Las Vegas sees condo demand as some projects fail
Reuters - Las Vegas’ streak of building condominiums has hit a rough patch, but a lot of players are still betting on big projects.
In the past year, a litany of dreamy named high-rise projects — the Icon, Liberty Tower, Krystal Sands and Acqua Blue — went by the wayside.
Ivana Trump backed out of her proposed Ivana Las Vegas Residential Condominiums. So did the Hilton family, when it scuttled The Conrad Majestic, a casino, restaurant and high-rise condominium project proposed for the Las Vegas Strip.
“They came into the marketplace and they didn’t really understand our market,” said broker Linda Rheinberger, of One Source Realty and Management, and president of the Greater Las Vegas Association of Realtors.
Still, about 100 low-, medium- and high-rise projects are proposed for the metro area. Sixteen high-rise projects are under construction. Half are condo-hotels and the others, about 3,000 units, are residential, said Richard Lee, vice president of First American Title.
Demand is still strong for many projects, developers say.
The state’s lack of income tax, low property taxes and pro-business environment are big drawing cards, especially for residents of nearby California.
Investors, corporations and people with multiple houses are drawn to hotel-condos that can be rented out as a hotel room while the owner is away, providing some income. Other buyers prefer strictly residential projects that for the most part are not directly on the Las Vegas Strip.
But for all, material costs are escalating about 15 percent to 25 percent a year, leaving many projects financially impossible.
“We believe 20 percent of the announced projects will get built. A lot of people misjudged the market,” said Terry Lanni, chief executive of MGM Mirage Inc. (MGM.N: Quote, Profile, Research), which has a number of projects. “They priced the units before costing them out.”
With about $15 billion of hotel/casino construction under way, Las Vegas has sprouted 38 cranes in the air.
“We did $15 billion in the last 15 years,” Lee said. “Now we’re going to do in the next five what we did in the last 15.”
WHY THEY FAILED
Those in the field said some residential projects fell victim to a lack of experience, relationships, financing and skill.
“In the real world, who you know has bearing,” Dennis Smith, president of Home Builders Research, said.
Qualified local contractors and subcontractors are the hottest ticket in town.
Tony Marnell, chairman and chief executive of designer/builder Marnell Corrao Associates, which built the Mirage, Treasure Island, Wynn Las Vegas and New York New York casinos, said demand for a workforce that can build to the higher standards rose as Las Vegas’ transformed itself from budget holiday destination to luxury mecca.
“There could be a shortfall of subcontractors that have the right kind of management and the right kind of experience to fulfill some of the high-end commercial work,” Marnell said.
MGM’s $7 billion CityCenter — a 4,000-room hotel and casino, shopping center and condominium project expected to open in 2009, may commandeer 25 to 30 percent of the construction workforce, experts said.
Realtors, builders and other local real estate experts said demand for high-rises is still thriving. About 90 percent of the high-rises under construction already are sold out, Lee said. The best-selling price is about $600,000.
“I think it is a natural and healthy shakeout that you are seeing,” said Frank Fertitta, chief executive of Station Casinos Inc. (STN.N: Quote, Profile, Research), which caters to Las Vegas residents and is building at its newest suburban project, Red Rock.
“There is real demand for these condos in Vegas. I think it had just gotten a little overheated,” he told the Reuters Hotels and Casinos Summit in Los Angeles this week.
Lanni said the average price at MGM’s “The Signature” complex adjacent to the MGM Grand have risen from $780 per square foot to $1,130 per square foot, with the first of the three towers set to open in May.
“We require 30 percent deposits … buyers know that an MGM Mirage project will get built,” Lanni said.