LAS VEGAS APARTMENT MARKET OVERVIEW

STATISTICS, NEWS AND ANALYSIS OF CURRENT LAS VEGAS APARTMENT VALUES 

Apartments/Multi-Family:

Las Vegas Multifamily Market (Source: Applied Analysis website)

”December 01, 2006 - With developers, investors and lenders reacting to shifts in market perceptions and realities, there has been a pronounced change in attitudes relating to multifamily housing during the past 12 months. Las Vegas is one market that has evolved in response to market conditions but is struggling to find a sustainable equilibrium.

Las Vegas has never been as identifiable as it is today, with creative marketing campaigns driving interest in the tourism industry and national media reports about ups and then downs in the residential market having stakeholders moving in different directions. The segregation of the multifamily market is the clearest example of this dichotomy. From a consumer perspective, the lower-end segment of the multifamily market is facing serious supply constraints, while the ultra-exclusive luxury condominium market is feeling the pains of a hyper-supplied condition. It is rare to find this level of imbalance where such strong supply and demand indicators are present.

Of course, pricing is the x-factor, and one concept remains a staple in the Las Vegas residential market: density drives value. The traditional suburban market has homebuilders developing creative products to increase density and generate higher returns, while condominium developers within the resort corridor have found it necessary to increase tower heights in an effort to make projects financially feasible. This concept, along with shifts in consumer demand, have both ends of the spectrum reacting.

The Rental Market

Supply within the apartment sector remains relatively tight given a flood of apartment-to-condominium conversions in the past 2 years and a near standstill in the new apartment construction. Pricing levels in the for-sale market have generally held their ground after remarkable gains during the past 24 months, particularly at the lower end of the market. Not surprisingly, this has put additional upward pressure on rental rates.

While the for-sale residential market continues to report median prices that are on par with the prior year, segments of the market, particularly at the higher end, are experiencing a softening condition. For-sale inventory levels remain a concern with the number of new home communities nearing all-time highs and the number of resale units on the market well above 20,000 — another all-time high. With relatively stable demand based on the number of newcomers and escalating supply levels, pricing will be the balancing factor. While the full extent of any shift is uncertain, the lower end of the spectrum, particularly rental product, tends to be impacted to a lesser degree.

By third quarter 2006, the apartment market in Southern Nevada reported continued demand and limited availability. Average asking rents climbed to $861 per unit per month or $0.96 per square foot, representing a 5.6 percent increase over the prior year and up more than 12 percent from 2 years ago. Occupancies continue to remain near optimal levels at 95.8 percent, which has become commonplace throughout the past couple of years.

The overall health of the economy in Southern Nevada persists, but recent indicators suggest a slowdown in the pace of consumer expansion and spending. From a tourism standpoint, development activity and visitor spending volumes are running at a record-setting pace, which fuels the economic engine. Supporting the current amount of investment activity are the 50,000-plus incremental annual employees and the 70,000-plus new residents demanding goods and services. Clearly a very substantial portion of these predominately service employees will demand attainable rental housing.

Softness in the for-sale residential sector in recent months has heightened concern overall, particularly regarding pricing stability. Can record inventory levels in the new and resale home markets allow pricing levels to hold? While a difficult question to answer, market fundamentals appear conducive to a soft landing. We expect residential product at the lower end of the spectrum to be impacted to a lesser degree should conditions change. With the for-rent sector well positioned, limited new inventory is expected to call for continued strength in average rents and occupancy levels.”

Dr. R. Keith Schwer, PhD, Director of the Center for Business and Economic Research – UNLV reports in the “Las Vegas Housing-Market Conditions” quarterly newsletter (1^st Quarter 2007) that

“{Residential-Building} Permitting in the first quarter totaled 4,704. At this rate, about 19,000 units will be permitted in 2007, compared with near 34,000 for 2006 and 38,469 for 2005. With in-migration now totaling about 80,000 adults a year, with two-thirds of these remaining in Southern Nevada and two persons residing in each household, one can infer that 26,000 more units will be occupied in 2007. There are about 29,000 units for sale currently. With a estimate of 19,000 new units coming on line, one might reasonably estimate a supply of 48,000 units available during the year. On the demand side, we might anticipate a draw down of 26,000 units from 48,000 available, leaving an inventory of near 22,000. A slowdown in permitting or a step-up in new arrivals to Southern Nevada, however, would lower the anticipated inventory, enabling housing recovery on a faster time line. Even so, these stylized facts of current activity point to continued rebalancing through 2007 and into 2008.

The apartment market shows price increases and increased vacancies from year-ago levels. The average monthly rent is up from $824 (first-quarter 2006) to $857 (first-quarter 2007). Also, vacancies have increased by 4.5% to 6.5% over the same period. The apartment market, having shown far more rent stability than the prices for single family homes, feels the impact of the oversupply imbalance in the single-family market, but shows less variability.”

Historic Multi-Family Permits

645 Multi-Family Permits issued through 1^st Quarter 2007

“Rising Rents Put Squeeze on Apartment Dwellers”

(Source: In Business Las Vegas, May 18-24, 2007)

“The growth in apartment rents is beginning to slow in the Las Vegas Valley as more and more residents move out of their complexes because they can no longer afford their leases, according to a tracking firm.

Apartment lessors requested average rents of $872 during the first quarter, a 4.3 percent increase over the $836 sought in the first quarter of 2006. That's a bit of a break for tenants because landlords were seeking a 6 percent increase a year ago, according to local research firm Applied Analysis.

The rising rents lowered occupancy to 94.1 percent in the first quarter. It stood at 95.4 percent during the fourth quarter.

Competition from condos and single-family homes, many with rental prices that have been attractive, have had an impact as well, said Applied Analysis Principal Brian Gordon.

"The escalation of prices has been challenging for some consumers to afford in certain portions of the valley," Gordon said. "They are moving to more affordable parts of the valley or out of the market in some cases."

The rental rate growth of 4.3 percent outpaces the rate of inflation, but it is better for consumers than the increase of 5 percent to 7 percent in recent years, Gordon said. He said rental growth should remain steady at 4 percent for several quarters.

Despite the drop in occupancy and slowdown in rent growth, the dynamics of the market will improve for apartment owners because of the large number of construction jobs and casino jobs being created in the next two to three years with development along the Strip, Gordon said.

In addition, many residents who lose their homes through foreclosures will also be moving into apartments, he said.

Among highlights of the report:

· Henderson and the southeast had the highest rent at $977 a month. That was followed by the southwest with $975, northwest with $883, south with $878.

· The northeast had the lowest rents at $770 a month. The west had $870, the north, $860 and the central and east had $817.

· The northwest had the highest growth rate at 6.4 percent while the northeast has the lowest growth rate at 2 percent.”

Another recent phenomenon in the Greater Las Vegas market is apartment conversions. There are several local apartment complexes that have been, or are in the process of being converted to condominiums. Several thousand have been sold to date. However, this market segment has shown significant signs of slowing as of late.

Over the course of the past two to three years, single family entry level house prices increased significantly with notable stabilization having occurred in the past six-months. This sudden increase in single family home prices has effectively removed many perspective entry level home buyers from the market, due to limits on affordability and difficulty in qualification.

For this reason, developers throughout the Las Vegas area have acquired existing apartments, particularly those well suited for condominium conversion for the purposes of renovating and converting apartments to condominiums for sale to these entry level home buyers. As many as 16,000 apartment units have been removed from the rental pool for this conversion.

Conversions of apartments to for-sale condominiums are under way throughout the Las Vegas Valley. A relatively new concept for the area, apartment-condo conversions became the buzz in the local real estate industry in 2003-2004 because of the profit potential and the opportunity to tap a segment of the home-buying population that is getting squeezed out as home prices continue to rise. A primary reason for the condo conversions is the lack of available land for builders to develop affordable new projects

In 2005 Las Vegas became one of the major condo conversion markets in the country with an 8 percent share of the $6.5 billion in conversion volume among 10 major metropolitan areas, a report from Marcus & Millichap Research Services showed. However, Condo conversions cooled sharply after a hot start in 2006. They were down double digits between April and October as inventory increased, investors dried up and prices have shot up beyond the price range of first-time homebuyers. Current conversions, conversions under development and/or proposed future conversions:

• Symphony (was Whispering Lakes), 2606 S. Durango Drive at Sahara Avenue.

• Bella Vita Homes (was Point Apartments), 5070 River Glen Drive at Decatur Boulevard and Flamingo Road.

• Esprit at Stonegate (was Pacific Harbors at Stonegate), 2991 Juniper Hills Drive.

• Newport Cove Vista Apartments (to be Ivy Lane), 1212 Bass Drive, at Sunset Road and Annie Oakley Drive.

• El Capitan (to be Palicio), 6955 N. Durango at Centennial Parkway.

• Riviera Ranch Apartments, 2801 N. Rainbow Blvd. at Cheyenne Avenue.

• Mountain Creek Apartments, 2451 N. Rainbow Blvd. at Lake Mead Boulevard.

• Coronado Palms, Buffalo Drive and Interstate 215.

• Tuscano, 7255 W. Sunset Road, near Rainbow and I-215.

• Montana Apartments (to be Montana at Silverado Ranch) 555 E. Silverado Ranch Blvd. at Bermuda Road.

At the same time, relatively consistent apartment development continues and, therefore, additions to existing inventory have been consistent when compared to preceding years. Developers are also acquiring apartments particularly in and around the central tourist corridors for demolition and reconstruction of tourist commercial related development. These factors have resulted in an effectively lower proportionate inventory of rental housing available in the market.

Following is an illustration of trends in multi-family permitting, as well as apartment occupancies and average rental rates over recent years.

This information has been summarized from the reports entitled “The Housing Market Conditions Report”, published quarterly by the Center for Business and Economic Research of the University of Nevada Las Vegas. This information illustrates trends in occupancies which have been declining as of late, yet, showing consistent upward trends in average rental rates.

Apartment Occupancy

Average Rental Rates

Population in Las Vegas tends to grow at a rate of approximately 4,000-5,000 residents per month; and as local economic conditions remain relatively positive, we would anticipate continued growth. These economic conditions include strong employment growth, relatively low unemployment and continued strength in the primary industry, gaming and tourism.