Las Vegas real estate value is long term, investor says

Gregg Wolin had heard of Park Highlands in North Las Vegas, but he hadn't paid much attention to the master-planned development by Olympia Group until it went into bankruptcy.

That's when Wolin, the principal of Scottsdale, Ariz.-based Crescent Bay Holdings, drove around the area and realized the $21 million price for the development's 1,340 acres was a fantastic deal - two expensive Beltway interchanges required for the development had already been paid for and built.

Comparable infrastructure needed for a development in Tucson would have cost the developer around $30 million, on top of land costs, said Wolin, whose company now owns Park Highlands.

As far as investing in Las Vegas real estate, opportunities are plentiful if it's a long-term hold, Wolin said Thursday at the Las Vegas chapter meeting of the National Association of Industrial and Office Properties.

"It's a demographic tsunami," he said. "I don't subscribe to the idea that anything fundamentally has changed in Las Vegas. It's not like people are picking up and moving to St. Louis or Iowa. Places like Phoenix and Las Vegas are very attractive in a down market."

Jamie Rodgers, managing director of KBS Capital Investors in Los Angeles, said he feels protected on the downside in the company's 51 percent investment in Park Highlands simply by the land basis. They got it at $20,000 per acre, compared with the original price of $340,000 per acre in 2005.

It's the first deal KBS has done in Las Vegas, though Rodgers said he's had his eyes on the office and retail market for several years.

"We do feel Las Vegas is going to be a strong market in the long term," he said. "For Vegas to be an attractive opportunity for outside investors, you don't have to believe it's going back to the peak of the market. You just have to believe they'll get back to long-term averages.

"Instead of looking at growth rates and prices and velocity and all of the milestones from 2006 and 2007, look at the growth rates for 10 years before that. Those were fantastic."

Even in a challenging economy, investors are identifying opportunities to acquire distressed assets, said Garrett Toft, industrial broker for Voit Commercial in Las Vegas.

Voit represented ProLogis in buying the 171,000-square-foot Cheyenne Distribution Center at 2875. N. Lamb Blvd. for $7 million.

The seller was Kennedy Wilson, which had acquired the asset in a pool of nonperforming notes and had foreclosed on the property.

Investors are chasing yields wherever they can, and a 7.25 percent capitalization rate - a function of net operating income and capital outlay to purchase a property - looks pretty good compared to bank rates, Toft said.

"You can't get enough good deals. It depends on product type, location, occupancy. If it's partially occupied or there's substantial leasing to be done, you've got to have a steep discount," he said.

Jeff Axtell, director of acquisitions and development at Vestar Development, said markets such as Las Vegas and Phoenix swing wildly with the pendulum. People buy too much when the pendulum is on one side, and then everyone gets out when it goes the other way, he said.

There's more money chasing deals today, Axtell said. He was surprised that the October auction for The District at Green Valley Ranch was fairly competitive and felt lucky to get it for $79 million.

"We felt the worst of retail was coming to a close. We look for projects that can be the dominant center in that trade area. We're looking for a high-teens return (on The District)," he said.

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