Las Vegas Sun

May 26, 2019

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Las Vegas apartment market still in grip of recession

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Sam Morris

Move-in specials and deals on amenities, such as these at the Mountain Vista apartment complex, are among enticements being advertised to attract Las Vegas Valley renters. High unemployment and stagnant growth have reduced the demand for apartments.

By The Numbers

  • $40,300: The average price per unit of apartment complexes sold in Las Vegas in 2009. Average price per unit was $72,200 in 2008, and $108,500 in 2007.
  • 11: The number of Las Vegas apartment complexes — with 100 units or more — that were sold in 2009. In 2007, 42 complexes were sold.
  • $525: Monthly rent for a two-bedroom unit at one complex in the southeast Las Vegas Valley. Monthly rent had been as high as $710 per month in 2007.

Nevada is not only at the top of the list in home foreclosures. The state also leads the nation in the percentage of delinquent loans for apartment complexes.

Nearly one in four loans for multifamily residences that rely on commercial mortgage-backed securities are in arrears, according to Fitch Ratings. That’s about double the national average.

Rents will remain depressed as landlords offer significant concessions to sustain occupancy levels, said Mary MacNeill, a managing director at Fitch Ratings. High unemployment and stagnant growth have reduced the demand for apartments and, therefore, cash flows, she said.

“Nevada has a stressed multifamily market,” MacNeill said. “It’s certainly showing a lot higher deterioration than the rest of the country.”

Despite the high number of delinquencies, lenders are reluctant to foreclose on apartment owners, MacNeill said. That would drive down values and rents, she said.

Michael Belnick, an apartment market specialist for Re/Max Central Commercial, said frustrated investor groups are waiting on the sidelines to gobble up foreclosures, but lenders haven’t been putting them on the market. Many are managing the properties and waiting for the market to recover before selling them at better prices. Lenders are working with apartment owners to help them get through the recession, he said.

“Nothing makes sense right now. We are not getting the amount of product that was anticipated,” Belnick said. “The vulture-fund people with the dollars don’t like it because they don’t have access to the product. They are not getting anywhere.”

Belnick attributes that to federal banking regulators relaxing rules for commercial properties and reserve requirements.

This has affected the sale of apartment complexes of 100 units or more. Just 11 changed hands in 2009 in Las Vegas after 42 were sold in 2007 and 17 were sold in 2008, according to Belnick.

More activity has been in the fourplex market, with 416 sales in 2009 in Las Vegas, nearly doubling the 209 sales in 2008, Belnick said.

Of properties that are on the market, many transactions have multiple offers, sometimes driving up the price, Belnick said.

The investor groups, however, are looking for bargains.

“If a property is running at 25 percent vacancy and expenses are running high, they are not going to pay $60,000” per unit, Belnick said. “We have a test of wills going on right now.”

The price per unit for all complexes sold in 2009 in Las Vegas was $40,300, down 44 percent from $72,200 in 2008. It was as high as $108,500 in 2007. That’s a function of rents and occupancy, Belnick said.

Belnick cited the Village at Karen in the southeast valley — a cluster of fourplexes run as one big complex. In 2007, it cost $690 to $710 a month for a two-bedroom unit; today that’s down to $525 a month and there’s a 25 percent vacancy rate, he said.

Lloyd Sauter, co-owner of the Sauter Cos. real estate brokerage, said he has seen a noticeable increase in interest by investors who think the apartment market has bottomed out and don’t expect any more declines in rental rates.

Many apartment owners are reluctant to sell because they would receive less than they would spend to build a new complex, Sauter said.

Most of the foreclosures have occurred in older lower-end properties that were bought for $60,000 to $70,000 a unit. They’re worth about $30,000 today, Sauter said.

Owners of newer complexes are in better financial positions to wait out the economy, he said.

“We have a lot of money laying on our desk that wants to invest in Las Vegas,” Sauter said. “What we are saying to aggressive buyers who want to be in Las Vegas for the long term is that they are going to have to adjust and take a little risk. We haven’t convinced heavy-duty buyers to pay more than they are worth today. They are not that excited about that.”

Despite the downturn, Belnick said he’s optimistic about a recovery because he thinks there will be a shortage of apartment units in a couple of years because of the lack of construction.

The strongest demand among tenants will be for older, more affordable complexes with fewer amenities, which are in shorter supply because much of the construction has been on high-end units, Belnick said.

The apartment market will recover and rents will go up again, Sauter said. But it is tough, he said.

“There are lot of frustrated people out there,” Sauter said. “What we have are a tremendous amount of people in the construction industry who have lost their jobs and can’t pay their rent. They walk from one property to the next.”

This story appears in the current issue of In Business Las Vegas, a sister publication of the Sun.

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