Saturday, July 31, 2004
Copyright © Las Vegas Review-Journal

Las Vegas apartment units catching interest of investors

The Rockmeadow apartments at 3145 E. Flamingo Road, is one of two Southern Nevada complexes sold by New York-based Sterling American Property to Pacifica Properties of San Diego. PHOTO COURTESY OF STERLING AMERICAN PROPERTY

The Las Vegas apartment market remains a viable investment opportunity as the city continues to experience steady job growth and an influx of population, a New York real estate executive believes.

"It's one of the better markets in the nation," Tarak Patolia, chief of acquisitions for Sterling American Property, said Thursday. "Las Vegas has a lot of things going for it. You've got a lot of retirees, the weather, the entertainment."

Sterling American recently completed the sale of three apartment complexes in Las Vegas for $65.7 million. The average sale price of the 840 units was $78,214.

Last year, in a survey from Sperry Van Ness, Las Vegas ranked No. 1 as a buyer's market with an average price of $42,609 a unit and a capitalization rate, or yield, of 9 percent.

Gary Banner, multifamily specialist for Coldwell Bank Commercial ETN in Las Vegas, laughed at that average price and said the yield is closer to the low 7 percent range.

He said economic fundamentals of strong population and job growth, combined with double-digit home appreciation rates, point to continued investment opportunities here.

"I'm advising my investors to pick up small Class C (lower-end) apartment properties within 10 minutes on either side of the Strip, because the Strip is not only expanding north-south, it's also expanding east-west," he said.

Banner said he has a property in escrow that was built in 1963 and is going for $62,500 a unit. He recently sold a 59-unit complex on Maryland Parkway between Ogden Avenue and Fremont Street in downtown Las Vegas for $2.6 million and said it was 100 percent occupied with a waiting list.

Las Vegas is going to lose 11,000 apartment units in the next 18 months to condominium conversions, which will create upward pressure on rents, Banner said.

"A lot of these condo conversions are going to chew up our inventory," he said. "That's already happening."

Apartment vacancy in Las Vegas dropped to 5.46 percent in June, down from 6.09 percent in May, on an inventory of more than 98,000 units, said Spencer Ballif, first vice president for CB Richard Ellis.

He said vacancies have trended down from a high of 7.25 percent in January because of strong job growth, rising single-family housing costs, reduced supply and condo conversions.

Banner said investors are willing to pay a premium of about 25 percent for apartment properties that are mapped for condos.

Two properties sold by Sterling American -- Waterford Park apartments at 9325 W. Desert Inn Road and Rockmeadow at 3145 E. Flamingo Road -- are planned for condo conversions by the buyer, Pacifica Properties of San Diego.

The third property -- Antigua Bay at 2200 Club Pacific Way -- was sold to WLA Properties of Newport Beach, Calif., a major owner and operator of multifamily housing.

Average monthly rent at the two-story, garden-style apartments was $890, which included a washer and dryer in each unit.

Patolia said Sterling American, controlled by the Wilpon family of New York, bought six Las Vegas apartment complexes in August 2000 to provide an ongoing return for the company's investors.

He said the Las Vegas portfolio had "extremely inefficient financing," with all six properties cross-collateralized under one mortgage. When the debt came due, Sterling American paid off the original mortgage and placed the individual properties under their own mortgage, which made them easier to sell.

The company still owns the Montego Bay apartments.

Patolia said rising home prices and interest rates are re-energizing the multifamily rental sector in Las Vegas.

"Single-family home prices are beginning to become prohibitive for working families, so this is a very opportunistic time for an owner or developer to acquire quality rental housing," he said.

San Diego-based Sovereign Capital Management acquired the 312-unit Rancho Viejo apartments at 7885 W. Flamingo for $28.9 million, or $92,542 a unit, with a 7.3 percent market capitalization rate, said Christopher LoBello, regional manager of Marcus & Millichap, whose office represented the buyer.

The property was constructed in 1997 to condominium specifications and has been condo-mapped, providing the buyer a "turnkey" option of converting and selling the individual units as condos, LoBello said.

Monthly rental rates for the one- to three-bedroom units range from $695 to $1,085 and occupancy is at 91 percent.

Marcus & Millichap's National Multi Housing Group, a division of the brokerage firm focused exclusively on multifamily investment, negotiated 2,100 transactions totaling more than $5 billion last year, LoBello said.