Las Vegas Sun

March 28, 2024

KB Home building its first multifamily product in Vegas

Southern Nevada's largest home builder will begin selling multifamily housing in the Las Vegas area for the first time -- directly taking on the valley's third-largest home builder -- and other public home builders may follow suit.

KB Home Nevada, the local division of the Los Angeles-based home builder, will begin building for-sale triplexes -- buildings similar to duplexes but instead of two units they contain three units -- by the end of this year.

The 1,535-square-foot homes will be built in four locations around town: in the northwest at Fort Apache Road and Severence Lane; in the north at Rancho Drive and Alexander Road; in southwest at Warm Springs Road and Jones Boulevard; and in the southeast at Stephanie Street and Interstate 215.

D.R. Horton has been selling triplexes for three years in the Las Vegas area with great success, industry officials said.

"I am surprised it has taken this long" for KB Home to enter the market, said Dennis Smith, president of Home Builders Research Inc. "D.R. Horton has done well with it, Warmington Homes has done well with it."

"We've done really well," said Jim Frasure, D.R. Horton's division president.

D.R. Horton will sell about 1,620 houses this year in Las Vegas, of which about 340 will be its attached housing product. The units cost around $110,000.

KB Home did not comment on how it will price its triplexes.

Fafie Moore, broker and owner of Realty Executives, said she expects more people will begin asking for attached products as home prices continue to increase.

The median price for a new home in Las Vegas in July was $205,546, up from $180,305 a year ago. For a resale home, the price jumped to $170,000 in July, from $165,135 in June and the year-ago median price of $152,000, according to Home Builders Research.

"I think price is going to be the issue," she said. "The reason people are looking at that is the escalating prices in the market; it's a more affordable price that will be acceptable to people."

The decision to build high density, attached houses is due to the rising price of land in the Las Vegas Valley, Jim Widner, KB Home Nevada division president, said.

"That's a reaction to density, (and the) price of land," he said.

In a statement from KB Home's corporate office, a spokeswoman said the decision to build attached houses allows the home builder to "meet the demand for homes in popular areas, particularly infill projects by offering higher density where there is limited supply of land."

While this is a first for the national home builder in Las Vegas, KB Home has built similar products in other markets in California, Colorado and Florida.

KB Home officials said attached housing like condominiums and duplexes appeals to first-time home buyers who might not otherwise be able to afford a house.

In a town that still claims waitresses, showgirls and blackjack dealers can afford to buy a home, building officials have said the rising price of land, and in turn the escalating price of homes, threatens that core market.

Land prices in Las Vegas have soared in the last year as developers push the price for land at federal auctions above $200,000 an acre.

Widner said the price of land on the open market is really closer to $300,000 an acre.

"Being able to provide affordable housing for the core workforce is an essential if you're going to have a growing, thriving, vibrant economy," Widner said in an interview with In Business Las Vegas, a sister newspaper to the Las Vegas Sun. "So it's absolutely a concern of ours with what's going on with the land prices and correspondingly with what happens with the price of new homes."

KB Home prides itself as being the largest builder of entry level homes in the area, pricing most of its homes, before upgrades, far below $200,000 -- the going rate for many newly built homes in Las Vegas.

But as land prices show no sign of leveling out, home builders have begun to look for new ways to build affordable, entry-level homes.

A spokeswoman for Pulte Homes and its subsidiary Del Webb Corp. said they have each built one attached product in the Las Vegas market in the last decade and are looking to enter that arena again.

"We know in the Southern Nevada valley there is a demand for some type of condo-type housing in the active-adult market, and (Del Webb is) looking into that for future development," said Allison Copening, spokeswoman for the companies. "Pulte is looking into the future possibilities in Aliante (in North Las Vegas) and another one in Summerlin."

But it's the valley's third largest home builder that says it's been ahead of the curve.

D.R. Horton, a direct competitor with KB Home in the affordable home market, has been building attached housing for the last three years.

The public company has three under-construction communities, all of which are sold-out, and four more communities coming onto the market, Frasure said.

"It's doing very well; it's affordable housing in today's market and it establishes a town home feel," he said. "It allows the buyers to make an investment in the real estate market because of escalating home prices."

D.R. Horton was the first public builder to enter the attached-home market that for years has been largely dominated by private, mostly local, home building companies.

Private companies, often dwarfed by the financial strength and marketing abilities of the large public builders, looked for ways to carve out niche markets where they could compete without going head to head with industry giants such as KB Home, D.R. Horton, Pulte Homes and Pardee Homes.

The private companies took the risk of construction lawsuits to build attached products in Las Vegas. To do that, many looked for ways to insure their products differently, such as with so-called "wrap insurance," which insures all contractors and subcontractors for one project.

National home builders continued to shy away from attached products and condominium developments over the last decade as the threat of litigation became more certain and as liability insurance for such products increased.

National home builder Pardee Homes exited the condo market in Las Vegas at the beginning of the 1990s, when construction defect litigation began to gain steam.

"The construction defect environment made us very nervous," said Klif Andrews, Pardee Homes vice president. "It still is the only impediment to it; we'd love to build condominiums."

And despite the new rules regulating construction defect cases in Nevada, passed by the Legislature this year, Andrews said uncertainties remain and that the firm isn't convinced the problem has been solved.

Condominiums have been considered risky ventures for Southern Nevada builders because of their tenants-in-common ownership structure. Attorneys say condominium defect suits often involve large claims because of the common ownership of portions of each building.

"Our concern has been the increasing environment of construction defect litigation and the potential liability for condo units," he said. "It's so easy for construction defect attorneys to pursue class-action suits through these common entities."

Despite the potential risks in Nevada and California, often thought of as ground zero for construction defect cases, Andrews said the Bloomfield Hills, Mich.-based company is re-evaluating whether to begin building condominiums again in Southern California.

Andrews said it was only a matter of time before KB Home entered the attached-home market in Las Vegas.

"D.R. Horton has a significant amount of attached product and it makes sense for them -- it fits their business profile and it fits their business of providing affordable entry level housing," he said.

Frasure said D.R. Horton is able to mitigate the risks of construction defect litigation because of the type of attached product the company sells.

Not really a condominium, D.R. Horton's triplexes are similar to town homes, or duplexes. Rather than a homeowners' association owning the complexes as a whole, triplexes are owned by each occupier outright.

"Buyers buy their own insurance for the unit and they own the building. That is probably the biggest thing," Frasure said. "It allows us to provide affordable housing without the threat of litigation."

KB home declined comment on how it is insuring its new product and how it is able to mitigate the risk of defect litigation with the attached product.

Smith, with Home Builders Research, thinks many builders will again enter the attached-home market in Southern Nevada.

"KB is the biggest builder in Vegas and there is demand for that type of product because there's a demand for lower prices," he said. "It's not that condos don't sell in Vegas, because they do."

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