Tuesday, February 25, 2003
Copyright © Las Vegas Review-Journal

Lack of niche products may hurt LV apartment market

Smaller apartment complexes more likely to lure individual investors, expert says

As real estate plays a bigger role in the portfolio of small investors, Las Vegas could lose millions of dollars to other economies, an apartment specialist said.

Multifamily housing developers tend to favor building larger master-planned apartment complexes, but a lot of individual investors want a better selection of product with four to 100 units, Michael Belnick of Coldwell Banker Commercial ETN Real Estate Services said Friday.

"Las Vegas seems to be in need of niche products to satisfy the needs of the more sophisticated investor coming from other markets," Belnick said, referring to the smaller-unit niche of apartment complexes.

Apartment sales in Las Vegas increased 15 percent last year to $716 million, and the total number of units in the market increased by 5,069 to 184,040, with another 11,000 units on the books, he said.

The number of units sold also increased 15 percent to 13,359. The price per unit was relatively unchanged at $53,600, down just a hundred dollars from 2001.

"Even though the market is showing strong sales, the demand for certain segments of the apartment market remain strong," Belnick said. "A major contribution seems to be the lack of diversity of products that are being built."

Belnick recently sold 22 units at the fourplex Mesa Ridge Village in just eight days at record-setting prices.

"That's the best example. I get one new buyer a day. I just listed a little 14-unit property and hadn't even told anyone, maybe a couple of people, and I've got a full-price offer coming in tomorrow."

Not only Las Vegas but all of the nation needs more rental housing, according to a January report from Lend Lease Real Estate Investments, a worldwide real estate investment manager with $49 billion of assets.

Apartment demand will grow through this decade though at a slower rate than in the late 1990s, the report said.

Investors need not be overly concerned about current market weakness because higher vacancies, slower absorption and rent concessions are commonplace during a recession.

"Buying a home may be the American dream, but rental options are essential for those families and individuals who don't want the responsibility associated with property maintenance, who need flexibility because of job requirements or changing family needs, or who simply can't afford home ownership," said Lijian Chen, Lend Lease principal and author of the report.

Vacancy rates are high in Las Vegas and there are a lot of rent concessions in the marketplace affecting ownership, Belnick said.

"And it is not the body count, but the economic rents that are hurting the bottom line," he said. "Even though the body count is showing close to 9 percent vacancy, the real number is probably close to 15 percent by dollar count. This is causing problems for the sale of apartment complexes."

Average apartment rent in Las Vegas is $727 a month, up 1 percent from a year ago, the Center for Business and Economic Research at University of Nevada, Las Vegas reports.

With interest rates sure to rise and the price of homes in Las Vegas up 8 percent on average, rental demand will grow in the first or second quarter of next year, Belnick predicts.

There's also a large population of "echo boomers" reaching adulthood and not wanting to take care of a home. Research shows that 83 percent of households under age 25 rent, and 55 percent of households between the ages of 25 and 35 rent.

"What we've done in the last 10 years is Las Vegas has become institutional," Belnick said. "Now we're ready to start creating traditions. I truly believe we're headed into a niche market."

As an example, he cited Bagel Cafe, a small eatery near Buffalo and Westcliff drives. It's packed for breakfast and lunch. Why? Because it's not a chain and it serves a niche, Belnick said.

"Gourmet markets. There isn't a gourmet market anywhere in this town. We don't offer diversity or niches to the general public," he said.

Every other major U.S. city offers a better niche in fourplex apartment properties than Las Vegas, Belnick said.

Also increasing demand for rental housing in the future, according to Lend Lease:

• Immigration, though down considerably since Sept. 11, 2001, is expected to increase and newcomers generally rent for quite some time before becoming homeowners.

• Growth of minority populations, including a large percentage of Hispanics and black renters.

• Renters move frequently. Roughly 16 percent of Americans move each year, and renter mobility is about double that rate.

Research has shown that renters tend to be younger, are less likely to be married or have children at home and are more likely to be from a minority group.

But as the population ages, so does the general renter. Chen said the fastest-growing sector of renters is households earning more than $50,000 a year, deemed "lifestyle renters."