Friday, March 11, 2005 | 6:29 a.m.
WEEKEND EDITION
March 12 - 13, 2005
This graphic pinpoints the apartments across the valley converting to condos. You will need the Adobe Acrobat Reader to see this graphic.
http://www.lvsun.com/graphics/condos.pdf
For those renters, the cost of living has been going up, and is about to go up more.
Gone are the days of free rent, televisions for renewing a lease and other incentives to attract people to an apartment property.
Enter decreased supply, price increases and waiting lists.
There are about 165,000 occupied apartments in Las Vegas; they house an estimated 400,000 people.
As many as 16,000 of these apartments are being converted to condominiums or soon will be.
Combined with the lack of new apartments being built and the rapid influx of new residents into Southern Nevada, the condo conversions will contribute to a tighter rental market, driving rents higher and making apartments harder to find.
But the new condos will also make entry-level housing more affordable for people who otherwise might not be able to buy, and will provide opportunities for investors.
Higher rents
The valley's apartment renters are expected to take the brunt of the effect of the condo-conversion craze in the form of higher rents.
Finding apartments will also be more difficult.
"Residents have been displaced for that (condominium) growth," said Christopher LoBello, regional manager for national brokerage firm Marcus & Millichap. "We are going to have more renters in the marketplace than you have product."
Howard "Woody" Wood has lived at his southwest apartment complex for almost five years, following the death of his wife and the sale of their house.
Wood was recently told that his apartment complex was being converted to condominiums and he'd have to buy or move out when his lease is up in April. Citing his age, Wood said he'll be moving out.
"It is very unsettling. You live somewhere, and I figured I'd be here for a long time," Wood, 67, said.
Last weekend, Wood's son helped him move the belongings from his apartment. Wood said the search for a new apartment was difficult.
"I've looked all over this area, and all the apartments are smaller and much more expensive and some have waiting lists," Wood said, adding that he currently pays $810 for a two-bedroom, two-bathroom apartment.
Wood said he has found an apartment in the far northeast part of town and will move there when his current lease is up.
Vacancies have been falling and rents have been increasing -- from an average of $768 per month at the end of 2003 to $805 at the end of 2004 -- an increase of just under 5 percent.
But renters should brace themselves for more rent hikes -- as high as 10 percent -- local industry watchers said.
Those living on fixed incomes find the steeper rents tough to afford.
Retired teacher Jo Ann Wade said her rent recently increased by $40 and her Henderson apartment complex started charging an additional $17 for water -- a fee that was included in her rent before.
She is now paying about $900 a month for a two-bedroom apartment.
Unhappy with the increase in rent and fees, and with what she said was a decrease in the services provided by her complex, Wade went searching for a new apartment but couldn't find anything she liked at a price she could afford.
"The ones I really liked were much more expensive, at least $100 more. The newer ones were $1,000 a month for a two-bedroom," she said.
Elizabeth Garcia, who works as a community liaison, said the rent for her Henderson unit went up by about $50 in December, bringing her rent to $850. Garcia, who does not live in the same complex as Wade, said she also was told her utility charge of $30 was going to increase.
Garcia said she's been trying to purchase a house but hasn't yet saved enough.
"I now have the lease till June," she said.
Real estate insiders say owners want to make up for small rent increases in recent years.
"The last four years we've hardly had any rent growth," Christopher Bentley, principal/ broker of the Bentley Group Real Estate Advisors, said. "We're just going back to normal now."
It is the perception of new owners of apartment buildings that rents are too low that is pushing rents up, said Doug Schuster of NAI Horizon's multi-family investment division.
He said the premiums people are paying for the complexes point to a future increase in rents.
"It is going to be huge; it has to be," Schuster said.
Not all of the condo conversions will reduce the supply of available rentals, as many of the new condos will be bought by investors and rented. But experts expect those units' rents to increase along with the rest of the rental market.
Most developers use mortgage lenders underwritten by Freddie Mac -- which allows only 30 percent of the units to be investor-owned, while 70 percent have to be owner-occupied.
Despite those rules, industry experts said Las Vegas is one of the worst markets when complying with Freddie Mac guidelines. Local experts said history indicates that in many projects as many as half of the buyers are investors.
Even though converted units may come back on the market for rent, most expect they will be at higher rental rates than when they were taken off the market, in part to cover expenses of the conversion.
"The bad news for the renter is that those that do come back will come back at a higher price, and the justification will be that it's a condominium," Schuster said.
Tighter supply
With Las Vegas leading the nation in job growth at the end of last year with 5.3 percent compared with 1.7 percent nationwide, rental units in the valley continue be in high demand.
"Waiting lists will be a reality," said Spence Ballif, first vice president of CB Richard Ellis, Las Vegas. "I think it will happen."
At some apartment complexes, it already is happening.
Camden Property Trust, one of the largest owners of apartment properties in Las Vegas, with just under 10,000 units, already has waiting lists at 33 area complexes.
Karen Mordue, Camden regional marketing director, said whether one of its complexes will or will not have waiting lists is dependent on the location and what type of unit is in demand.
"We are trying to counsel people to start looking about 60 days out from when they need to move," she said.
Andy Miller, senior vice president at Picerne Development, an apartment development company, said the apartment market will be tight for the next couple of years.
"I think that by the end of the year we will begin to see a shortage emerging," he said. "It won't necessarily be a severe shortage, but it will be more difficult for people to find apartments in a certain time frame and at rents they expect to see."
Picerne is one of the few companies developing new apartment complexes in Las Vegas. It has six in its portfolio and has five in development -- and the company bought back some of the rental properties it developed but sold off years ago.
Miller said the company is willing to invest in Las Vegas even if the returns in the short run aren't very strong. He said that is one reason many companies are looking toward other types of development.
It is estimated that fewer than 4,000 new apartment units will be completed this year, down from an average of about 7,000 units a year for the past few years.
"The returns for alternate types of developments are generally much higher in Las Vegas, so the production of apartments is much lower than in years' past, and yet the growth rate remains extremely high," Miller said. "Until developers start achieving higher income levels from higher rents, there is not a strong economic motivation for significant additional development."
Another reason for the lack of apartment development is the lack of good locations, said Dennis Smith, president of Home Builders Research Inc.
"You don't see a lot of new apartments being built because of the price of land and lack of Class A and B land (premier sites) for apartments," he said. "The good locations for land are gone."
Class A properties are generally defined as those that have the most amenities, were built with first-rate construction materials and have a prime location.
Whether or not all the units planned for conversion are actually converted and sold has yet to be seen. Last year 667 converted apartment units closed escrow and another 333 closed escrow in January, Home Builders Research Inc. reported. Smith expects 6,000 condo conversions to close escrow this year.
One reason for what appears to be the low number of condos that have closed escrow so far is because of the time it takes to convert the units, Bentley, of the Bentley Group Real Estate Advisors, said.
"The rehab is not done right away. The developer converts one phase, which is maybe three out of 12 buildings, and continues to run the other ones as rentals," Bentley said. "Once they sell out those three buildings, they convert another one."
While it can take several months to close on an apartment-to-condo conversion, sales for phase one last weekend at Sedona on the Boulevard, formerly Camden Harbor, appeared to be brisk -- in a 10-minute time span Sunday afternoon more than 20 people came in to view the models. In two days more than 60 units for the property, at Las Vegas Boulevard and Pebble Road, already had been spoken for, sales agents said.
A chance to buy
Many in the industry said the converted units would -- and still will -- offer people who have been squeezed out of Las Vegas' heated housing market a chance to own their own home.
Most of the units start in the low $100,000s and increase to more than $285,000. While some may balk at paying that much for a converted apartment, it's still a cheaper option than buying a new single-family house and in most cases a resale single-family house, which ended the year with the median prices of $290,287 and $250,000, respectfully.
So is a converted apartment worth the money?
"Of course it's a good deal," Schuster said, citing the upgrades that accompany many apartment conversions and the chance to own property instead of rent.
Many people have bought condos throughout the valley because, for them, it offers the chance of home ownership, and for others it offers the chance to dabble in real estate investing.
Milo Kostelecky purchased a unit at Bella Vita, near Decatur Boulevard and Flamingo Road, as an investment. He said because the unit is supposed to be owner-occupied for one year, he is leaving it vacant in the meantime or letting friends use it as a weekend getaway when they are in town.
Kostelecky, who owns a company that services the construction and development industry, said he purchased a one-bedroom, one-bath unit for about $110,000.
"I personally think that whole area will be a good location five years down the road," he said, citing the nearby casino projects and mixed-use developments on the drawing board.
Ken Baxter, president of Performance Marketing, who is working with developers to renovate, market and sell condo conversions, has tracked more than 20 complexes now in the selling stages.
Baxter said many of the people buying the units are single parents, both male and female, people who are downsizing their homes and those new to town.
"This is the affordable price range," he said.
Last spring Jace Hardy started looking for a house to purchase, but found nothing but increased prices and bidding wars.
"I didn't know what was going on at the time, a house was on the market for a day and had 20 offers on it," he said. "I got discouraged."
So instead of purchasing a house Hardy, an airline pilot, decided to buy a converted condo at Bella Vita. He paid $132,000 for a two-bedroom, one-bath unit.
Hardy said while it's a good arrangement for him now, he still hopes to buy a house in the future.
"I wanted to put my money into real estate and I needed a place to live," he said. "I hope to be there a year or two, then buy a house."
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