ACCESS LASVEGAS APRIL | MAY 2008
YOUR ACCESS TO THE LAS VEGAS MULTI-FAMILY HOUSING MARKET
Real Estate Envy: Palms Place Opens To Luxury Condo Residents When the Palms Place originally offered their condo hotel suites for purchase to the public in 2004, they were snapped up by hotel regulars. Frustrated Palms patrons who were not among the lucky few to secure a unit drifted to the Hard Rock, the other hotel catering to the young and trendy, only to be later disappointed when that project was scrapped in a sale to the Morgan's Hotel Group.
will have eight separate treatment rooms that feature five, state-of-the-art European tanning beds, two sunless spray rooms and a custom bronzing airbrush room.
Now the Palms Place tower is finished and has finally opened the doors to its first luxury condo residents, including rapper Eminem, wrestler Hulk Hogan, and singer Jessica Simpson.
Guests of Palms Place will enjoy on-site dining, a private bar and lounge, resort concierge service and a business center as well as 24-hour hotel services including valet, bell, front desk, housekeeping and security. In addition, guests will have direct access to the Palms Casino Resort via the SkyTubeSM, an elevated, enclosed moving walkway that joins the two complexes.
Palms Place features 599 condominium-suites, from spacious studios to one-bedroom and two-bedrooms suites and spectacular penthouses. Amid lush landscaping and beautiful gardens, a world class, 50,000 square-foot pool and spa. The expansive spa will also be the exclusive Las Vegas location of LA’s famed tanning studio, Sunset Tan, as seen on the E! Network’s hit reality show. The tanning salon
A few over-leveraged purchasers are expected to be offering their Palms Place units for sale as they come to closing. There are currently about half a dozen units that are available with prices starting in the high $500’s. With the Las Vegas real estate market finally picking up momentum again in spite of the national housing bust, none of these units are projected to last long as the word spreads.
ACCESSLASVEGAS April | May 2008
Apartment Market Positioned to Benefit from Housing Downturn, Demographic Shifts NAI’s Hardest Hit Markets Still Have Strong Fundamentals Source: National Apartment Index (NAI) Overview By Linwood Thompson of Marcus & Millichap
Job growth, tighter mortgage underwriting and rising residential foreclosure activity are expected to generate adequate demand to offset competition from shadow rentals at the macro level the rest of 2008. Apartment development has remained in check, and only a moderate increase in completions is anticipated this year. Some previously hot housing markets, however, are facing a glut of for-rent condos and single-family homes. Local vacancy rates in these markets are headed upward, though a major correction is not expected.
Class A vacancy is now set to tick up to the national level due to re-conversions and competition from shadow-rental stock, while Class B/C vacancy is expected to fall slightly. Residential foreclosure sales in some markets could also bring home prices down to levels in reach of Class A renters. Fortunately, higher down payment and underwriting requirements will help to offset this trend.
“Nationally, effective rents are forecasted to rise by 3.6 percent as owners increase concessions to compete with shadow-rental stock.”
• There are just over 100,000 apartments slated for delivery in 2008, up from 84,000 units in 2007 but still low compared to the period between the late 1990s to 2001. The more cautious lending environment will help to prevent overbuilding.
- NATIONAL APARTMENT INDEX
In South Florida, for example, the majority of new condos are in high-rises. It is estimated that less than one-quarter of new stock could realistically compete with traditional apartments for renters, though the Class A market may encounter more competition as some luxury condo owners lease units at discounted rates to partially offset mortgage payments. Meanwhile, in high-growth Southwest markets, there are many converted condos available at competitive rents, but single-family properties present a minor threat to apartments. In most cases, single-family homes offered at affordable rents are in perimeter locations; given high gas prices, lengthy commutes will dissuade most in-town renters from moving. Upcoming demographic shifts will work in favor of apartments, as roughly 70 million echo boomers will make their way through college over the next decade. There are, however, some near-term trends worth watching, including an anticipated shift in performance by property class. In 2008, the Class B/C market is still well-positioned to outperform Class A for the first time in several years. From 2005 through early 2006, the Class A market posted above-average rent growth and the tightest vacancy registered since 2001, as the sector lost almost 200,000 units to conversions.
The following are highlights of the National Apartment Index (NAI) Report:
• Apartment vacancy is forecast to hold steady at 5.8 percent this year as a minor uptick in Class A vacancy is offset by a slight decline in the lower tiers of the market. • Rent Growth Moderating. Healthy occupancy will support asking rent growth of 4 percent this year, compared with 4.5 percent in 2007. • Effective rents are forecast to rise by 3.6 percent as owners increase concessions to compete with shadow-rental stock. • After rising 400 basis points from 2001 to 2005, the homeownership rate among the 25 and younger age cohort is declining. The timing of this trend could not be better for apartment owners, as echo boomers are entering their prime renting years. • Roughly 315,000 apartments were converted from 2003 to 2006, 10 percent of which recently returned to apartment inventory. Even after considering individual condos for lease, supply reductions remain a net positive for the market. Markets to Continue to Watch in 2008 In Marcus & Millichap’s long-awaited 2008 edition of the National Apartment Index (NAI), the report provides a snapshot analysis that ranks 43 apartment markets based on a series of 12-month forward looking supply and demand indicators. Markets are ranked based on their cumulative weighted-average scores for various indicators, including forecast
employment growth, vacancy, construction, housing affordability and rent growth. Taking into account both the predicted level and degree of change over the forecast period, the index is designed to indicate relative supply and demand conditions at the market level. It is also important to note that because the NAI is an ordinal index, differences in specific rankings should not be misinterpreted. For example, the top-ranked market is not necessarily twice as good as the second-ranked market, nor is it 20 times better than the 20th-ranked market. The impacts of the housing slowdown on the apartment market are expected to vary throughout different regions of the country the rest of 2008. The glut of for-sale inventory in Florida and some high-growth markets in the Southwest, like Las Vegas, will lead to competition from the shadow rental market. In other more expensive housing markets, such as the Bay Area and New York City, the shadow-rental market is less of a threat, and the slowdown in home sales, tightening of credit standards and rising foreclosures should provide some additional renter demand for apartments. Some of the hardest-hit housing markets rank in the top 10 of our index, apartment fundamentals are still generally strong in these markets, and for-sale housing remains out of reach for many residents.
In the 2008 NAI, San Francisco moved up seven places to take over the #1 position. San Francisco, already one of the tightest markets nationwide, is forecast to post the highest effective rent growth in the country and will also rank in the top three for vacancy improvement. Seattle moved up five places to the #2 spot, as above-average employment gains, particularly by high-tech firms, and significant increases in the renter population will fuel demand for apartments.
Last year’s leader, New York City, slipped to #3, despite ranking near the top for several metrics measured in the index; slowing employment growth and a mild uptick in vacancy caused the decline. Technology hiring is also supporting Silicon Valley apartments, and above-average effective rent growth and tightening vacancy moved San Jose up eight places in the index to the #4 spot. Oakland holds the #5 position in the 2008 NAI, down two places from last year. Oakland has one of the least affordable housing markets and a comparatively low vacancy rate. The reason for this year’s fall is due to a minor uptick in vacancy. Los Angeles moved up three positions in the index to the #6 spot. Despite housing-related layoffs, Los Angeles is expected to increase payrolls in 2008, and the vacancy rate will remain one of the tightest in the country. Improving economic conditions placed Las Vegas in the #7 spot, a three-position fall from last year. Orange County dropped six positions in this year’s ranking to #8, as fallout from the sub-prime collapse is slowing job growth, but the metro remains one of the strongest apartment markets nationwide. High scores in vacancy improvement and employment growth bumped Tucson up eight places in this year’s ranking to the #9 spot. San Diego fell five places to round out the top 10. Despite slowing job growth, San Diego ranks among the top markets for effective rent growth and metrowide vacancy levels. The most significant downward movers outside of the top 10 are the major Florida markets. These markets were on the forefront of the condo conversion craze and have lost a significant amount of ground due to high exposure to housing-related industries. Fort Lauderdale (#15), West Palm Beach (#24), Orlando (#27) and Tampa (#28) all dropped nine places in this year’s ranking. Miami (#20) also had considerable downward movement, falling seven positions. Similar to previous years, the lower tier of the index includes mostly slower-growing Midwestern markets, although many of these areas will improve in 2008. Kansas City (#34) will record the nation’s strongest vacancy improvement, while Indianapolis (#32), Cleveland (#38), Columbus (#39) and
Detroit (#43) are forecast to build on last year’s occupancy improvements with additional gains in 2008 as well. For a copy of Marcus & Millichap’s National Apartment Index Report and the complete NAI rankings, visit: www.MarcusMillichap.com.
2008 NAI Las Vegas Outlook: Employment Resurgence to Attract Investors Source: National Apartment Index (NAI)
Apartment fundamentals in Las Vegas are expected to stabilize this year, as forecasts call for slower construction and accelerating job growth. Volatility in the housing and mortgage markets hampered employment gains in 2007, but the metro’s tourism industry continues to thrive, supporting expansion in the leisure and hospitality sector. This trend should continue in 2008, as the weak dollar generates increased foreign travel into the United States, with Las Vegas being one of the country’s most popular destinations. The surplus of homes purchased by investors will force apartment owners to compete with shadow-rental stock; however, tighter residential lending standards and uncertainty in the housing market will encourage renters to delay home purchases, supporting demand. Apartment construction is forecast to decelerate, with projected deliveries in 2008 coming in well below the metro’s five-year average. North Las Vegas is expected to record some of the market’s healthiest performance in 2008, as rapid population growth in the area allows owners to fill vacant units and reduce concessions. Strong fundamentals and healthy
ACCESSLASVEGAS April | May 2008
prospects for long-term growth are supporting prices for local apartment assets. Cap rates are averaging in the high-5 percent to low-6 percent range; however, initial yields can vary significantly depending on asset quality. For example, investor demand for apartment properties is strongest for large Class A assets, which can trade at cap rates in the low-5 percent range, while rates in the lower tiers can reach 7 percent. Some Class C properties may offer value to investors, as many assets feature rents that are well below current market rates, allowing for upside through improved management. Investors seeking more stability may find opportunities in the Henderson area, where vacancy is among the lowest in the metro, the development pipeline is modest, and attractive long-term population forecasts should support future tenant demand for apartments.
builders are expected to deliver 1,500 apartments this year, down from approximately 2,500 units in 2007. ◆ Vacancy Forecast: Vacancy will likely edge slightly higher in 2008, due to some competition from shadow rentals. By year end, vacancy is expected to increase 30 basis points to 5.7 percent. ◆ Rent Forecast: This year, asking rents are forecast to rise 2.9 percent to $876 per month, while effective rents gain 2.7 percent to $836 per month. ◆ Investment Forecast: Risk-averse investors may want to look to the University submarket, which features a large student population that supports steady renter demand and a modest development pipeline, which keeps competition from new units in check.
LOCALEFFECTS Purchase Deadline Nears For 27 Acre Strip Sale One of the Last Large Parcels Could Have Lingering Effect on the Strip Source: GlobeSt.com
NAI Las Vegas Forecast ◆ 2008 NAI Rank: 7, down from #4 in 2007. Competition from the shadow-rental market will somewhat offset strong employment growth, moving Las Vegas down three spots in this year’s index. ◆ Employment Forecast: Job growth will accelerate this year, as local employers are expected to add 17,000 positions, a 1.8 percent increase. In 2007, weakness in the housing market limited expansion to 0.6 percent. ◆ Construction Forecast: Multi-family
Texas developer Christopher Milam and his Australian billionaire partner James Packer have been making monthly payments since September to maintain their option to acquire a 27-acre former water park on the Las Vegas Strip, according to a year-end report filed with the SEC last week by the seller, Archon Corp. The option must be exercised in the next 120 days. Located immediately south of the Sahara hotel-casino, the site is one of the last large available properties on the Strip that has not recently traded. Milam and Packer plan to develop a $5-billion resort anchored by Las Vegas Tower, a 1,063 foot-high tower that would be by far the tallest in the region, albeit some 800 feet shorter than originally designed due to its proximity to the airport.
If the “carry option” payments have continued into 2008 as expected, Milam and Packer have made $61.2 million in non-refundable payments to would-be seller Archon Corporation, including at least $16.2 million that won’t be applied to the $475-million purchase price, which was bumped up from $450 million last year following a delayed option payment. The duo is scheduled to make another $2.3-million payment this month, after which the monthly cost will rise to $2.9 million until it closes on the property. Milam and Packer must exercise the option prior to June 30 or lose everything they have invested. Neither Archon nor Milam could be reached for comment. Assuming they exercise the option in June and close in August, Milam and Packer will have made more than $78 million in payments on the option, approximately $33 million of which won’t be applied to the $475-million purchase price, taking the total cost of the property to approximately $508 million. Even after all the extra payments, it still appears to be a good deal. At $508 million, the purchase price would still be less than $20 million per acre. That’s well below the $34.7 million per acre Israeli billionaire Yitzhak Tshuva’s New York City-based Elad Properties paid for the 34.5-acre former New Frontier casino-resort site immediately north of Fashion Show Mall, across from Wynn Las Vegas. “Wet N’ Wild looks very good at that price,” says David Atwell, a long-time Strip property whose firm, Resort Properties of American, was involved in the New Frontier sale. “Prices have been going up consistently and our deal on the Frontier created a new threshold that has driven up every value in proximity.” Milam tied up the Wet ‘n Wild property in June 2006, the same month Packer invested $22.5 million to gain a 37.5% interest in the project. Tentative plans for the site call for a 5,000-room hotel-casino
that would be the tallest building in the Western hemisphere. Milam reportedly has retained Paul Steelman Group for the casino, RTKL for the retail component and Skidmore, Owings and Merrill for the hotel tower.
NOW: Las Vegas Economic Heartbeat Flat Source: Active Rain
Las Vegas has seen amazing economic growth in this decade. It has invited huge development projects and investments. Many of the economic factors contributing to the index have seen positive increases while others are flat or slightly lower. "Still, the six-month forecast remains flat, (with) no clear sign of an overall recession in the data, despite the veil of pessimism coming from the media," economist Keith Schwer said. It's amazing the economy has remained as resilient as it is in light of the recent softening of the real estate market in the valley. If the Las Vegas valley continues strong and the large projects are completed, there will be considerable growth in many industries as real estate recuperates. Many experts and analysts who know the valley suggest commercial projects will taper off some. Las Vegas commercial real estate has been hot because previous residential growth outran the important commercial infrastructure.
Las Vegas real estate agents are anxious to see what happens over the next year or so. Some believe another small boom will occur due to housing needed to support the jobs to be filled by some of these large-scale development projects. Some estimate jobs requiring 60,000 -100,000 residents will need to be filled. 60,000 is more people than there are existing residences including rentals and listed homes. Some expect even more positions through 2009 which will shorten supply further and increase demand. The next year should be flat in southern Nevada economy and housing. However, future years could see considerable growth.
ECONOMICBEAT Reports Suggest U.S. Economy Weakening More Weaknesses Showing Up in Higher Layoffs and Weaker Hiring Numbers Source: New York Times
A recent rise in jobless claims and a drop in a key forecasting gauge provided the latest evidence that the U.S. economy is faltering and may be slipping into recession. The Conference Board said on March 20, 2008 that its index of leading economic indicators fell in February for the fifth consecutive month. The index, which is designed to forecast where the nation's economy is headed in the next three to six months, dipped 0.3 percent to 135.0 in February after slumping 0.4 percent the month before. In Washington, meanwhile, the Labor Department said that applications for unemployment benefits totaled 378,000 the week of March 17 to March 21, 2008. That was an increase of 22,000 from the previous week and the highest level in nearly two months. The four-week average for new claims rose to 365,250, which was the highest
level since a flood of claims caused by the 2005 Gulf Coast hurricanes. Ken Goldstein, labor economist at the Conference Board, said in a statement accompanying the leading indicators report that economic signals ''are flashing yellow.'' He said the numbers indicate ''the economy may be grinding to a halt'' and that ''a small contraction in economic activity cannot be ruled out.'' The economy has been hard hit by rising gas prices, falling home prices and tightening credit markets, which have forced consumers and businesses to cut spending. As a result, the U.S. economy may have stopped growing in the current quarter and could continue faltering in the second quarter. Pessimism about short-term U.S. economic prospects was voiced by the Organization for Economic Cooperation and Development, which on Thursday downgraded its growth forecasts for the United States, the euro zone and Japan. Like the OECD, most experts expect any downturn to be relatively mild and probably short-lived. That's because the Federal Reserve in recent months has aggressively lowered interest rates and made more funds available to banks and brokerages. And the Bush administration has been moving on several fronts to boost the economy, including the promise of tax rebates starting in the summer. Scott Brown, chief economist with Raymond James & Associates in St. Petersburg, Florida, predicts that U.S. economic growth could be ''close to zero, maybe negative'' in the first half of the year but likely improve in the second half. ''It will take some time before the Fed rate cuts since January have an effect on the economy,'' Brown said. And the rebates and other fiscal stimulus are likely to kick in to boost spending this summer, he added. The economic weakness already is showing up in higher layoffs and weaker hiring numbers. The Labor Department's report said the total number of payroll jobs fell by 63,000 in February, an even bigger decline that the drop of 22,000 jobs in January, which had been the first monthly decline since mid-2003.
ACCESSLASVEGAS April | May 2008
Surviving The Downturn With Confidence Gekakis Building Apartments Despite Tough Economic Times Source: Las Vegas Business Press
The stock market is losing ground, gasoline prices are driving up inflation and the sub-prime mortgage crisis is squeezing consumer credit like a boa constrictor. The economic picture isn't pretty and Wall Street bears are saying it's going to get uglier. Many observers seem convinced that a recession is imminent if it's not already here. George Gekakis has survived tough economic times in the past and he's confident he'll weather the next storm. The general contractor and developer came to Las Vegas 20 years ago from Louisiana, where the economy had tanked after the Organization of Petroleum Exporting Countries slashed oil prices to $10 a barrel, crushing oil and gas producers in Oklahoma, Texas and Louisiana.
INVESTORUPDATE Gekakis is building the 238-unit, $30 million Sonoma Palms affordable senior apartments at 3050 North Jones Boulevard during the worst housing downturn in Las Vegas history, at a time when a glut of rental homes has cannibalized apartment dwellers and pushed apartment vacancy rates to 8 percent. "That's what's hurting multifamily," he said. "They can get a home with a $3,000 mortgage and they can rent it for $1,000, maybe $1,200. But it's going to change. In three years, we're going to have 100,000 jobs." Rather than run from the market, now is a good time to embrace it, Gekakis said. Land prices have peaked and even backed off a little, so major builders such as Ovation and Trammell Crow are "jumping in line right now getting things ready," he said. It takes about three years to go through planning and design for multi-family development, Gekakis said. Rents won't drop over that period, he predicted.
Great News: The Plaza Las Vegas Moving Forward Source: Las Vegas Sun
Plaza Las Vegas developer Miki Naftali of El Ad Group has denied a report in the Israeli publication Yediot Ahronot that the $6 billion Strip resort has been put on hold because of the credit crisis. “We are forging ahead as planned” on the Plaza,
Naftali said in a statement. The Clark County Commission today approved permits for the Plaza, which submitted plans for seven high-rise towers including 4,100 hotel rooms, 2,600 condominium units, a 175,900 square-foot casino, 134,500 square feet of restaurant space, 347,887 square feet of retail, 539,607 square feet of convention space, a 50,000 square-foot health club, a 1,500-seat theater and 227,038 square feet of rooftop space for pools and other amenities. Neither Naftali’s statement nor today’s commission action directly addresses the question of financing, which remains an issue for the Plaza and other developers needing to raise billions of dollars to complete their projects amid the worst financial markets in more than a decade. Banks aren’t lending to new projects because they are burdened with loans that are losing value and can’t be resold. “In our opinion, it will be very difficult for new gaming development projects throughout the country to obtain financing in the near term unless project sponsors are willing to significantly increase their equity contributions,” bond analyst Dennis Farrell of Wachovia Capital Markets said in a research note today. This means that the Plaza Las Vegas folks could be hoping for the market to rebound before signing any financial agreements. Or they will have to put in more of their own money, which isn’t what they did in New York City. The redevelopment of the original Fifth Avenue hotel was highly leveraged. In other words, the days of putting up 10 percent equity instead of, say, 50 percent – as Steve Wynn did to build Wynn Las Vegas a few years ago – are over, as are the days of using land as equity to finance a major project. Land, after all, is only worth what a developer is able to build on it. And Wall Street banks, like mortgage lenders struggling to swallow their losses, want to see cash.
Alliance Residential Close To Breaking Ground Source: GlobeSt.com
Alliance Residential Company says it is close to breaking ground for a ground-up apartment development in North Las Vegas. The Phoenix-based national apartment developer with 3,000 units here says the first phase of a 312-unit project at the corner of Craig Road and Lamb Boulevard will be ready for occupancy in January 2009. Alliance’s garden-style apartment development is being called Broadstone Sonata. Planned amenities include: a resort-style pool and spa; several “tot lots”; a sports field; circuit training exercise trails with multiple fitness stations; a multimedia athletic club with free weights and extensive cardio equipment; a clubhouse with demonstration cooking kitchen; and a multi-media cyber cafe with plasma TVs and Wi-Fi Internet access.
Las Vegas Metro Occupancy March 2007 through February 2008 94% 92.85%
Source: CB Richard Ellis (98,126 Apartment Units Surveyed in February 2008)
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ACCESSLASVEGAS April | May 2008
Las Vegas Snap Shot KEY INDICATORS
3Q 2007 RESULTS
Source: Red Capital Group
YEAR OVER YEAR CHANGE REMAINDER OF 2008 OUTLOOK
STABLE / DECREASING
Note: Red Capital Groupsâ€™ 4Q 2007 Results and remainder of 2008 Outlook unavailable at the time of this newsletter publishing.
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
Emerald Suites Las Vegas Boulevard (396)
The Bentley Group / 702.855.0440
Portofino Villas (280)
The Bentley Group / 702.855.0440
Palm Village (156)
Hendricks & Partners / 702.866.6333
Emerald Suites Cameron (96)
The Bentley Group / 702.855.0440
Lake Mead Apartments (64)
Great West Equities, Inc. / 702.493.3451
NAI Horizon / 702.938.6561
Access Recent Transactions COMMUNITY (UNITS) Siegel Suites Twain II (228)
PER UNIT PRICE
March 13, 2008
The Siegel Group
Rancho Destino (184) Martinique Bay (256)
February 6, 2008
Colony Realty Partners
December 18, 2007
Monterey Villas (80)
December 17, 2007
Walt A. Walters
Crossing at Green Valley (384)
December 14, 2007
Summer Winds (352)
November 30, 2007
Wen Shan Chang
San Croix (352)
October 31, 2007
JVP Investment, Inc.
For additional information and / or broker information on Access Investment Offerings and / or Access Recent Transactions contact Bret Holmes at 702.401.4674.
Las Vegas Multi-Family Rent Growth Slows Considerably Source: Las Vegas Business Press
Southern Nevada's apartment market continues to be impacted by the for-sale housing market as well as an expected employment growth slowdown, reports Applied Analysis, a Las Vegas-based economic research firm. Las Vegas Valley employment grew only 1.1 percent at the close of 2007, which is well below its average. Although office using employment was up 2.1 percent from the previous year, construction related industries fell 4.1 percent due to a slowdown in the housing market. Local area apartments, as a result, reported a 92.3 percent vacancy rate at the end of December, which is 3.1 percent less than a year ago. Six consecutive quarters of decreasing occupancies have taken place, Applied Analysis reports. Rents, meanwhile, also hit a plateau in the fourth quarter. Average asking rents were $883 per unit, which is the same as the previous quarter. Only a 2.8 percent rent growth in 2007 occurred as opposed to 4.6 percent the previous year. But a market upswing could soon be around the corner.
Lightning Strikes Again, Another Big Rate Cut Long Term Implications Should Worry Multi-Family Owners Source: Multi-Housing News
"While current conditions remain somewhat challenging, the apartment sector is anticipated to experience a supply shortage during the next several years," said Brian Gordon, principal of Applied Analysis. "More dramatic demand for housing is possible starting in 2010. While it is likely that developers will respond to a potential supply shortage, we anticipate apartment demand to easily exceed the performance of the past several years."
The late-March fed rate cut could drive up lending in the multi-family market in the short term, but could push it down over the long haul due to an increase in the cost of borrowing.
As such, the multi-family investment market outlook still looks strong. The Hoffman Family Living Trust, for example, recently bought the 32-unit, 12-year-old Merlayne Villas at 409 East Merlayne Drive in Henderson, for $2.8 million, or $88,281 per unit. It equals a sale price of nearly $103 per square foot.
“The rate cut will most likely not impact non-recourse permanent financing for multi-family,” Martin Kamm, managing director of Real Estate Investment Banking for Jones Lang LaSalle, tells MHN. “This is because approximately 70 to 80 percent of it is provided by Fannie and Freddie in the current market.
"Apartment sales have slowed substantially this year," said Carl Sims, an apartment specialist with Hendricks & Partners. "But we expect the long term multifamily outlook to be good with 46,000 hotel rooms coming online by 2011 and creating 120,000 jobs, which bodes well for the market."
“In the short term, the fed rate cut increases liquidity by reducing the cost of funds for lenders. In the mid-term, with capital markets near their bottom and lenders finding relative value in making direct loans, liquidity to borrowers will begin to increase more substantially,” says Kamm.
For the second time this year, the Federal Reserve has cut the federal funds rate by three-quarters of a percentage point. This brings the rate down to 2.25 percent. As recently as last September, the rate was 5.25 percent.
At the property level, other than in Las Vegas and south Florida, multifamily rental demand is beginning to influence more investors to view the sector as attractive. “Capital market anxiety has made it more difficult for individuals to get loans for buying homes. These people are driven toward rental options as their only viable alternative. This increase in demand for rentals will drive up occupancy and rents, making the sector more attractive to lenders,” according to Kamm. However, on the negative side, “if increasing liquidity in the market drives inflationary expectations upward, there may be a resulting increase in the long-term cost of borrowing,” Kamm concludes.
ACCESSLASVEGAS April | May 2008
Luxury High-Rise Sale Prices Remain Very Strong Source: Las Vegas Business Press
Southern Nevada's luxury high-rise condo market recorded average sale prices of nearly $792 per square foot in January, reports Restrepo Consulting Group, a Las Vegas-based real estate research firm. MGM Mirage's $7.8 billion CityCenter had the valley's highest-priced condos at $1,492 per square foot. The 18.6 million square foot, mixed-use development is under construction on the Strip between Monte Carlo and Bellagio. A single-family home, by comparison, sells for around $180 per square foot or 88 percent less than a CityCenter high-rise residence. "The resort corridor has the heaviest concentration of luxury condos, accounting for 62.5 percent of the market, although the suburban areas of the valley have shown increased development activity," Restrepo Consulting Group principal John Restrepo said. "Approximately 47.5 percent of the suburban luxury condos are mid-rises, which are more compatible with the valley's lifestyle and income level. Land prices in the resort corridor remain high, and we are seeing a growing interest in suburban locations because of softening property prices." There were 97 luxury condo projects in January, totaling 62,293 units in the Las Vegas Valley, with 21.6 percent of those developments having been canceled or suspended. There were 39 projects, combining for 4,341 units, actively selling in the suburbs, with another 5,982 units proposed for future development. The suburbs now account for 20.1 percent of the valley's total luxury condo market. The resort corridor, however, still commands the lion's share of activity with such projects as the $2.9 billion Fontainebleau at Las Vegas Boulevard and Riviera Avenue, which has 1,000 condo hotel units. There's also the $3 billion Cosmopolitan at Harmon Avenue and Las Vegas Boulevard that contains 2,998-room condo, hotel and condo-hotel units. "There were 2,156 completed and 8,506 actively selling condo-hotel units at the
beginning of 2008," Restrepo said. "There were also 3,000 proposed units and 1,625 canceled and suspended condo-hotel units as of January."
Burger Continues Local Buying Spree Copper Hills at Whitney Ranch is the Latest Venture Source: GlobeSt.com
Valley Residential Properties, led by Marty Burger of New York City-based Artisan Real Estate Ventures, has acquired Copper Hills at Whitney Ranch apartment complex in Henderson. The 272-unit property at 981 Whitney Ranch Drive was divided into individual condominium units by the seller but will continue to be operated as an apartment complex by Valley Residential Properties, which acquired the asset via VRP Copper Hills LLC. Copper Hills is Valley Residential’s first Vegas-area apartment acquisition since early 2007, when it acquired 1,032 apartment units in four metro-area garden-style apartment complexes for approximately $120 million. The properties were Meadow Ridge, a 232-unit property located near the intersection of Tropicana Avenue and Decatur Boulevard; Bayshore Club, a 144-unit complex a few blocks from Meadow Ridge; Spanish Oaks, a 216-unit asset located on South Valley View Boulevard, north of West Sahara Avenue; and Summerhill Villas, a 440-unit property on the eastern border of Summerlin at 2150 North Tenaya. Spence Ballif and Jeff Swinger of CB Richard Ellis Las Vegas had the disposition assignment for Copper Hills. The seller was an entity of Steven Hartunian. Ballif tells GlobeSt.com that apartment complexes mapped for condos in the Henderson market are pretty hard to find. The cap rate--based on the trailing 90 days and pro forma expenses that have been adjusted for tax consequences--was 5.35%. “Properties are still trading at low cap rates but volume is down” because of the credit markets, he says. Average apartment occupancy in the region, which has been falling for the
past year, was 92.3% at the end of 2007, according to Applied Analysis, a locally based business research and advisory firm. At the end of 2006, average occupancy was 95.4%. That having been said, the apartment sector is anticipated to experience a supply shortage during the next several years as new resort development brings tens of thousands of new workers into the region, according to Applied Analysis principal Brian Gordon. “While it is likely that developers will respond to a potential supply shortage, we anticipate apartment demand to easily exceed the performance of the past several years,” he said. Marty Burger is a former executive of Related Las Vegas. Burger launched Artisan Real Estate Ventures and Valley Residential Properties in 2006.
More Flexibility: Siegel Suites Adds Another Property Source: GlobeSt.com
The Siegel Group Nevada Incorporated, a commercial real estate and business development company is adding another property to its Siegel Suites chain of “flexible stay” apartment properties in the Las Vegas Valley. The company paid $14.5 million for the Mark Twain Apartments, a 228-unit complex built in the 1980’s on 4.3 acres at 955 East Twain Avenue, near the University of Nevada-Las Vegas. “This newest acquisition is centrally located between two of our properties and these economies of scale will reduce our operational costs while further strengthening our presence in the area,” says Sasco Properties EVP Judith Perez. Siegel executive Michael Crandall tells GlobeSt.com that Siegel’s property management division, Sasco Properties, will immediately begin a “substantial” renovation program to correct “years of deferred maintenance,” thereby bringing the property up to the standard of its Siegel Suites brand. The property will be renamed Siegel Suites Twain II and, like all Siegel Suites properties, will provide larger-than-average residential accommodations without the commitment of a long-term lease agreement.
Customer Service 101: Reach Out & Renew Your Residents Phase 4 of a 5 Phase Series for Leasing Consultants and Managers
Phase Four: Letter Contact (Begin Renewal Attack) Ninety days before the resident’s renewal date, print a formal invitation and leave it on the door with a flower. This is the first reminder of his lease renewal, so be creative -- use your marketing genius! “We would like to extend an invitation for your to reserve another year in your apartment.” Leave a gift in the apartment, such as a Teddy Bear, with a note that says. “We
ista North America Releases istaLink™, Making Utility Management Easier ista North America has announced the release of istaLink™, an easy-to-use utility management portal for onsite staff, office and corporate users, enabling resident billing, reporting and Utility Expense Management™. istaLink makes it easy for multi-family owners and operators to manage, analyze, and react to utility costs. With water and gas costs projected to hit all-time highs this year, it is more important than ever for the multi-family industry to better manage utility costs and track trends across portfolios. Conservation tactics are important, but they are not the only way to take control of utility costs. istaLink is an innovative way to manage utilities more effectively. Daily tasks performed through istaLink such as resident final bills, move-ins and move-outs are achieved using process
can’t bear to lose you,” or “You’re worth a mint to us” (with a mint candy attached). Your goal with this contact is to make an appointment for the renewal. Some managers take renewing residents out to lunch to sign a renewal. To replace
a resident in today’s market can cost as over $2000. Compare that figure to a $15 lunch at Applebee’s. It is worth it! Be flexible with the time and place, be creative with your invitation, and be bold with your rent increase!
wizards which guide users through each step. Corporate users can perform trending and utility expense management analyses offered by powerful reporting functions. Custom portfolio hierarchies allow users to access multiple properties within the portfolio and maneuver through the levels and reports with a click of the mouse. istaLink features rent and utility billing and UEM™ data and reports, intuitive web-navigation and transaction
procedures, flexible report generation, and hierarchical structuring of data access to reflect client’s organization.
About ista North America, ista is the first and the world's leading company in the metering, billing and management of energy, water and ancillary costs. ista North America serves Multi-family, Commercial, and Utility Clients with services that cover the entire process chain – from delivery and installation of equipment to meter-reading and the billing and management of utility and ancillary costs. The company can be found online at www.ista-na.com. At ista North America, people make the difference. Their team of highly knowledgeable and dedicated professionals work with Clients to provide clearly superior resident utility expense management solutions. By understanding their Client’s needs, they are able to deliver the highest value solution and drive utility costs to bottom line profits. The future is now, focus on it...
ACCESSLASVEGAS April | May 2008
Advanced Management Group Offers Top Notch Service Through Accountability 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, offers top notch service through accountability. With Advanced Management Group, benchmarks are established, goals are set and managers are held accountable for maximizing their resources to achieve better results. Problems are identified, resources are deployed where they are needed most, and new strategies are monitored to ensure success. Our business model and your property(s) depend on our expertise and we deliver. To find out more information on how to get your property involved in our service through accountability model, e-mail Advanced Management Group at email@example.com or contact Bret Holmes at 702.699.9261. This is a FREE consultation and service analysis. Call us today!!! 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.
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