Analyst: Apartment market points to further deterioration

By Buck Wargo

Fri, Apr 24, 2009 (2 a.m.)

The Las Vegas apartment market should deteriorate more in the first three quarters of the year before stabilizing in the fourth quarter, according to CB Richard Ellis in its latest review.

Las Vegas is facing challenges because of job losses, home rentals and apartments construction, which will put pressure on occupancy and rental rates

Investors, developers and existing owners are looking forward to a brighter 2010 with the opening of resorts on the Strip that will create jobs, said Spence Baillif, senior vice president of multifamily housing with CB Richard Ellis. In addition, the new standards to qualify for homeownership will create more demand for rentals despite falling home prices, he said.

In its most recent report CB pegged the vacancy rate at 10.9 percent through the end of 2008. That broke down to 9.9 percent for high-end apartments, 11.3 percent for Class B (the second level) and 11.5 percent for the lower-end Class C apartments.

For 2009, Green Valley and the southwest valley should be the best performing areas because of their desirable master-planned communities, Baillif said. The northwest valley and North Las Vegas should be the poorest performing because of the large amount of construction and longer commute times.

Rental rates should decline and concessions will increase during the first three quarters of this year before stabilizing in the fourth quarter, Baillif said.

Green Valley and the southwest valley have had the highest rents with averages of $1,006 and $968, respectively. The northeast valley, whose rents declined 2.7 percent in 2008, has the lowest rents in the market with an average of $785.

Rents fell 1 percent in 2008 and by the end of the year 92 percent of properties were offering concessions, Bailiff said. The most common was one month free rent in addition to rent reductions and reduced move-in costs.

CB Richard Ellis projects 6,000 apartment units will be completed in 2009, an increase of 43 percent over 2008 when 4,200 units were completed. Over the past 12 years, Las Vegas has added about 5,300 units a year, Bailiff said.

Most of the construction is in the northwest valley and North Las Vegas with 2,576 units and 1,734 units, respectively, expected to be completed this year, he said.

The southwest valley and Green Valley will have the fewest units added because of the lack of land.

By 2010, the amount of lending and the apartment market should limit construction to fewer than 3,000 units, Bailiff said.

As for sales of apartment complexes, Jeff Swinger, a senior vice president of multifamily housing for CB Richard Ellis, said it’s expected to be similar to 2008, when 13 transactions of 100 units or more were completed, down 67 percent from 2007.

Bank foreclosures will be the No. 1 source for opportunities with buyers looking to take advantage of distressed properties, Swinger said. Owners who don’t have to sell will wait for better market conditions and more liquidity in the lending market, he said.