Las Vegas investor bets on industrial property

Even as industrial vacancy rises to record levels in Las Vegas, real estate investor Stephen Siegel finds reason to purchase a 48,000-square-foot industrial center in North Las Vegas for $1.45 million.

At $30 a square foot, it's below replacement cost, the founder of Siegel Group Nevada said Tuesday.

It's also 23 percent vacant, slightly higher than the first-quarter marketwide average of 19 percent reported by Applied Analysis business advisory firm.

The property near Lamb Boulevard and Craig Road was suffering from extreme mismanagement, poor tenant relationships and deferred maintenance costs, Siegel said.

Siegel said he sees tremendous upside potential and an opportunity to diversify his real estate portfolio in Nevada, which includes Siegel Suites, Artisan and Rumors hotels, several office and retail properties and now industrial buildings.

"No challenge, no change," Siegel said. "Through the good and the bad, we're still pro-Vegas."

The industrial market lost 418,900 square-feet of occupancy during the first quarter, driving the vacancy rate to 19 percent, up 0.4 percentage points from the previous quarter and up 1.3 points from a year ago, Applied Analysis showed.

As vacant inventory pushes to new highs, pricing continues to decline. Average asking rents fell to 51 cents a square-foot, compared with 52 cents a foot in the fourth quarter and 55 cents in first-quarter 2011. Landlords are offering rent reductions and concessions to the limited number of tenants.

The industrial market has taken the brunt of the economic downturn, Applied Analysis principal Brian Gordon said. The mass exodus from industrial properties has continued for the last three years, with few signals of a turnaround, he said.

"Different sectors of the economy are performing differently," Gordon said. "As the economic recovery takes hold, hard-hit sectors of the economy will benefit, including the industrial real estate sector."

The retail market is showing signs of stabilizing, he said. Vacancy has been trending down for three years, settling in at 10.5 percent in the first quarter, down 0.1 percentage points from the fourth quarter and unchanged from a year ago.

Despite positive absorption in three out of the last four quarters, average asking rents continued to decline after holding within a relatively tight range in the prior year. Rents fell to $1.45 a square-foot per month, down from $1.51 in the previous quarter and down from $1.53 a year ago.

"We haven't seen a significant upswing in vacancy, and at the same time not a lot of improvement," Gordon said. "Supply and demand seem aligned at a new level."

Office vacancy remains highest among the commercial real estate sectors at 25.2 percent, unchanged from the previous quarter and up from 23.7 percent a year ago. Asking rents continued to slide to $1.94 a square foot, compared with $1.97 in the fourth quarter and $2.05 a year ago.

"The office market is still trying to find its footing," Gordon said. "While business and professional services employment showed improvement, it's pulled back in recent months."

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