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August 20, 2014

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Downtown builder gets good land deal

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The prospective builder of a high rise that officials hope will become a center for the jewelry industry is on his way to landing a good deal for a chunk of Las Vegas' 61-acre parcel known as Union Park.

The proposed deal would have the city sell 5.4 acres for $9.4 million - or roughly $1.74 million an acre - to California developer Robert Zarnegin.

That's far below the value some city officials have touted as the norm for downtown and the market value of the land on the 61 acres, according to recent appraisals.

Las Vegas Mayor Oscar Goodman has said downtown land, and Union Park land in particular, is probably worth $5 million or more an acre.

But the mayor said that, unlike private businesses, for the city "sometimes money is not the only object."

"The city tries to make a place a better place, a more important place," he said.

The city's Office of Business Development Director Scott Adams said the proposed price for Zarnegin of $40 per square foot is below fair market value, but it is still a good deal for the city because of the project.

"This is as much an economic development project as a redevelopment project," Adams said, adding that as many as 2,000 people could work in the building.

Adams said land on the 61 acres is worth $48 a square foot based on the average of the three most recent appraisals. If calculated at that higher value, the city should be charging $11.25 million for the land.

Some recent downtown land sales also show a higher price for that area.

For example, in March 2005 downtown high-rise developer Sam Cherry paid $1.7 million for less than a quarter of an acre at Gass Avenue and Third Street. (The land is slated for Cherry's third condominium high rise called Stanhi.)

More recently, an investment partnership headed by Nevada Attorney General George Chanos sold 3.5 acres just southeast of where Interstate 15 crosses Charleston Boulevard for $10 million - or $2.85 million an acre. (It is part of the future site of the massive Wall Street Towers project.)

But land-deal analysts and others in the business agreed with city leaders and said the proposed transaction isn't necessarily a steal for the developer. Instead, the price may be just right for land planned to hold an office building.

"At one time people said you might pay $6 million an acre and then have to build 30 stories, but none of those projects got off the ground because of construction prices and labor availability," said Brandon Slater of CB Richard Ellis. The land broker was referring to the convergence of the high prices for land, materials and labor that have hit the area.

"So, $1.75 million is probably on the low side, but you have to sell it to somebody at a price where they can still get a project done. You sell it for a little bit of a discount, but you get something done."

Another factor influencing the price is that the land would be home to an office building and shopping center, which make a developer far less money than a condominium tower.

Brian Gordon of Applied Analysis, a real estate and business advisory firm, said residential developers can pay more for land because buyers pay more for homes than for office space.

For example, in downtown some buyers are paying more than $500 per square foot for condominiums. He said in general downtown office space is renting for $2.40 per square foot per month.

The City Council voted Wednesday to give city staff the go-ahead to enter into a 12-month exclusive negotiating agreement with Zarnegin's group. Redevelopment projects such as this are exempt from the state law that requires local governments to put land for sale on public auction.

Zarnegin said the building would "create a new industry in Las Vegas," as it would become the home of corporate offices for manufacturers and wholesalers, and include a new retail center for customers.

The building, which he said would be "at least 40 stories tall," is projected to include 500,000 square feet of commercial space plus 100,000 square feet of retail space. It has been named Project Splendor.

Much like the neighboring World Market Center has made Las Vegas a major player in the furniture industry, the mayor said, "This will make us the jewelry center of the world."

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