Las Vegas Business Press :: News : Investors targeting local apartment properties

Investors targeting local apartment properties

Population growth expected to outstrip affordable multifamily build-out

BY TONY ILLIA

Multifamily builders are increasing their Southern Nevada activity this year amid healthy renter demand and an optimistic rental outlook fueled by rising unemployment and foreclosure rates, reports Marcus & Millichap Real Estate Investment Services. State unemployment climbed to 5.1 percent in September -- its highest figure in nearly four years -- yet more than 11,000 private sector jobs were also created since 2006.

"While the pace of job creation is well below recent norms, the private sector -- excluding the gaming and construction industries -- has produced jobs at a respectable 2.5-percent annual rate in the past 12 months," said Larry Mosley, director of Nevada's Department of Employment, Training and Rehabilitation. "That rate compares favorably to the state's overall 1.3 percent job growth during the same period."

Foreclosures, however, have skyrocketed with one filing per every 185 Nevada households in the third quarter, or nearly triple the number of filings in 2006,. This trend may fuel increased rental demand moving forward. Despite rising capitalization rates, investors are still focusing on the high-end rental market.

COURTESY MASSMEDIA
Picerne Development Corp.'s The Presidio at 4325 E. Rome Blvd. in North Las Vegas is among the firm's $200 million worth of new Southern Nevada apartment projects this year.

"Investors with a long-term growth objective will continue to target the Las Vegas metro's apartment properties," said John Vorsheck, Marcus & Millichap's Las Vegas regional manager. "Sales velocity for Class A properties of 100 units or more has remained steady."

Class A vacancy was 5 percent at the end of the third quarter, with asking rents reaching $968 per month for a 2.7 percent year-to-year gain, Marcus & Millichap reports. Median multifamily sale property prices, as a result, increased 13.6 percent over the past 12 months to $93,500 per unit. Apartment capitalization rates have averaged between the high 5 percent to low 6 percent range over the last year. Southern Nevada's continuing population growth, dwindling land supply and housing fallout bode well for the multifamily market's future.

Picerne Development Corp., for example, is investing $200 million in new Class A apartment construction in Southern Nevada in 2007. The Phoenix-based anticipates a 6 percent rental growth in 2008 followed by a 10 percent gain in 2009-2010. Picerne has 14 communities totaling over 4,000 units in the Las Vegas Valley.

"With 6,000 to 8,000 drivers license surrenders per month, we believe there will be a supply-demand deficiency moving forward," Picerne Senior Vice President Rondetta Troutman said. "Our properties have a less than 3 percent combined vacancy rate."

Developers are expected to finish 2,500 new units in the Las Vegas valley in 2007, resulting in a two percent market growth, although construction is expected to abate next year, reports Marcus & Millichap. Only 900 apartment units are under construction with expected delivery in 2008, with another 900 units planned.

The Spring Valley submarket now has the region's lowest vacancy raters at 3.4 percent, while the North submarket is highest at 6.8 percent. But the North Las Vegas submarket is expected to change over the next few quarters with the delivery of new products like Picerne's 580-unit new complex at E. Rome Boulevard and Valley Drive.

"Land is becoming available again due to a softening single-family home housing market," said Deborah Ammon, Picerne's vice president of property management. "It has also aided with rising construction costs due to the housing slowdown. Residential builders are much different from Strip resort contractors."

tonyillia@aol.com

303-5699

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