Published Friday, Jan. 23, 2009 | 2 a.m.
Updated Friday, Jan. 23, 2009 | 11 p.m.
With the condo-hotel market hard hit and many prospective owners unable to close on their units, Donald Trump has an innovative solution.
The real estate developer has decided to lease units at the Trump Tower up to one year as upscale furnished apartments.
Realtors are hailing it as a trendsetter that may catch on with other developers such as MGM Mirage with its condo-hotel Vdara, whose sales are stagnant.
Since it opened last year, Trump has closed on nearly 400 of the 1,282 units despite having contracts for nearly all of them, Realtors say. The problem has been the credit crunch, and investors’ inability to obtain the financing they need to close the sale. Many signed contracts when the condo market was hot and financing readily available.
“It is a very smart move, and it is not an unexpected move,” says Steve Bottfeld, executive vice president of Marketing Solutions. “The problem is simple. Even a guy like Trump has to borrow money to build buildings to pay the loan back. He has to find a way to take care of that carry and the best way to do that is to make those units apartments.”
Bottfeld says that not only will other condo-hotels consider a similar move, but residential condos having problems closing units could do the same. He says he wouldn’t be surprised if the monthly carry is $2,000 a unit.
“It is not question, but a good move on his part that will be emulated,” Bottfeld says.
Trump is listing all of his units for lease, including studios, one bedrooms, two bedrooms and penthouses.
The lowest price is $1,600 a month for a one-year lease on a studio. One bedrooms are as low as $2,600 and a three-bedroom penthouse is $6,500 for a one-year lease. Those same units are $7,500 a month for those who only want it for three months and $7,200 a month for a six-month lease.
High-rise Realtor Bruce Hiatt says it’s a brilliant strategy for Trump to generate more operating revenue and help establish the hotel. With the troubled economy, competition has been tight and Trump was competing with Steve Wynn’s Encore.
Some staff members were let go and that reduced services, Realtors say. By bringing in more people as tenants, that will enhance services and increase jobs, they say.
“I think they are on the right track to reduce inventory that is not being closed because people are walking away from their units,” Hiatt says. “I think it is going to be the trend for the next couple of years.”
Hiatt says he wouldn’t be surprised if CityCenter does the same thing at Vdara and other condo-hotel complexes follow suit. The units could ultimately be sold when the economy improves.
The hotel units will be attractive to companies that bring in accountants and others to do temporary work and need a place for three months or longer, Hiatt says. Even wealthy people who travel might not want to buy in Las Vegas, but have a furnished place they can live short term.
They get the services of a high-end hotel with a spa and restaurants, maid service and a health club. That is a lot of luxury to get for the prices Trump is charging, Realtors say.
Realtor Aaron Auxier calls it a smart move given the amenities that a hotel offers to residential living. A condo-hotel could become the new residential, he adds.
“People are showing interest because of the amenities,” Auxier says. “It adds to the competition and puts the heat on other properties. Their prices are so affordable. This is a bargain. It is fully furnished and ready to go. All you need to bring is your toothbrush.”
The location is also prime being next to the Fashion Show mall and many casinos.
“Everybody will be watching to see how successful Trump is, and what direction they may take with their projects,” Hiatt says. “The Trump name is so strongly branded. I think this is going to be successful.”
Restrepo Consulting/Colliers report
Restrepo Consulting and brokerage Colliers International report the industrial vacancy in the fourth quarter exceeded 10 percent for the first time in 10 years. That’s the highest vacancy rate quoted by brokerages. That rate is up from 9.8 percent at the end of the third quarter and up from 6 percent during the fourth quarter of 2007.
Principal John Restrepo says companies cutting payroll have softened demand for industrial space.
Because of that, the average asking rent per square foot has fallen 6 percent in the past year, he says.
Landlords are competing with a growing amount of discounted sublease space, which is about 800,000 square feet or 7 percent of the vacant space available, according to John Stater, research manager at Colliers. He says rents will decline even more and offers of free rent will continue.
In the office market, the firms report a vacancy rate of 18.7 percent, up from 17.5 percent in the third quarter — a record level. The asking rents fell to $2.40 a month, down from $2.43 in the third quarter. It was $2.69 in the fourth quarter of 2007.
Restrepo says he expects the vacancy rate to rise throughout 2009 given the economy and demand for space. At the end of 2008, 1.4 million square feet of office space was under construction, much of it high-end buildings in the northwest and southwest, the firms note.
Constructing is tapering off, but the office market won’t show any signs of recovery until 2010, Restrepo says.
Brian Wargo covers real estate and development for In Business Las Vegas and its sister publication, the Las Vegas Sun. He can be reached at 259-4011 or at [email protected]