Las Vegas is one of the nation’s most beguiling cases. The market sustained massive damage inflicted to its local economy, heavily relying on the pandemic-battered leisure and hospitality sector.
Yet, its rental market posted remarkable performance. Rents rose considerably since the onset of the pandemic, as did the occupancy rate, fueled by a strong influx of residents relocating from higher-cost Western markets looking for more affordable options that are not too far away.
The investment scene has not shown the same strength though. Volatility kept investors cautious and deal velocity in 2020 plummeted, stopping at just above $1 billion, less than a third of 2019’s total volume.
During the first quarter of 2021, investor interest turned to value-add opportunities, and one such investor is Next Wave Investors, a Southern California-based private equity investment firm with a focus on value-add multifamily investments. Multi-Housing News reached out to David Sloan, one of the firm’s principals, to discuss Las Vegas’ multifamily landscape and the market’s overall performance since the outbreak of the health crisis.
You’ve acquired the 216-unit Spanish Oaks property this February. Was the decision to expand operations in the metro part of the plan before COVID-19, or did the health crisis inspire such a tactic?
Sloan: Las Vegas was our first investment market and we have been investing there since 2014. We have strong conviction in the city’s growth and rental performance, so we are continuously looking for opportunities in the market.
When COVID-19 hit, it did create some uncertainty for the short term, since the market is hugely dependent on the hospitality industry. However, as owners in the region, we were able to gather some deeper insights into property performance a bit earlier than some of our peers.
By July, we were able to see the resilience of the local economy and that our investments in Las Vegas continued to perform well. Because of our strong pulse on the market, this allowed us to restart our acquisitions process relatively quickly.
What’s your opinion on Las Vegas’ overall performance over the past 15 months?
Sloan: Las Vegas has performed much better than we expected. We were obviously concerned when the media reported that the unemployment rate was up to 33 percent in April 2020, but the majority of our residents continued to pay rent, so we did not experience a significant negative impact on our portfolio. Overall, demand for multifamily housing remained high across the Las Vegas market and multifamily properties continued to perform well.
Las Vegas has been consistently among the best performers in rent growth. How has the pandemic affected rent collection at Spanish Oaks since April 2020?
Sloan: We are still seeing some delinquency, specifically of roughly 5 percent to 7 percent delinquency per month, which is a bit high. That said, we anticipate that we will see this number go down as the economy continues to reopen and more people are vaccinated.
Additionally, as a result of the growing demand for apartments in the region, vacancy has remained much lower than projected, so asking rents are higher than originally projected, as well. Therefore, total revenue collection at the property is roughly on par with our expectations.
Why this property and what are your plans for it?
Sloan: This property was closely aligned with our strategy and fits well within our portfolio in the region. We were able to acquire the asset at what we believe is an attractive price from both a price-per-unit, as well as an income/cap rate perspective.
We were also attracted to the property based on its location. It has easy access to the Las Vegas Strip and other major employment centers. Spanish Oaks also has great floorplans but was really in need of a facelift. We were confident that our value-add approach would be effective and allow us to truly create value and increase NOI.
Are you planning for any additional investments in Las Vegas this year?
Sloan: We are currently under contract on one other acquisition. We would like to acquire more this year, but the competition is fierce. The word is out that the Las Vegas economy is back and the low-tax, business-friendly market is a huge draw for West Coast refugees.
We do our best to maintain low overhead with our platform so there is no pressure to make acquisitions just to keep the lights on. We are definitely bullish in the market and are actively looking for more deals, but we will only make a purchase when we feel the pricing makes sense.
What attributes make Las Vegas a “relocation heaven”?
Sloan: Las Vegas is one of the fastest-growing cities in the country due to its ability to draw residents from other states. People love that it’s an affordable city, where they can obtain affordable housing even if they work in a lower wage position or industry. It also has no income tax, which has drawn business owners and entrepreneurs from high-tax West Coast states.
Lastly, there are truly endless recreational opportunities, with amazing entertainment and dining from the Strip, numerous golf courses, nearby mountains and Lake Mead. And don’t forget the Golden Knights and the Raiders!
Which areas are the most sought-after in the metro and why?
Sloan: As a rapidly growing city, Las Vegas is continuously building new homes. The larger master-planned communities, such as Summerlin or in Henderson, attract many of the highest-income residents.
However, others prefer a more urban lifestyle and want to be downtown, which is developing a live-work-play community that is walkable. There are also many other neighborhoods that offer closer access to employment centers and lower-cost housing, so there really are options for everyone.
What have you found most surprising about Las Vegas since you made your first investment here?
Sloan: I think the biggest surprise for us has been the incredible pace of appreciation. The first deals we acquired, only seven years ago, were purchased at prices of about $30,000 per unit. These same assets now trade for prices substantially above $100,000 per door. We wish we knew then how fast those deals would appreciate—we might never have sold!
How has the pandemic changed investor interest? Which property types are popular investment options these days?
Sloan: There was a period from March to October when it was a really hard sell for investors to look at a deal in Las Vegas. This was simply based on a lot of the uncertainty created by the pandemic. As some of that uncertainty alleviates and reopenings continue, investors are back in a big way and each listing feels like a frenzy.
Las Vegas is really a market that is made up of predominantly garden-style suburban apartments, with some amazing resort-style amenities. We expect those investment options to remain popular for the foreseeable future.
What are your expectations for the Las Vegas multifamily industry this year?
Sloan: I expect the market will remain strong for the remainder of this year. Las Vegas is back. All of the resorts are fully open, and the massive Resorts World development finally opened in June. It feels like the city is firing on all cylinders and we expect the investment market to be really strong.