Sky Las Vegas Chief Executive M. Aaron Yashouafar stands by the condo project being built on Las Vegas Boulevard South. Hypo Real Estate Corp. financed Sky Las Vegas' construction in September 2005. Photo by Ronda Churchill. Alex Edelstein, developer of the Manhattan mid-rise project on Las Vegas Boulevard South, said people who generalize about Las Vegas and see a glut of condominiums aren't accurately gauging the market. Photo by Gary Thompson.

Calmerica loan officer Bob Charles has worked eight months trying to find construction financing for a luxury condo project in Las Vegas that may be "caught in the same mud" as Club Renaissance, a 60-story downtown tower that was announced in January 2005 but has yet to break ground.

"Of the 80-plus lenders that would have thrown their money at this project last year with the frivolousness that Paris Hilton shows when she throws money at her next party, only two lenders are left that will even take a call on a condo project in Vegas," Charles said. "Well, Paris Hilton came out last month to say that she's not partying anymore and lenders have mostly done the same."

Banks have tightened their purse strings on construction financing for high-rise condo projects in Las Vegas, especially after projects such as Krystal Sands, Aqua Blue and Icon were canceled, leaving buyers high and dry and Las Vegas with a black eye on Wall Street.

Two players highly exposed to the Las Vegas condo market are Corus Bank of Chicago and Hypo Real Estate Corp., a New York-based subsidiary of Hypo Real Estate Bank International.

Corus has 90 percent of its $9 billion loan portfolio allocated to condo projects, including $770 million in Las Vegas. Among its projects are Juhl ($106 million), Panorama Towers ($236 million), Streamline ($123 million) and One Las Vegas ($140 million).

Hypo is committed to Las Vegas for about $850 million, including $537 million in construction financing for Trump International condo-hotel and $66 million in land acquisition for Cosmopolitan. Beyond condos, the bank loaned $370 million for construction of the World Market Center.

"Condo projects are one of the riskiest developments, especially high-rise, 45 to 50 floors," said Neil Kadisha, who brought equity financing to the $325 million Sky Las Vegas condo tower next to Circus Circus on the Strip. "It's very different than a housing project. When you start the first or second floor, you've got to finish. That makes it a risk. You cannot start a project when it's sold out. You start selling then start moving."

Hypo financed $216.3 million for construction of Sky Las Vegas in September 2005. The 45-story, 405-unit project, built by Las Vegas-based general contractor M.J. Dean, is scheduled for completion in December. It will have 547,000 square feet of net space for sale, along with 43,500 square feet of retail, including fine-dining restaurants open to the public.

"Hypo Real Estate Bank International sees opportunities in the Las Vegas market, however we watch the market development carefully," Hypo Deputy Chief Executive Officer Evan Denner said. "We are not concerned about our investments. Based on presales and other factors, (like) the stage of construction process, we are very comfortable."

Economic numbers are strong right now and that's what keeps banks interested in getting money out the door, said Paul Engler, senior vice president for Chase commercial real estate banking in Phoenix. Chase loaned about $130 million to Las Vegas-based Palm Beach Resort Condominiums to develop the Boca Raton mid-rise luxury condo project on Las Vegas Boulevard near Serene Avenue.

Demand for housing has cooled, so builders are looking to unload their inventory and are not as aggressive as they had been in building new units, Engler said.

"It's been interesting times all over the country," he said. "We've been picky about condo projects we've invested with. What we're all watching is affordability of housing, which bleeds all the way down to land prices."

Engler said he's been talking with people who don't think there will be much land-purchase activity over the next six to 12 months, creating a barrier to entry into the Las Vegas condo market.

Fremont Investment and Loan has financed several high-rise condos in other markets such as Southern California, Arizona, Dallas, Chicago and Miami, but has shied away from Las Vegas. Fremont recently closed a $34.7 million loan for a condo conversion of Chapel Hill apartments in Las Vegas and two condo conversions totaling $70 million in Henderson.

Despite seeing some slowdown in real estate development and a rise in construction costs, Fremont achieved a 15 percent business increase in this year's first half, closing $2.53 billion in commercial real estate loans.

Some of Fremont's larger deals in the third quarter include $215 million for construction of Skyline at MacArthur Place in Orange County, Calif.; $154 million construction loan for Capital Place condo tower in Honolulu; and $129 million construction financing for high-rise condos in San Jose, Calif.

Jeff Teetsel, vice president and regional manager for Fremont in Phoenix, said it takes experienced construction executives to make sure loans are better underwritten and to help borrowers complete their projects on time and within budget.

"Vegas, like most places, has well-conceived deals with good sponsors that will do very well," Teetsel said. "What is somewhat unique to Vegas is the number of deals brought forward by completely inexperienced developers and often on unremarkable sites, and we're talking about $100 million-plus proposed developments."

Nobody doubts the real demand, including international demand, for luxury high-rise units, he said.

"But Las Vegas, unlike, for example, Manhattan, (Washington) D.C. or San Francisco, has next to no primary occupant demand to supplement the demand from second-, third- or fourth-home buyers for the very high-end units," Teetsel said. "Finally, in a market with not much more than 1,000 high-rise units ever completed before the last couple years, it was absurd to see 40,000 to 50,000 proposed units announced in the space of two to three years. It's not surprising to see a number never get out of the ground."

Charles of Calmerica said condo projects hit the skids in Las Vegas for various reasons. Some were proposed by people who weren't "true developers," he said. That is, they lacked capital and experience. Other projects, he added, used a horrid lender or grossly underestimated construction costs.

Banks are taking a closer look at the developer's experience, reputation and net worth, he said.

"While George Clooney or Michael Jordan jumping into a project creates some hype, it doesn't convert into a finished project," Charles said. "You can't just have net worth and make a project happen, but it sure does help. Both Clooney's and Jordan's projects (Las Ramblas and Aqua Blue, respectively) were dropped, but Trump's wasn't. Trump actually sold out and is opening a second tower because Trump has all three of the qualifications."

Many project plans have collapsed because the principals lacked the necessary money, he said.

"Future profits are great, but you have to have the cash to get to those profits. Instead, some of these developers ran to the banks that other developers were using, paid their $300,000 due diligence and received the standard financing, which told them, 'We will fund 75 percent of your project, but you have to spend your 25 percent first before we come in,'" Charles said.

"Well, some of these developers thought it'd be really easy to have someone come in with $45 million, but haven't made it past that point. Again, if you don't have the money, don't jump in. If you don't have the experience, get it. If you don't know the lenders, consult with someone that does."

Until recently, all a developer needed to obtain high-rise entitlements in Las Vegas was a mock-up of a possible project, so hundreds of "wannabe developers jumped into the pool," Charles said. Ten months and $20 million in sales deposits later, the developers realized they still didn't have the means to take the project vertical.

Construction costs skyrocketed when many projects were ready to start. Developers who failed to lock in their construction costs are just buying time now and it doesn't look as if they're going to make it, Charles said.

"So, are things bad? Well, I just saw an ad to try to entice people to buy from a certain Vegas condo under construction that said, 'Free one-year mortgage, free one-year HOAs, no down payments,' so I'd say it looks bad," he said.

The silver lining is that only about 10 percent of the proposed projects will actually be completed, so there won't be the glut that was once envisioned, Charles added.

John Restrepo, real estate analyst and principal of Restrepo Consulting Group, said fundamentals of Las Vegas' economy remain strong and there should be sufficient demand to absorb the 4,288 units in 14 projects that have gone vertical in construction. Overall, he reported 66,077 units in 119 projects that are planned or under construction.

The real future of high-density residential development in Las Vegas is mid-rise projects that are more compatible with the Las Vegas lifestyle, household incomes and the evolving housing market, Restrepo said. It's a more "organic" step than to "leapfrog" from a residential market dominated by single-family homes to a vertical, high-rise market, he said.

"It's our opinion that mid-rise projects will be the dominant source of higher-density housing for our residents in the foreseeable future," Restrepo said. "They're the most exciting thing on the horizon for the Las Vegas housing market."

Lenders such as UBS, Wachovia and General Electric have backed off condo financing, concerned about a glut of inventory in markets such as Miami and Las Vegas.

"People who generalize about the Las Vegas market and see a glut of condos are not getting a good picture of what's going on," said Alex Edelstein, developer of the 700-unit Manhattan mid-rise project on Las Vegas Boulevard South.

The number of condos and townhomes listed for sale in Las Vegas is a bit misleading, he said.

Of the 3,087 units for sale, nearly 70 percent (2,142) are priced under $250,000, which probably means they're apartment conversions, he said. Another 500, or 16 percent, are priced above $500,000, suggesting they're high-rise luxury units.

"What I like is that leaves only 460 condos in the entire valley in the sweet spot between $250,000 and $500,000," Edelstein said.

"That's very little inventory for a population of 1.8 million. No one is completing new projects, so we're the only new condo since Park Avenue in the sweet spot."

Harcourt Development of Ireland has fully financed Sullivan Square, a 16-acre, $800 million mixed-use development by Las Vegas-based Glen, Smith and Glen near the Las Vegas Beltway and Russell Road.

It's the company's first venture into Las Vegas, but the "pioneer" role is not exactly novel, Harcourt Director Mike Murphy said. Harcourt is developing in Antigua, Bahamas, Channel Islands, United Kingdom, Montenegro, Tobago and Latvia.

Murphy said he's known the partners at Glen, Smith and Glen professionally and personally for some time and considers them among the most astute and canny developers in Las Vegas with a successful track record.

"Their invitation to look at Las Vegas sparked our interest," he said. "We are aware that the property market is in a bit of down time at present across the (United) States, but people are still moving to Vegas to live at a rate greater than anywhere else in the U.S. After we came to see the project on the ground, we agreed that Sullivan Square had the look of a winner."

Most multifamily complexes in Las Vegas lack "soul," Murphy said. There's no community hub, no place to shop and meet friends, have coffee and buy a newspaper, he said.

"I like to call it 'urban zen.' Sullivan Square is designed for those who live and work in Vegas and has little or no reference to the condo mania on the Strip," Murphy said. "We are aware that there have been some canceled projects of late in Las Vegas, but from what we gather, the reasons for their demise has more to do with internal factors rather than a lack of consumer demand."

Charles said he's making his rounds to other condo developments in Las Vegas to see if he can help with financing.

"Vegas is a great market, though very soft right now," he said.

"My thinking is that it will take slightly longer to sell out the projects that actually make it to completion, but I doubt there will be any losers in the bunch that does finish."