Las Vegas Business Press :: News : Allure's Tower Two now in question

Allure's Tower Two now in question

Falling high-rise demand and finance problems may kill second structure

BY TONY ILLIA

Allure Las Vegas, despite the odds, is now nearing completion ... sort of. The 41-story, 428-unit high-rise on Sahara Avenue, just west of the Strip, is expected to open in September. Yet market demand has plunged, due to more available inventory than sales, reports Applied Analysis, a Las Vegas-based business advisory firm.

A total of 98,432 condominium units were built, planned or underway in the fourth quarter, yet only 4 percent had actually been completed. Allure was among the survivors. The $150 million, glass skyscraper's posh residences are 92 percent sold out, with starting sale prices in the mid $500,000s.

"We've seen a positive uptick in activity this year," said Bea Godwin, Allure's vice president of sales and marketing. "We had a launch party for Tower Two last year, but that was during the market frenzy and things have changed since then."

Courtesy The Fifield Cos.

Courtesy Lester/Loosbrock Public Relations
Although the 41-story, 428-unit Allure Las Vegas is nearly sold out, a planned second tower now remains in question.

BACK TO THE DRAWING BOARD

Things have also changed for Allure's second tower. Plans originally called for an adjacent 41-story, 472-unit high-rise to break ground last September and finish next year. That plan has since been scrapped.

Fifield acquired the 3.86-acre building site from Andrew Fonfa, president of ABF Realty and Investments. Fonfa was made a project partner in exchange for his parcel, which was valued at $18.5 million or $4.79 million per acre.

"Andy Fonfa, who was partner in Tower One, is now the majority partner in Tower Two," said Alan Schachtman, senior vice president of Chicago-based Fifield Cos., the project's lead developer. "Tower Two is under redesign and it's not clear to what extend that Fifield will be involved."

Attempts to reach Fonfa for comment were unsuccessful. Tower Two, however, could become a condo-hotel and/or contain a gaming component, Schachtman says.

But rising construction costs and a flood of proposed projects have made it increasingly difficult for Allure's sequel to take root. Construction estimates last year were $300 million to $400 million for another tower, which is as much as 265 percent costlier than the first building.

Fifield held a lavish launch party last year for Tower Two at Pure, the nightclub inside Caesars Palace. Reservations for the next building have since been transferred over to the first tower, says Godwin. As a result, there are no deposits to return.

"Few projects are likely to commence construction in the next 12 months," said Brian Gordon, principal of Applied Analysis. "Sources of market demand in 2007 will be much different than reported two years ago."

STRINGS ATTACHED

Building a second tower could be difficult due to changing market conditions as well as the project's complex initial financing arrangement. Fifield partnered with Los Angeles-based CB Richard Ellis Strategic Partners III, which provided start-up capital and a portion of construction financing in return for also becoming a project partner. CB Richard Ellis is not involved in the second tower. Fonfa holds the remaining parcel for Tower Two on its own.

The project's original development team had acquired roughly $129 million in construction financing from ULLICO (the Union Labor Life Insurance Co.), a $5 billion, union-owned holding company that provides insurance and financial services. The loan was approved after the project was 65 percent under hard contract.

That loan came with the condition that only union laborers build the project. Bovis Lend Lease, the general contractor, and M.J. Dean Construction, the concrete subcontractor, are both union builders.

But several high-profile project cancellations are likely to push the pre-sale hard money requirement much higher. Roughly 10,944 units were canceled in the fourth quarter and another 1,679 were suspended, Applied Analysis reports.

Allure also received aid in the form of tax increment financing from the City of Las Vegas' Redevelopment Agency, which offers incentives to projects located inside its 3,200-acre redevelopment area. Yet Allure's second tower still faces an uphill battle.

"We estimate that only 23 percent of all planned and proposed projects will complete construction by the end of 2010," said Gordon. "While the depth of the market over the long run appears fairly strong, the likelihood that the feverish sales volume reported in 2004 and early 2005 will be maintained is limited."

tonyillia@aol.com | 303-5699

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