Investor adds apartment complex to growing Las Vegas portfolio

While multifamily housing remains a risky investment in Las Vegas, Stephen Siegel jumped at the opportunity to acquire the 232-unit Charleston Wood Apartments, closing the $3.6 million cash transaction in 60 days.

The founder and chief executive officer of Los Angeles-based Siegel Group expanded his Las Vegas portfolio to 35 properties, including the Gold Spike downtown, Artisan on Sahara Avenue and the Siegel Suites brand of low-budget apartments.

Siegel said the Charleston Wood purchase, at about $15,000 a door, is the lowest price per unit he's paid in Las Vegas and shows his long-term commitment to the market.

"We believe that there's still people here," Siegel said Thursday at the apartment complex in east Las Vegas. "There might be people leaving, but there's also people coming. In the long term, we believe in Las Vegas."

Siegel said the bank-owned property at 2900 E. Charleston Blvd. had been poorly managed over the past 18 months and that a lot of the buildings were run down. The property, built in the 1980s, suffers from deferred maintenance issues and is 65 percent occupied.

Siegel plans to renovate the property and rename it Las Residencias to capitalize on the community demographics. Rent for a one-bedroom, 600-square-foot apartment is about $500 a month.

"Our niche is we know we can turn the property around," he said. "By us acquiring the property, we're going to fix up an eyesore in Las Vegas. A lot of times, when we fix up a property the neighborhood follows. That's good for Vegas. Action creates action down the line."

The multifamily transaction was the 12th of the year in Las Vegas involving more than 100 units, compared with just three last year. The largest sale was the 426-unit Reserve at Arrow Canyon for $37 million, or $86,854 a unit, in October. Capitalization rates, a function of net operating income and purchase price of a property, ranged from 4.75 percent to 9.50 percent.

Siegel said it's hard to establish the cap rate at Charleston Wood, which had negative net operating income. He looks at the pro forma of what the building can do.

He'll continue to look for investments and joint-venture opportunities with upside potential in Las Vegas. The group purchased and renovated the St. Tropez hotel, now called Rumor, and the Resort on Mount Charleston.

The performance of Siegel Group's Las Vegas portfolio is not what it was three years ago, "but we're holding our own," Siegel said. "We're all across the board. No matter what area you're in, there's always a customer, somebody's going to live there and they deserve a quality of life."

Carl Sims of Hendricks and Partners, who represented the special servicer for the loan on the property, said the cap rate is a "worthless" measurement because of the vacancy issue. Siegel Group's "play" is to turn the property around with new management, he said.

Sims said the volume of apartment transactions is down from past years, though he's closing escrow on a 300-unit complex next week.

The multifamily industry is a "mixed bag," being pushed and pulled as a result of single-family market conditions and a large condo inventory overhang, the National Association of Home Builders reported in third-quarter outlook.

Slow economic growth resulting in lackluster employment gains have stoked consumer uncertainty and weakened demand for housing on all fronts, the association said. Rental demand is up and so is rental supply as a result of new products, unsold properties and condos offered as rentals by owners who are unable to sell.

In October, the association's real rent index dropped two-tenths of a point, to an even 110.0, the lowest the index has been since 2008.

Contact reporter Hubble Smith at hsmith@reviewjournal.com
or 702-383-0491.