the heavy debt loads. After going through a stabilization period this year and into 2011, apartments will enter into a period of rapid recovery, as new deliveries remain low and the vacancy rate declines from the 7.8% overall level it hit at midyear. Yet “while the crisis was on a national level,” said Nadji, “the recovery will be on a local level.” Regionally, the coastal cities are doing well, but surprisingly, so are a few Midwestern markets, including St. Louis (1.5% year-to-date job growth), Indianapolis and Minneapolis (both 1.2%), which Nadji attributed to a gain in the US manufacturing business. Yet job growth is not driving apartment demand everywhere, with places such as Sacramento (-1% YTD job growth), San Francisco (-1%), Las


Vegas and Oakland, CA (both with -1.2%), still boasting strong multifamily fundamentals. In fact, first-half overall absorption was clearly ahead of job growth, on a national level. And at midyear, the unemployment rate among 20- to 34-year-olds -- the prime renter cohort -- is about 200 basis points higher than the overall unemployment rate, which is nearly 10%. And though the residential market is beginning to recover, the drop in single-family home sales has worked to apartments’ benefit. The 2% dip in the homeownership rate, said Nadji, has put 3.4 million households back into the renter pool. While that’s been helpful, “we eventually have to get back to job growth as being the primary driver.” Despite the concern over jobs, the capital markets have remained friendly to multifamily, according to William E. Hughes, SVP and managing director of Marcus & Millichap Capital Corp. The overall commercial real estate financing market has improved, with lender confidence rising, improving property fundamentals and property values stabilizing. The capital markets are also seeing a recovery, he observed, as spreads have narrowed, along with Treasuries and other indices, and interest rates remaining at low levels. As of midyear, there was $843 billion on multifamily debt outstanding, held mostly by the agencies ($310.5 billion), commercial banks ($207.4 billion) and structured products ($105.6 billion). The debt from life companies has remained relatively steady over the past few years, at $47.3 billion, or a 6% share of the market, at midyear. But, Hughes pointed out, they’re becoming more active. In fact, so are commercial banks, and agency lenders are still in the market. All this bodes well for multifamily borrowers since debt will be available for all types of product. And failed loans aren’t a major concern, with delinquencies at less than 1% for the GSEs and life companies. Banks and thrifts are also seeing an improvement in delinquency rates, currently flatlining at around 4%, while CMBS delinquencies continue to rise, hitting around 8% at

5 at midyear. There’s also been a significant shift in who is lending, and how much, for commercial product, since 2007. The most significant change has been among CMBS lenders, who accounted for 34% of all acquisition financing in 2007 but only held a 5% share at the end of the first half of 2010. National, international and investment banks also decreased their presence, from 29% to 13%. Meanwhile, regional and local banks and government agencies increased their lending activity between 2007 and 2010, rising from 6% to 12%, and 1% to 12%, respectively. Debt assumption, which was used in 16% of acquisition financing in 2007, is now present in nearly half of all deals today.

“The market is clearly improving ... ” - LINWOOD THOMPSON, SENIOR VICE PRESIDENT, MARCUS & MILLICHAP

While its presence has diminished a bit, Hughes doesn’t write off the CMBS market just yet. In fact, he sees the market reemerging, expecting it to hit a total of around $10 billion by year’s end. He indicated that he’s seen existing players, such as Bank of America, City JP Morgan, RBS Greenwich Capital and Wells Fargo, as well as new entrants, like Cantor Fitzgerald and Starwood Capital, express an interest in the market. And with their investment goals varying between $400 million and $2 billion, Hughes expects overall CMBS to eventually grow to a $20-billion to $25-billion market by the time 2011 is over.

For borrowers, now is the time to act. The government’s need to finance the deficit, combined with increasing investor confidence in the economy and a search for higher returns, will force interest rates


up. “At some point in time, the interest rate window will close on us, and we’re going to have to deal with that,” said Hughs. The question investors need to ask themselves today is, ‘Do you wait for property fundamentals to improve and risk the interest rate window closing?’ ” Zeroing in on the investment market for multifamily was Linwood Thompson, senior vice president of Marcus & Millichap and director of its National Multi Housing Group. He says the market is divided into two camps: those who believe in the inherent long-term investment value of apartments, and those who believe in the short-term transactional value. He noted that he ranks of the former are rising while the other group is decreasing. “The market is clearly improving,” said Thompson. “Two years ago, when asked who was going to blink first, I said buyers would -- and that’s happened. Sellers have stood their ground and deal velocity has decreased, but prices have increased.” This trend has been further supported by the debt environment, he added. And buyers’ strategies have shifted, too. More buyers believe the market is at the bottom and are now seeking solid investments, while fewer are looking for deep discounts. Anecdotally, Thompson said he knows of a few groups who have shifted their investment tactics from distressed plays to other avenues. Of course, the higher-quality product in prime markets is doing better, as investors bid those prices up. Yet class C product and smaller assets are having a harder time trading, and that’s where one can find deep discounts, he noted, adding that this trend will continue as special servicers deal will lower-quality product. The overall dollar volume of distressed transactions more than doubled since midyear 2009, coming in at over $2 billion at midyear 2010, while overall apartment sales volume went from $9.7 billion to $14 billion during the same period. The overall increase in distressed volume is not an indicator that the overall market is weakening,” said Thompson. “Distressed product still accounts for a small percentage of the market, and this is evidenced in cap rates.” After rising substantially from 2007, average cap rates have started trending down over the past 12 months. With the spread between caps and

10-year treasuries at 470 basis points -compared with 90 basis points in 2007 -some investors have decided that now is the time to buy. Public REITs, institutional investors and equity funds, which accounted for 13% of all apartment buyers last year, have tripled their activity since then to 36% of buyers. Meanwhile, private buyers went from having an 81% share to 60% at midyear.

“People are getting ready for the next bull run in multifamily, and that’s a good indication of what’s ahead ... ” - LINWOOD THOMPSON, SENIOR VICE PRESIDENT, MARCUS & MILLICHAP

“People are getting ready for the next bull run in multifamily, and that’s a good indication of what’s ahead,” said Thompson. The timing of that run, however, is up for debate as the lack of job growth continues to hamper a recovery. Pragmatic conservatism, or uncertainty, is holding companies back. “US businesses have the capacity to expand, but they just don’t have the will to do it.” Yet with the November elections around the corner, a change in the direction of policy, he said, could do a lot to impact demand and growth.

December | January 2011


December | January 2011


Las Vegas Metro Occupancy Trends November 2009 through October 2010 91%








December ‘09





89.94% 90.11% 90.04%



90.46% 89.89% 89.97%


October ‘10

OVERVIEW: The market seems to be stabilizing at approximately 10% physically vacant for 2010. So far, the year-to-date average is 10.12%. Historically, the fourth quarter is one of the softest points in the leasing calendar for apartments in Las Vegas. It will be very interesting to see if occupancy rates can maintain its current levels for the remainder of the year. Source: Spencer Ballif and Jeff Swinger of CB Richard Ellis (Las Vegas) (113,260 Apartments Surveyed in October)




Las Vegas Snap Shot

Source: Hubble Smith, Las Vegas Review Journal

APARTMENT MARKET UPDATE - 3rd QUARTER Apartment rents in the Las Vegas Valley continued to fall while occupancy rose slightly in the third quarter, business advisory firm Applied Analysis reported. Average asking rent at professionally managed apartment complexes fell 0.8 percent from the previous quarter to $760 a month, or about 84 cents a square foot, the research firm said. Rents have decreased 9.1 percent from $841 in third quarter of 2009.Elevated unemployment levels, particularly in construction and hospitality, create a competitive market for apartment owners seeking tenants in an environment of limited demand, Applied Analysis principal Brian Gordon said. Also, the inventory of homes for sale in Las Vegas swelled by 28.3 percent, or 3,500 more homes, during the quarter, which could spur some apartment renters to consider buying a home at depressed prices. Apartment property owners' ability to service debt obligations remains challenging, a condition that will likely persist beyond next year, Gordon said. Average occupancy nudged up to 91.9 percent during the quarter, compared with 90.7 percent in the previous quarter and 91.1 percent a year ago. It remains below historical norms of 93 percent for the past five years and 93.6 percent for the past 10 years. The slowdown in price declines for several quarters suggests that the apartment market may be reaching the proverbial bottom, Gordon said. Still, the local economy doesn't look the same as it did a few years ago when multifamily properties were changing hands at a premium price, he said. Online rental listing site showed average apartment rent in Las Vegas at $1,003 in the third quarter, compared with $995 in the previous quarter and $976 a year ago. Has the rental market turned the corner? "With Vegas, it's hard to say," said Jon Pastor, chief executive officer of Rentjungle. "Rents were up in the second quarter, then flat in the third, which is encouraging, but not as good as some other markets that were up both quarters. But also not as bad as some markets that continue to slide like Cleveland and Detroit." Multifamily housing specialist Spencer Ballif of CB Richard Ellis said his survey showed 10.12 percent vacancy for September and rents declining by $7 for the year to about $786 a month. "There's not going to be any stabilization or improvement in the market until we see steady job growth and I don't see that anytime soon," Ballif said. He said it's impossible to quantify the inventory of "shadow" home rentals, or single-family homes for rent. Nearly half of foreclosures are being purchased by cash investors, with some returned to the rental pool and others sitting empty for whatever reason, Ballif said. Some reports indicate that the huge drop in Las Vegas home prices has made it more affordable to buy than to rent. Las Vegas ranked No. 10 among the 50 largest U.S. cities in price-to-rent ratio comparing average list prices with average rents, according to The real estate website showed an average list price of $128,815 for Las Vegas in June, compared with an average rent of $983 a month, or a 10.92 price-to-rent ratio. Minneapolis was No. 1 with a 7.54 ratio and New York was last with a 32.59 ratio. Las Vegas led the nation for listing price reductions during the summer months. Trulia reported that 29 percent of homes currently for sale in Las Vegas have reduced their prices since they've been on the market, compared with only 10 percent in June. That means $127.7 million has been chopped off prices of homes now on the market. "In Vegas, homes do look quite affordable if you compare median home price as a multiple of median rent," Rentjungle's Pastor said. "(It's) much more affordable to buy in Vegas than buying in large cities in California, for example." Pastor said he's seeing some positive signs in the overall national rental market for the second straight quarter. Nationwide, one-bedroom apartments had the largest rent increase of 7 percent to $1,034 a month, while two-bedroom units rose 5 percent to $1,284 a month. Rentjungle analyzes more than 1 million apartment listings a month to make its calculations, tracking when new rentals come on the market and when rents for a particular property change.

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December | January 2011


December | January 2011

LOCALEFFECTS Rotten Economy Hurts Las Vegas’ Prospects for 2011

Some investors may be spurred by a buyer’s market caused by that decline and that may spur more capital, Roschelle said. The good news is that it’s not getting worse, he said.

Source: Las Vegas Sun

“The bottom line for Las Vegas is jobs and when you have casinos trying to take the cost out of the business to drive profitability, those jobs have been taken out and there’s only one place to go,” Roschelle said. “If you want to look at opportunities and where the prospects are only positive, Las Vegas would be a good place. The problem is how long would it take and are you wasting opportunities to deploy capital that has a higher return potential from a time perspective?”

The real estate outlook for Las Vegas in 2011 is dismal from a national perspective and deep-pocketed investors are likely to focus on other markets, according to a New York-based real estate analyst. Mitchell Roschelle, an executive with PricewaterhouseCoopers, said real estate investors look at jobs, and with Las Vegas’ unemployment rate at 15 percent, it will be a negative factor in attracting money to Southern Nevada to purchase and develop properties, he said.

EHB Remains Confident in Vegas’ Future Source:

The developers of one of Las Vegas’s few major commercial projects’ under construction during the recession is doubling down on Southern Nevada’s recovery.

The vacant site is on the south side of Alta Drive at Rampart Boulevard, across the street from Tivoli Village, a project by Israeli-based IBD Development Corp. and EHB Cos. Tivoli Village, slated to open in March, will have 225,000 square feet of retail and 145,000 square feet of office space in its first phase. Roschelle is among those who predict commercial foreclosures will increase for markets such as Las Vegas. He’s been credited for coining the term “amend and extend” to replace “pretend and extend” that banks used to keep from foreclosing on commercial properties over the past two years.

Las Vegas was ranked as one of the weakest markets for multifamily development and homebuilding, only besting Detroit. It also didn’t cast a favorable light on other commercial sectors.

Banks are reluctant to foreclosure on commercial properties, but they realize they have to deal with the low-performing loans rather than turn their heads again, he said.

“Las Vegas missed its bets, building too much just as the economy swooned,” the survey said. “Competition from casinos, popping up nationwide, also erodes market share.”

“The days were when a loan matured in 2008 and they couldn’t deal with it, so they just extended it for another two years. Now it’s maturing again in 2010 and they’re not going to close their eyes and


Lately, that has meant bringing in third parties for capital to reduce the outstanding debt, Roschelle said.

RA Southeast Land Co., an entity formed by the current owners and developers of Tivoli Village, acquired 23 acres adjacent to its mixed-use development.

“National and international investors we talk to look at Las Vegas as a market where there are problems,” Roschelle said. “There are job growth issues and since jobs are the engine for real estate investment, they’re not bullish on any market that has risk that jobs won’t be created in the near future. That’s the broad point of view of Las Vegas.” Roschelle appeared in Las Vegas on Nov. 10 to outline the emerging trends in real estate in 2011 as part of an annual presentation by the Nevada chapter of the Urban Land Institute. A report prepared by PricewaterhouseCoopers surveyed 600 people across the country who work in real estate as investors, developers and finance. In addition, 275 executives were also interviewed.

extend it to 2012. They’re going to have to do something.”

“I believe they are going to expand their retail and entertainment development across the street,” said Cathy Jones, president of Sun Commercial Real Estate, which represented the seller of the property, City National Bank. The development group paid $11.75 million or $501,280 an acre, Jones said. The property was valued at $1.2 million to $1.5 million an acre at the height of the market in 2006, she said. City National Bank foreclosed on the property owned by Triple Five Development in September 2009. It was supposed to be an extension of the retail development at Boca Park, she said. Tivoli officials weren’t available for comment.


Why Las Vegas Property Tax Assessments Will Exceed Market Value Unfortunate data lag skews valley’s values, could hurt apartment owners Source: National Real Estate Investor

During any period of changing real estate values, Nevada’s taxable property assessments tend to fall out of step with the current market. The tendency to reflect outdated property values doesn’t mean the staff of the assessor’s office isn’t keeping up with the latest newspaper headlines. Rather, it’s because assessors are required to follow a methodology that doesn’t reflect recent shifts in market value. In Nevada, the assessor is required to adhere to a valuation methodology that, in the current market, is biased toward a value that will exceed market value. To begin with, the sales data assessors use to establish pricing is simply outdated. Nevada tax law requires assessors to value the land and improvement components of an improved parcel separately. The land component is valued by comparing it to the sale of vacant land. The comparable transactions are drawn from sales that occurred six months to three years prior to the valuation date, a point in time when real estate was selling for higher prices than is the case today. In a market in which values are rising, the reliance on “old” sales data would tend to result in a taxable value that is below market value. In a declining market,


however, the reliance on old sales will tend to result in a taxable land value that exceeds market value. A different problem derives from assessors’ methodology for valuing the improvement component of a property. In Nevada, improvements are valued according to replacement cost, or what it would cost to build a duplicate asset today, less depreciation. Replacement cost is established from cost manuals published by Los Angeles-based Marshall & Swift, which monitors materials pricing for the commercial and residential real estate industries. Reliance on replacement cost may be relevant in a market that is not overbuilt. But in a market with excess inventory, the replacement cost of a building will not reflect economic obsolescence that makes the space less marketable to tenants, and therefore less valuable. The appraisers in the Clark County Assessor’s office currently are valuing properties for the tax year that begins on July 1, 2011 and runs to June 30, 2012. More likely than not, the methodology they are required to follow will result in taxable values that exceed market value. If that occurs, the assessor is required to reduce taxable value to market value. As a

practical matter, however, it is unlikely the reduction to market value will be made because the assessor’s office simply does not have the time or property-specific information on vacancy, rent and expenses to determine the market value of all commercial properties. That limitation puts the onus on the property owner. Taxpayers will receive a notice of the taxable value assigned to their property for tax year 2011-2012 in early December. Even if that taxable value is less than the value it was assigned in the preceding tax year, the bias in the methodology employed by the assessor is likely to have resulted in a taxable value that still exceeds market value. Owners must ask themselves what a snapshot of their property’s market value would be on January 1, 2011. If the market trends previously described continue, any reasonable level of analysis is likely to support a market value for most commercial properties that is less than the taxable value determined by the assessor. Consequently, owners of most commercial properties in Las Vegas, and apartment owners, will have good reason to appeal to the county board of equalization for an adjustment this year. The deadline for filing an appeal is January 18, 2011.

December | January 2011


December | January 2011

FUTUREFOCUS Multifamily Cloud Computing Options Expected to Proliferate Apartment IT executives continue to weigh cost models, investigate SaaS and private cloud opportunities Source: Multifamily Executive

While multifamily technology executives continue to struggle with the ambiguity in semantics when it comes to cloud computing, even die-hard holdouts are beginning to investigate the cost benefits of outsourcing primary IT functions to “the cloud.” Speakers at the 2010 NMHC Technology Conference noted that services currently being marketed as cloud computing might include Software-as-a-Service (SaaS), managed services, co-located data centers, and hosting services, as well as truly untethered, multi-tenant cloud applications. “Only you can evaluate your environment and determine the types of cloud services that will provide cost savings, flexibility, scalability, or some combination of those to your enterprise,” said Scott McCurdy, vice president of information technology for Dallas-based Pinnacle, an American Management Services Co. McCurdy noted his firm’s decision to enter into a cloud computing agreement with Carrollton, Texas-based RealPage early this year and said the process of relocating its systems to the RealPage data center is almost complete. “We should be fully in the cloud by the end of February,” he said. Firms that have made strategic investments in systems and hardware over the past decade continue to be leery of cloud computing options as they await the full ROI on their current data platforms. Still, systems maturities over the next several years will present opportunities for clouding application that could present a compelling value proposition to firms that


traditionally handle most system hosting and development functions in house. “Timing is everything when it comes to the cloud,” said Irvine, Calif.-based Western National Group vice president of information technology Ken Hodges. “We’re halfway through a big [IT] spend and don’t see a benefit moving everything to a cloud option right now.” Hodges said Western National is taking a hard look at Postini and eemail archiving as well as getting rid of its co-location and moving disaster recovery to a cloud computing platform, although other than Postini he did not identify any specific vendors the firm is evaluating.

“We’re really trying to determine what the next generation applications are for multifamily and what are the (cloud versus self-hosting) options for those,” said Denver-based Simpson Housing vice president and chief information officer Mike Casper, who likewise noted that the cost/benefit analysis doesn't currently pencil out for Simpson to go with a full cloud-computing platform. “We still have costs sunk into our data centers and wouldn’t currently realize a benefit from cloud.” Santa Barbara, Calif.-based Yardi Systems moved further into the cloud computing arena just prior to the NMHC event, unveiling its trademarked Cloud Services, a branding of the software firm's cloud offerings, which include hosting services, 24-hour client support, managed application updates, network security, and hardware and infrastructure in order to allow its clients to focus on principal business over IT admin. Yardi Cloud Services clients are hosted across 3,000 servers in nine data centers, including a dedicated business continuity and disaster recovery center in Phoenix. Data centers are PCI-audited and SAS 70 Type II certified.

“We are excited that the high standards our Yardi Cloud Services team sets for itself are paying off so consistently for our clients,” said Yardi vice president of IT Scott Wiener in an announcement. “In addition to our investment and property management systems, our clients can also rely on us to manage hundreds of interface feeds to banks and third-party companies as well.” The speakers also noted the cost savings and economies of scale upshot for cloud providers such as Yardi and RealPage, who can move closer to single-code source software instead of supporting several different versions of its software

and systems. While some attendees questioned the ability to deal with so-called “mystery release” non-announced updates to that code, panelists played down the impact to apartment firms who elect to embrace cloud computing. “Change management is difficult from a baseline,” Caspar said. “We would expect communication and processes to accompany updates. At the end of the day, it could happen. But it could happen internally as well.” Hodges notes that a “private cloud” option might be more intriguing to Western National as the firm evolves toward the cloud computing arena. Indeed, there could be opportunities to develop private, virtual data centers that allow firms to move software providers in and out of enterprise clouds instead of the other way around. “The right strategy for me isn’t to determine best-in-class SaaS,” Hodges says. “We’re much more interested in platform and infrastructure cloud opportunities. When will it happen? I don’t know, but I can’t wait.”


TECHTALK Social Media Entices, Polarizes Apartment Owners / Firms Source: Multifamily Executive

What do eight Internet posts on the price of meat in Florida have to do with apartment resident retention? A lot if you are Don Sanders, vice president of marketing and training for The Cornerstone Group, a Sunshine State multifamily owner/operator based in Hollywood, Fla. At the 2010 NMHC Technology Conference in Dallas, Sanders detailed how social networking on Cornerstone community web pages -- on anything from grocery specials to pool parties -- is paying off in resident retention, even if its not bringing boatloads of leads to the front door. “Social networking still isn’t really bringing in the new renters,” Sanders said, “but it is becoming a critical component of creating the sense of community that is necessary for renewals.”

Still, while most multifamily firms admit to at least dabbling in social media, polarization persists between apartment companies that have totally embraced social media as part of their marketing platform and those who remain skeptical of the true net worth of social networking to the bottom line. Apartment heavyweights on both sides of the issue pressed their cases with spirited, congenial debate across several panels that probed social networking's relative impact to the business of marketing and operating apartment communities. In the conference's opening session, Alexandria, Va.-based AvalonBay Communities' vice president of marketing Kevin Thompson and Greenbelt, Md.-based The Bozzuto Group's chief marketing officer Jamie Gorski were pitted against San Francisco-based BRE


Properties' senior vice president of sales and marketing Todd Katler and Englewood, Colo.-based Archstone's group vice president of strategic systems Donald Davidoff in a mock us-versus-them debate with an NFL theme. According to Davidoff, social media testing at Archstone has revealed bounce rates (the percentage of visitors who visit a website and then immediately leave without exploring it) above 60 percent from social driven web visits, compared to typical bounce rates of 20 percent to 30 percent. “That’s the difference in quality between traditional SEO- and ILS-driven media referrals and what we are seeing from social media sites,” Davidoff said.

Perhaps epitomizing the general industry thought trend, Davidoff said it is incumbent on all apartment firms to investigate the value of social media in an overall pyramid of investment dollars and spend accordingly. For Archstone, that value proposition has yet to arrive. “We have 95 percent occupancy with 70,000 units and 20 percent year-over-year growth in lead count,” Davidoff said. “There are lots of ways to drive results that don’t include social media outlets ... our numbers are proof of that.”

Echoing Sanders’ experience at the Cornerstone Group, Gorski countered that firms looking to social media to generate prospect leads are missing the larger value proposition of using sites like Facebook, Twitter, LinkedIn, and Foursquare. “Some of the main reasons you engage in social are not to generate leads,” Gorski said. “You do it to protect your brand, to extend your brand, to communicate with clients, to understand what they are saying about you, and to make improvements.”

“If growth is below 2.3 percent, it means the GDP is not growing fast enough to push the unemployment rate down,” Calanog agreed. “That doesn’t mean jobs are not being added; it just means the pace of job growth and the rate of new entrants into the job market will be a wash, keeping the unemployment rate stuck in the mid- to high-9 percents. The U.S. economy needs to grow at a rate above 2.4 percent before demand for labor increases at a rate that begins to push the unemployment rate down.”

All of the panelists agreed that apartment owners and firms need to make a concerted effort at online reputation management, particularly on and, which are typically first page links generated by search engines. Katler played the debate roll well, insinuating that BRE would invest in newspaper print ads before developing a social media platform and questioning the applicability and relevancy of fan- and friend-driven social media sites like Facebook to apartment marketing. Gorski and Thompson argued that social media is incremental to all other marketing efforts, and highlighted the role social media can play in communication, as well as advances being made in measuring social media ROI. “I will admit that social is more art than science, but there is social currency out there,” Thompson said. “There are measurable, quantifiable things, whether it's the number of followers, number of leads, number of fans, or number of (social media-driven) renewals.”

Record Occupancy CONTINUED FROM PAGE 1

According to Calanog, consensus forecasts peg early 2015 as the time when the employment sector will ultimately recover the 8.4 million jobs shed during the recession. Despite the slow job growth, multifamily is still expected to benefit from strong fundamentals and continue to dominate as a real estate investor sector of choice. “If the rate of job creation remains disappointing in 2011, it is likely that record breaking trends for apartment rentals may moderate,” Calanog said. “With a shortage of new projects coming online in 2011, rental apartments are expected to post healthy gains in occupancy and rent growth for at least the next five quarters.” The REIS forecast noted growth in effective rent increases versus asking rents, implying that rent specials have largely burned off. “Concession packages are no longer increasing and my in fact be tightening,” Calanog noted. “Concessions on average have gone from three months in early- to mid-2009 to just half- to one month off today.”

December | January 2011


December | January 2011

Access Las Vegas Wishes You A Safe Holiday Season & Prosperous 2011 Access Las Vegas and its parent company, Advanced Management Group, wish you and your families a safe holiday season and a prosperous New Year. We have enjoyed another successful year of developing this newsletter and hope our informational articles have helped benefit you and your property(s). We look forward to delivering the most up-to-date industry information in 2011 ... so Access Las Vegas, and leave the rest to us.

Access Las Vegas ensures accurate market information, industry articles and multi-family housing trends that are delivered with flawless precision. The multi-family housing industry is changing rapidly and we do not want owners or asset managers to fall behind. Financial success depends on staying ahead of changes. Access Las Vegas, helping you better understand our market in 2011 ...

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