Panattoni picks up distressed property

Panattoni Development, a major commercial developer and landlord in Las Vegas, has acquired a bank-owned office and industrial project in the southwest valley near the Las Vegas Beltway and Buffalo Drive, a company executive said Wednesday.

It's one of the first distressed commercial properties to be acquired in Las Vegas following a spike in commercial mortgage defaults that started last year, a trend that's forecast to wreak more havoc on the banking industry.

Doug Roberts, senior vice president for Sacramento, Calif.-based Panattoni, said his company paid $7.3 million for the note from Nevada State Bank, plus about $500,000 in liens on the property. It was sold in a short sale, or for less than the loan amount, to avoid foreclosure, he said.

Panattoni is marketing four office buildings and eight industrial buildings on the 19-acre site for sale, lease or lease with an option to purchase. That will leave 11 acres of improved land that can be held for speculative construction, build-to-suit for a specific tenant or it could be sold outright given the right offer, Roberts said.

"It's high quality in a great location," he said. "There's not that many for-sale buildings in the southwest. Once we move through this, there's not going to be a lot of competition. You can't say that in North Las Vegas."

Roberts said investors realize there's an opportunity to buy commercial property in Las Vegas at half the listing price of the last year or two.

"I think the key is timing. Are we buying at the right time? If we don't buy it, somebody else might. It's standard business practice," he said.

Pat Marsh, the property's listing agent from Colliers International, said pricing on the completed 97,000 square feet of office and industrial space starts at about $100 a square foot and the vacant land is about $11 a square foot.

"In that submarket, there's nothing cheaper. Nothing," Marsh said. Two years ago, office buildings were selling for $220 to $250 a square foot for "grey shell," or unfinished interior, he said.

Marsh said he hasn't seen a lot of bank-owned commercial transactions yet, but they're coming. He's working on several deals and said it's not as easy as people think.

"Banks are being very selective in which properties they sell and who they're selling to. It's not a free-for-all here," Marsh said. "Panattoni had a track record with the note holder. That carries a lot of clout."

Commercial mortgage defaults became a significant risk last year. Rising vacancy in apartments, office buildings and retail centers means less income for property owners to pay their debt service. Plummeting property values and a tight credit market made it nearly impossible to refinance.

Monthly reports from Nevada Title Co. showed notices of commercial default surpassing property sales about a year ago and steadily increasing. August's report from First American Title included a $25.2 million foreclosure on Boca Fashion Village, 680 S. Rampart Blvd., by City National Bank.

"I think the preferred approach is for banks to find a developer like Panattoni to take over and finish a property," John Restrepo of Restrepo Consulting Group in Las Vegas said. "They're trying to work with the developer as opposed to taking the property back and have someone pay 20 cents to 50 cents on the dollar for it. That's why we haven't seen a flood of commercial REOs (foreclosures)."

Judy Placencia of Prudential Americana Group said she has clients interested in buying high-rise condo projects that are bank-owned.

"They see now as an opportunity to buy," Placencia said. "I'm hoping to sell them one that is downtown and very beautiful, but they are on the fence about downtown Vegas."

John Vorsheck, regional manager of Marcus & Millichap in Las Vegas, said his client got a great deal on a downtown apartment complex on Eighth Street, paying $990,000 for a property that last sold for $1.3 million in 1999.

Whitney Tilson of New York-based investment firm T2 Partners told the Review-Journal in June that the biggest foreclosure wave is coming in the commercial sector with $3.5 trillion in outstanding mortgages.

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