Vacancies don’t deter longtime LV developer

By Brian Wargo (contact), In Business reporter

Fri, Jun 12, 2009 (3 a.m.)

No one has to tell Roland Sansone that the office vacancy rate in Las Vegas is 20 percent.

Sansone, CEO of Sansone Development, is wrapping up grading and utility work in Henderson in preparation for construction of a three-story office building south of Interstate 215 and St. Rose Parkway.

The 60,000-square-foot office building is part of a 100,000-square-foot development that has four retail buildings.

Sansone, who has been a developer in Las Vegas for about 30 years, said he is able to proceed with his $25 million project because he lined up financing a year ago before the credit markets dried up.

Without that earmarked money, the only option for getting financing today is putting down about 30 percent of the project’s cost and having the building at least 50 percent leased, said Sansone, whose two other planned projects are attempting to secure financing.

“Developing today is a bit of a challenge,” Sansone said. “We have a large vacancy rate in the market and what happened is lower lease rates and now people can go and buy for less than the cost of construction.”

Then why does it make sense for developers like him to build?

One reason to develop an office building is if it’s in a prime spot, because tenants in older areas such as Sahara Avenue are looking to move to a visible area with freeway access, he said.

Another reason to build is that the cost of construction is lower by about 20 percent today than it was during the boom years, Sansone said.

Owning office buildings today has been challenging for many developers, but Sansone said he is fortunate because his half-million-square-foot office complex in Green Valley is 95 percent occupied. It takes an effort to offer incentives to lure tenants who are willing to move, he said.

About 40 percent of his proposed project is leased, including 30 percent of the office building, Sansone said. Even though it will take nearly a year to complete the building once construction starts, prospective tenants are willing to sign leases ahead of time if they get good rates and are at prime locations such as I-215, he said.

“We had a lot of people question whether I am being too bullish on the economy, but whatever I start today, it is going to be a year before it is ready,” Sansone said.

By that time, Sansone said, he hopes that the economy improves. There are still plenty of businesses that are doing well despite the recession, he said.

“I have a positive outlook,” Sansone said. “I think we have suffered the worst and are starting to see daylight at the end of the tunnel.”

Sansone’s optimism comes as the office market continues to struggle.

The office vacancy rate in Las Vegas surpassed 20 percent in the first quarter and rents are tumbling and show no sign of slowing, according to Restrepo Consulting. The number approaches 22 percent when sublease space is included.

Of the 40.6 million square feet of office space, 8.1 million square feet is vacant, the firm noted.

Office vacancy rates won’t go lower this year because of the weak economy and because more than 600,000 square feet of speculative space is under construction, Restrepo Consulting Principal John Restrepo said.

“I don’t expect the office market to see signs of a sustained recovery until some time in late 2010 or early 2011 at best,” Restrepo said.

The monthly average asking rents were $2.28 a square foot at the end of March, down from $2.40 a square foot at the end of 2008. A year ago, landlords were asking for $2.52 a square foot.

The one-time shining star of the office market, high-end Class A space, had the highest vacancy rate at 26.6 percent.

The lowest vacancy rate was for Class B space, the second tier of space that is prevalent in the suburbs at 17 percent. Medical offices had a 17.8 percent vacancy, Restrepo said.

The vacancy rate in newly created space was 76 percent, Colliers International reported.