Low Costs Per Unit Give Way to Opportunities in Las Vegas
- Dec 23, 2010
Las Vegas—The Las Vegas economy is slowing working its way back up, at least according to Michael Crandall, director of business affairs at The Siegel Group.
“It’s definitely not skyrocketing up, but we believe we’ve definitely seen the worst out here,” Crandall tells MHN. “We’re confident it will [come] back; Las Vegas got hit harder than most other places in the country, but it’s going to come back harder than most other places in the country, too.”
Vacancy dropped 70 bps, to 11.1 percent, during the second quarter, according to Marcus & Millichap’s Third-Quarter 2010 Apartment Outlook.
Much of the vacancy increase was due to the loss of construction jobs, Crandall points out. Construction-related jobs continue to be down 22.8 percent year-over-year, according to the Department of Labor.
Crandall also notes that while occupancy is starting to climb back up, concessions throughout the metro remain prominent.
Asking rents and effective rents declined 3.6 percent and 4.4 percent, respectively, this year, according to Marcus & Millichap’s report. Class A asking rents, meanwhile, fell 2.9 percent per month year-over-year, while rents for lower-tier apartments dropped 5 percent.
The Siegel Group recently purchased Charlestonwood Apartments, a 232-unit community in Las Vegas, for $3.6 million. Originally built in the 1980s, the property was foreclosed upon over 15 months ago and suffers from deferred maintenance and occupancy issues; it is currently 65 percent occupied. The Siegel Group plans to renovate the property and reposition it to capitalize on and better serve the needs of Las Vegas’ Hispanic community. The acquisition represents the company’s lowest cost per unit purchase in Las Vegas.
Marcus & Millichap reports median prices down 40 percent from the third quarter of 2009, to $37,800 per unit, with cap rates averaging in the mid- to high-8 percent range.
“We’re taking advantage of what’s going on, and what’s going on is a lot of opportunities,” Crandall says. “If you’re able to operate properties and not just speculate on them, we believe now is a great time to be in Las Vegas. I’m seeing more and more out-of-towners coming and looking for the opportunities, but if you’re going to sit there and speculate and try to buy something because you think it’s a good price, you could run into problems.”
As for the future, Crandall believes downtown Las Vegas is “up-and-coming.” Forest City is developing a new City Hall, which is slated to include 1.3 million square feet of office and retail space and is expected to bring thousands of new jobs to the area. And Zappos recently announced that it is moving its corporate headquarters to the old City Hall in 2012.
“I think the biggest factor is the impression that the press puts in people’s minds,” says Crandall. “People think Vegas is drowning; it’s not true. … Rates are down; people are spending less, but that’s the reality of most places in the world.”