Foreclosed, vacant homes pressure apartment rents

By Brian Wargo (contact), In Business reporter

Fri, Apr 10, 2009 (2 a.m.)

Expert: Index points to lingering recession in Las Vegas

Apartment occupancy dips due to economy, unemployment (2-20-2009)
Foreclosure crisis also hitting renters hard (1-30-2009)
Apartment rental, occupancy rates fall with home prices (1-22-2009)

Real Estate in Crisis

When the foreclosure crisis hit Las Vegas, many expected apartment-complex owners to be the beneficiaries because those out-on-the-street homeowners needed to live somewhere.

But the reality is that the shadow rental market of homes and condominiums continues to put pressure on apartment-complex owners, whose vacancies are increasing. They must offer incentives and cut rents to lure tenants.

“Obviously, the problem with foreclosures is they dramatically impact apartments, and the shadow rental market is continuing to grow,” said Dennis Smith, president of Home Builders Research. “The people moving out of their home because of foreclosures — they think they are going to move into an apartment, but chances are they can go out and find a 1,600-square-foot house for $1,000 or $1,100. And it is easier for them to qualify with the owner of the property than to go to an apartment and try to qualify through their process.”

Unfortunately for apartment-complex owners, home foreclosures aren’t slowing and won’t provide relief anytime soon, Smith said. The federal government’s efforts to ease the housing crisis won’t help overnight, he said.

“We are in this for a number of years,” Smith said. “I don’t see anything changing until late 2010 or 2011 at the earliest for any kind of turnaround and prices to stop going down. I think you are going to see single-family (homes) put downward pressure on the apartment segment for at least another two years at a minimum.”

It’s incorrect to call home rentals the shadow market any longer because it is in full-blown competition with apartments, said Frank Castro, supervisor for the Housing and Urban Development’s local office. With foreclosures getting worse and condominiums coming on line as rentals, they are putting a lot more pressure on the industry to trim rents, he said.

“I think 2009 will be our worst year in every aspect as far as multifamily (housing) is concerned,” Castro said.

In the past, apartment-complex owners could get rents that paid for property amenities, but that’s no longer the case, Castro said.

“We just need to hold on to this year, and see what we can do,” Castro said.

John Tippins, a broker with Northcap Commercial and owner of Tippins Holdings, said he’s worried about the inventory that’s about to come on line to compete against apartments. Many condominium towers are going to provide some stiff competition, he said.

“It is not the current inventory I am worried about, but the new inventory,” Tippins said.

Tippins also said competition is stiffer from homeowners as well.

“For the first time in four to five years, you can get a three-bedroom, two-bath on the beltway market from Summerlin to Green Valley for $1,150 a month. That is pretty scary,” Tippins said.

Tippins suggested apartment-complex owners create alliances with retailers, health clubs and other local businesses and make it more attractive for people to rent their units instead of homes.

“Single-family homeowners are not going to have those alliances,” Tippins said. “They have to get more than just the complex when you are competing for the same dollar.”

Castro said even though the high-end apartments are struggling, it’s the lower-end properties that are hurting the worst. When casino jobs are cut, that means fewer renters, and all anyone has to do is drive around and see vacant commercial space to see there are fewer jobs in the valley, he said.

“Those were people who were renting,” Castro said. “And unlike the Arizona rental market, many of the folks here don’t have any ties to Las Vegas and if they lose their job, they are not going to stay around and see if they can make it. They are gone.”

As for new complexes, many were built when land prices were much higher than they are today, and that restricts what rents can be charge to be to be profitable, Castro said.

Tippins said the drop in land prices, however, will pave the way for future projects. Land is cheaper today, for example, in the southwest valley than what apartment developers paid for in North Las Vegas.

Discussion: 15 comments so far…

By pmmart

4/10/09 at 6:55 a.m.

Suggest removal

Mr. Tippins

You need to talk to Hampton Gardens to learn how to maximize your return by making sure that you have received everything that the turnips have when they decide to purchase a home and end their stay at the complex.

They can teach you how to properly shrug your shoulders when the tennats complain about their possessions "growing feet".

These fine managers will not only assist the community by turning their tenents into prospective home buyers they will do their best to make you happy to leave.
By stevem

4/10/09 at 8:45 a.m.

Suggest removal

There's simply not enough jobs here anymore to fill all the rental properties and that's going to make demand go down and rent prices will follow.

I love the logic of people that are buying foreclosure homes to rent them out thinking "People will be forced to rent. I'll be rich!"

Umm...no, people are leaving Las Vegas.
By neiman1

4/10/09 at 10:32 a.m.

Suggest removal

The next round of bank problems are coming with defaults on rental property and retail centers. With chains closing commercial property rents are falling off a cliff and there will be huge losses. Thanks harry Reid, your desire for economic reality is coming true. Soon we will all be as broke as your ACORN buddies.
By Nick

4/10/09 at 1:02 p.m.

Suggest removal

StevenM, where are these people going? back to Ohio and Michigan where the jobs are?

People buying property now are smart. You follow the herd, it will not make you wealthy.

Granted rents will drop and this won't end for a while. Buyer beware
By davidwayneosedach

4/10/09 at 2:23 p.m.

Suggest removal

There is yet another market. Renting out your house to two or thre different people @ $500 a pop.
By Angry_Reader

4/10/09 at 2:33 p.m.

Suggest removal

Dennis Smith is deluded if he thinks the federal plan is going to help anyone in Las Vegas.

The plan is limited to homeowners that are only 5% underwater. I think the stats on the percentage of homeowners that are far more underwater than 5% are quite high in southern Nevada.

Harry Reid is trying to address this, at least his staff's 'boiler plate' responses to my emails claim he is. I'll believe it when I see it.
By perry161492

4/10/09 at 8:26 p.m.

Suggest removal

when i drive around i look in apartment complex i see alot empty parking spaces i agree if people don't have any family here they take off to who know were good riddence. they need to passed the new bankruptcy bill to stop this slide if they don't you will see alot more foreclosure and alot more chapter 7 and you will see alot more people leaving state and that means less tax either property or sales money
By NevadaFive

4/10/09 at 8:42 p.m.

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Three years ago during the "height" of the buying craze apartment owners suddenly raised rents and qualifications. My sister (recently divorced), two children and a cat went looking to rent. While her salary put her in a higher range and better apartments - her credit score was low due to unpaid hospital bills - although she was making payments, and had decent credit card history. Nope! One complex after another turned her away. The best she got was a first/last and security for near $2300 up front and a one-year lease. Instead she moved into one of those notorious Budget Suite arrangements. For nearly two years she scrimped and saved - now the "housing crises" is her best friend. Last month she easily qualified (still had those hospital bills) for a $110K three bedroom condo in north west Vegas. HA, HA , HA !!! You idiot apartment owners! In retrospect: the apt owners did her a favor. For if she fell for their greed she'd be paying near $1K a month for a two-bedroom apt. instead of the condo at a lower price. What goes around, comes around, eh?
By stevem

4/10/09 at 10:53 p.m.

Suggest removal

las vegas has one of the highest unemployment rates in the country and most of the jobs here are $9 and $10 per hour jobs.

they're leaving vegas to go wherever they find a job.

just go to craigslist and go to things for sale and type in "leaving town" and you'll see what i mean.
By POWERPLAY

4/11/09 at 2:54 a.m.

Suggest removal

One amazing site to see is that there are still new apartment complex,s still being built in las vegas and most are huge anywhere from 500 to 1000 units. How are they going to fill those units, and if they don,t then the only other option is to roll the whole complex into condos, and that,s just like buying a house anyway.
By bldblu

4/11/09 at 1:27 p.m.

Suggest removal

LMAO Yes I am one of the middle class who lost job,some credit points due to late payments,,but YOU management complexes just wanted my 50.00 to turn me down in 15 minutes,,Well Im laughing now.. 2 days after being turned down,,Contacted local homeowner,,explained my situation,,homeowner called me back next day and I was moved into summerlin 1500 sq ft 3br/2bth w/2 garages within 5 days.Im not proud of what I had to do to survive ie,, late on a couple payments,etc,,but you highbrow management companies are the morons,,I see your same complexes advertising 699 move in special,,and youre still vacant,,with all of that overhead,,only a matter of time till your credit score drops.Before anyone says well you lost your job,,why would i rent to you?. Because I had 17,000 savings,60,000 in 401k,,and unemployment benefits from 17 yrs employment at a rate of 523.00 weekly,,so i more than qualified for a 1br apt in spring valley for 699.00 monthly,,but everyone relies on that 3 digit score to determine someones worth,,well go ahead corporate america,,and make that assumption,,because 33% of americans credit score has dropped 50 or more points in the last 4 yrs,,and without giving one an opportunity,,there will continue to be articles addressing this situation above
By kanela09

4/11/09 at 11:08 p.m.

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It can be really disheartening driving around Las Vegas....a lot of abandoned buildings, foreclosures everywhere, dirt lots for sale. I moved here 5 years ago and I'm looking to move back to California. Although, I'm gainfully employed, my husband was laid off. Being in the financial services I expect he'll have a tough time finding something suitable here. Vegas has very low wages. I think stevem comment is right...most people don't have ties to Vegas. There's no reason to stay here if you can't find a job.
By perry161492

4/12/09 at 11:47 a.m.

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these apartment need to make deal like for 2 years you get this price and so on
By perry161492

4/12/09 at 11:55 a.m.

Suggest removal

u r right stevem i see that around apartment there alot empty space there. people who got layoff they fiqure why stay here there no family connection so they leave. i am just courious how many people leave this state. i am from out of state i moved here in 92. got married to a local so i can't leave i am here for life. there going to alot people leaving this state when all the high rise finish. i hope all out of stater leave