The 320-unit Villa Monterey apartment complex at 1270 Burnham Ave. in east Las Vegas sold for $26.5 million, or $82,812 a unit. Photo by Gary Thompson.

The Las Vegas apartment market continues to heat up as the single-family housing market cools, with monthly rents projected to increase 5.3 percent to $836 by the end of the year.

A quarterly report from Marcus & Millichap brokerage shows construction of multifamily rental units will exceed the number taken off the market for condo conversions for the first time in three years.

With vacancy rates stable at 4 percent, apartment owners are finding that they're able to push rents and limit concessions such as a month's free rent and discounted move-in costs, Marcus & Millichap regional manager Chris LoBello said.

"The lack of inventory, vacancy down ... that gives owners an opportunity to raise rents until more units come online," he said.

Demand for apartment living remains strong in Las Vegas, driven by population and employment gains that are among the healthiest in the nation.

More than 7,000 people move to Las Vegas every month and have to find a place to live. Few can afford to buy a home right away, with median prices at $310,000. The gap between monthly mortgage payments and asking rents continues to increase, leaving renting as the most reasonable option for an increasingly large percentage of the metro's population, LoBello said.

Employers are expected to add 35,400 jobs in Las Vegas this year, a 4 percent increase to payrolls. While still above the national average, job growth will be slower than 2005, when more than 57,000 new positions were created.

Builders are on track to add 1,300 apartment units to the inventory in 2006, Marcus & Millichap reported.

A third-quarter market overview from California-based RealFacts reported 95.8 percent occupancy for 107,758 apartment units in Las Vegas. Average rent was $859, up 5.7 percent from a year ago.

The number of units built dropped to 231 in 2005, compared with 1,588 in 2004 and 1,119 in 2003, according to RealFacts.

Single-family permit activity slowed to an annualized rate of 23,900 units during the second quarter, down 24 percent from the same period a year ago, Marcus & Millichap reported. Meanwhile, permits for multifamily construction jumped 59 percent to an annualized rate of 12,700 units.

With construction shifting back to apartments and supply well behind demand, investors seeking properties with cash-flow potential are looking at Las Vegas, LoBello said. Capitalization rates have declined dramatically in recent years, but are expected to rise in the coming months as condo conversion deals have essentially dried up.

During the past 12 months, cap rates fell 100 basis points into the low 5 percent range. Cap rates calculate income generated from a property as a return on investment, or purchase price. Most buyers are now approaching apartment purchases with an eye on cash flow from operations, not for condo conversions, LoBello said.

"That's all they're looking at, is the ability to produce cash flow, increase the rents. That's all we're seeing," he said.

RealFacts reported average price per unit of $98,520 in 2006, up from $84,018 in 2005, $71,741 in 2004 and $58,852 in 2003.

Spencer Ballif of CB Richard Ellis said he hasn't seen any new buyers coming into Las Vegas for condo conversions.

"We're seeing income buyers," he said. "The fundamentals of the market are still good. One negative is single-family home investors. They compete for rentals."

He represented John Deeter Trust in the sale of the 320-unit Villa Monterey apartment complex at 1270 Burnham Ave. in east Las Vegas for $26.5 million, or $82,812 a unit. The buyers were Segundo and Illuminada Cacao.

Ballif said the complex is in great shape, considering it was built in 1993. Because it's a senior living property, tenants don't beat it up and turnover is low, he said.

Irvine, Calif.-based Atherton-Newport Investments bought the 180-unit Courtney's Bay apartments at 9850 Bermuda Road in the fast-growing Enterprise area for $26.7 million.

"This property and its location meet our strict investment criteria," Atherton-Newport co-founder Ashish Khatana said. "We look at population growth, employment growth, the affordability of single-family homes and property location when considering investment acquisitions."

Built in 2001, Courtney's Bay is in an affluent area of southeast Las Vegas Valley that is experiencing growth in casino, retail and residential development. It's at the corner of Bermuda and Silverado Ranch Boulevard, a major east-west corridor with an exit planned at Interstate 15 in 2007.

Atherton-Newport actively pursues investment properties in Phoenix and Las Vegas because each region boasts positive current and forecasted growth, Khatana said.

Las Vegas is recognized as the fastest-growing job market in the United States in the Bureau of Labor Statistics June 2006 report. The median price of condos and single-family homes increased 6.2 percent in the last year, according to the National Association of Realtors. Property & Portfolio Research cites Las Vegas as having a high share of young adults age 20--34, the age group most likely to rent.