Las Vegas Real Estate Rebound Continues as Most Southern Nevada Land Sold in Single BLM Auction Since Height of the Local Market

The Las Vegas real estate market continues to show signs of improvement as the Federal Bureau of Land Management recently sold its largest amount of land in a single auction.  In the auction, which was held inside the Clark County Government Center, the agency auctioned off 818.7 of 856.2 acres it put on the market.  This was the largest sale since Southern Nevada’s boom era.

The 34 parcels sold for a total of $94.5 million, or 10.7 percent more than the $85.4 million total starting price tag on all 39 available lots.

Auction winners included names that have become familiar since the competitive oral auctions resumed in January 2014.  Homebuilder, American West Development, bought 37.5 acres for $7.6 million and another big, local homebuilder, Lewis Investment Co. of Nevada, picked up 77.3 acres for $23 million.  The Roohani family, which owns development companies and has been amassing a land portfolio partly through the auctions, also bought several parcels.

The biggest parcel sold was a 247.6-acre plot at Hollywood Boulevard and Cheyenne Avenue. The land was listed for $1.85 million and sold at that amount.

This site has been on the auction block several times in recent years but hasn’t had much luck getting out of the development gate. A limited liability corporation called Sao Tome bought the land at auction in May, but records with the Clark County Assessor’s office show the entity never closed on the purchase. Secretary of State records don’t list the company’s officers.

The land’s development barriers include a gravel pit, mineral rights that belong to a third party, and a location inside Nellis Air Force Base’s live-ordnance loading area.

Vision Commercial One, which lists former Focus Property Group and current Colliers International Senior Vice President, Vince Schettler, as its manager, bought the land.

Vision Commercial One also bought two other parcels: a 2.5-acre piece at Johnson Street and Gary Avenue, for $525,000, and a 140-acre site at Larson Lane and La Cienega Street, for $12 million.

The auction was the biggest since the November 2005 sale of more than 2,900 acres across the Las Vegas Valley.

Sale proceeds go to the state’s education fund, the Southern Nevada Water Authority, public parks, and the purchase of environmentally sensitive land. Past auctions have funded the $25 million renovation of Lorenzi Park, as well as the visitors’ center at Red Rock Canyon National Conservation Area, outdoor features at the Las Vegas Springs Preserve, and amenities at Lake Mead.

For more information about the Las Vegas real estate market, or to discuss investment opportunities, please contact Brazill Team Real Estate.


Final Part of Showcase Mall on Strip Sold for $83 Million

Though it took more than a year, a group of New Yorkers have completed their nearly $370 million buyout of Showcase Mall on the Strip.

Jordache jeans founders, the Nakash family, and real estate investor, Eli Gindi, recently paid $82.85 million for a roughly 42,000-square-foot section of Showcase, which is known for its giant Coke bottle and M&M’s out front.

Property records show the sale, by Showcase’s original developer Barry Fieldman, officially closed on December 2, 2015.

Fieldman first invested in the site in the early 1990s. Back then, he said, Showcase’s current footprint had Chevron and Union Oil gas stations, as well as Island Plaza, a pink, single-story retail center.

The sale marks his exit from a property with a complex history of multiple owners, expansions, ground leases, and spats with higher-ups at neighboring MGM Grand.

“This has been a 25-year journey for me and my partners,” he said.

The purchase also gives the Nakash and Gindi group full control of a roughly 330,000-square-foot mall with little vacant space and heavy foot traffic out front, complete with street performers, in the pedestrian-packed casino corridor.

The sale marks the latest investment in a Strip retail property.  Over the past two years, a handful of new retail properties have opened as more tourists avoid card tables and slot machines to shop, dine, party, and enjoy other activities.

Fieldman sold the mall’s southern portion, whose tenants include the Adidas sports-apparel store and the Grand Canyon Experience souvenir shop.

Showcase, on Las Vegas Boulevard just north of Tropicana Avenue, is almost fully occupied and sits in a “prime location” on the Strip, Nakash Holdings managing director Jonathan Bennett said.

Foot traffic is “only getting better,” he said, noting that the 20,000-seat Las Vegas Arena is being built across the street. It’s scheduled to open in spring 2016.

He also said Showcase would get improvements to its facade and have an “ever-increasing variety of stores.”

Gindi, of Gindi Capital, did not respond to a request for comment Tuesday.

The Nakash family’s Jordache Enterprises conglomerate has investments in agriculture, clothing, real estate, aviation, and television. Last year, after the Nakashes and Gindi bought their first portion of Showcase, Bennett indicated the group might spruce up the Coca-Cola bottle with LED lighting, Times Square-style.

They bought that 190,000-square-foot chunk in May 2014 for $145 million from New York investment firm Angelo, Gordon & Co. and San Francisco-based developer City Center Realty Partners. In January 2015, they teamed with New York home-curtains manufacturer Elyahu Cohen to buy a roughly 100,000-square-foot section for $139.5 million from Beverly Hills, Calif.-based Unilev Capital Corp.

Fieldman and developer Bob Unger opened the first phase of Showcase in 1996, said Fieldman, who butted heads with the MGM Grand.

“In board meetings, they called me ‘the cancer that grew,’” he said of casino management.

Only one or two people from those days still work for MGM, he said, and relations have been fine in recent years.

Fieldman, who moved to the valley in 1978, also said that in the late 1980s and early ’90s, Las Vegas “was a pariah” largely shunned by corporate America. He noted that even when Citicorp opened a credit-card processing center here in 1985, which business boosters saw as a major victory for a casino-heavy economy shaking off decades of mafia power, the New York financial giant scrapped “Las Vegas, NV” for its mailing address and opted for “The Lakes, NV.”

But in the ’90s, Fieldman said, his group signed deals with Coca-Cola and M&M’s, brands that are as “apple pie” as any, to open stores on the Strip with prominent signage.

“Nobody else was heading that direction,” he said.

Today, the sidewalk in front of Showcase, like other parts of the Strip, is a magnet of sorts for another type of enterprise: busking.

On a visit this week, people dressed as Batman, Captain America, the Incredible Hulk, Iron Man, Mr. T and Tupac Shakur had gathered near an entrance to MGM Grand not far from Showcase, to take photos with tourists in exchange for tips. Others had lined up in formation, preparing to dance to thumping music.

Outside Grand Canyon Experience, 63-year-old Boris Ruiz, a Guatemala native who lives near UNLV, was wearing a Santa Claus outfit with the head of Mickey Mouse. He said he goes there three times a week sometimes and has made more than $200 a day.


After Years of Delays and Defaults, Southwest Valley Development Rises

Over the last decade, when Las Vegas’ construction industry was white hot, few areas experienced as rapid growth as the southwest valley.

Bolstered by new freeway access and a strong economy, investors flipped land for profit and built subdivisions, strip malls, office buildings, and hospitals, with even more plans for an area that years earlier was largely open desert.   Business then plunged with the recession, all but stalling future growth.

Today, as the economy improves, few places are seeing as much improvement as the southwest valley. Developers are building or planning to construct apartment complexes, industrial properties, big-box retail, and single-family homes around the 215 Beltway between Interstate 15 and Flamingo Road.

Despite the current growth, huge tracts of raw land remain throughout the southwest and much of this land will likely go undeveloped for quite some time.  Additionally, many fear that some investors are piling in too quickly and overbuilding again.

The overall resurgence highlights the steady comeback of a once-battered industry that, for many people, offers visual evidence that Southern Nevada’s sluggish economy is on the mend.

In June 2006, near the height of the real estate bubble, 112,000 people in the Las Vegas area worked in construction. That number plunged 69 percent to 34,800 workers in early 2012, according to the Associated General Contractors of America.  Today, 48,500 people work in construction locally, up 39 percent from the depths of the recession.

“We know the worst is past us, and that gives people confidence,” said Scott Gragson, a land broker and investor.

Projects underway or on the drawing board in the southwest include:

  • IKEA’s 351,000-square-foot furniture superstore, which broke ground April 9 and is slated to open in summer 2016
  • Panattoni Development Co. partner Doug Roberts’ two-building warehouse project, Jones Corporate Park, which is scheduled to break ground this month
  • Australian slot-machine maker Ainsworth Game Technology’s 300,000-square-foot Americas headquarters, poised to open by mid-2016
  • The Molasky Group of Companies’ two-story, 110,000-square-foot industrial building at the UNLV Harry Reid Research and Technology Park, which the company plans to lease to prescription-drug manager Catamaran Corp
  • At least a dozen apartment complexes and thousands of single-family homes.
Developers are drawn to the southwest valley for several reasons:  there is plenty of land, it’s a quick drive to the Strip and to McCarran International Airport, and it’s roughly equidistant from Summerlin and Green Valley, two of the valley’s most popular residential areas.

Rent in several sectors — apartment, office, industrial and retail — typically is higher and vacancy rates are lower in the southwest than in other parts of the valley with lots of land, including the northwest and North Las Vegas.

Moreover, Clark County commissioners in May 2013 voted unanimously to open roughly 3,600 acres, mostly in the southwest, to potential residential and other development. Airplanes, thanks to advanced technology, aren’t as loud as they used to be, so the county agreed to shrink McCarran’s noise contour.

IKEA executives had been eyeing the Las Vegas market for almost 10 years, waiting for the population to pass 2 million, and were “very much focused” on sites along the Beltway with good visibility and access, spokesman Joseph Roth said.

The popular Swedish retailer needed a large site for its megastore. Land ownership in the southwest is fractured heavily, so assembling a big tract can be a headache. The spot IKEA wanted, 26 acres at the southwest corner of South Durango Drive and West Sunset Road, was owned by one investor, and the chain paid a hefty price for it: $21.3 million.

The sale, by M.J. Dean Construction founder Michael Dean, closed in December. IKEA paid $819,328 per acre. Valleywide last year, land investors paid an average $276,422 per acre, according to brokerage firm Colliers International. Roth said the company paid “a fair price” for the property.

Meanwhile, Ainsworth CEO Danny Gladstone decided a few years ago he wanted to build the company’s Americas headquarters near the southeast corner of South Jones Boulevard and West Sunset Road, said Mike Dreitzer, the company’s president of North American operations.

Site work is underway. When finished, the property will have warehouse and manufacturing space, as well as offices for sales, marketing and finance personnel. It’s close to customers and the airport, and just 2 miles east of rival International Game Technology’s campus.

“We think it really is the new center of the gaming equipment manufacturers’ corridor,” Dreitzer said.

For large projects, though, the biggest source of development in the southwest is apartments.

Investors have been buying rental properties throughout Southern Nevada at a fast pace in recent years. The valley’s economic collapse created a big pool of potential renters by wreaking havoc on residents’ finances. Foreclosures, bankruptcies and short sales swept through the region, making it impossible for many people to obtain a mortgage, let alone afford a down payment.

Apartment construction lagged investment sales, but now it’s picking up speed. After opening just 367 units valleywide in 2013, developers completed about 1,700 units last year. As of December, they were projected to open roughly 5,750 units this year and almost 2,000 more in 2016, according to brokerage firm CBRE Group. Among current or planned projects, roughly 50 percent of the new units are in the southwest valley.

But developers may be getting ahead of themselves. They are building faster than demand calls for, RCG Economics principal John Restrepo said.

“It’s a great location, (but) that’s a little too much at one time,” CBRE broker Spencer Ballif added.

Nevada West Partners is the biggest developer in the southwest, with five projects totaling 1,600 units planned or underway. Partner Martin Egbert, whose group has developed apartments in the valley since the late 1980s, said he isn’t concerned investors might be overbuilding and possibly pushing down rental rates. Properties his group opened in recent years — often higher-end residences with lots of amenities — are almost fully occupied and command big prices, he said.

Homeownership rates nationally are at record lows, he said, partly because more people who can afford to buy are choosing to rent instead.

“They’ve seen the swings in real estate prices … and they like the flexibility afforded by being a renter,” Egbert said.

The southwest’s fast-paced growth started around the early 2000s when the Beltway expanded, offering freeway driving instead of dusty back roads. Investors flipped land and built properties, but work ground to a halt when the recession toppled the valley, leaving the southwest a checkerboard of open desert, finished projects and abandoned construction sites.

“Nobody was doing anything,” CBRE broker Greg Tassi said.

Projects got stuck on the drawing board, too, including Station Casinos’ Durango Station resort on Durango Drive just south of the Beltway.

In September 2008, less than two weeks before investment firm Lehman Brothers collapsed, helping to trigger the U.S. financial crisis, Station spokeswoman Lori Nelson said the resort tentatively was scheduled to open in 2011. “The plans are done, they are ready to go, and it will really be contingent on timing based on the economic conditions,” she said at the time.

Today, the land is undeveloped, and a Station sign there advertises plans for a 120,000-square-foot casino with 1,000-room hotel. The sign also warns “No Dumping — No Trespassing.”

Nelson said this month the company has no development timeline for the site.

At the peak of the bubble, land in the southwest valley frequently sold for $1 million an acre. Today, listing prices are a fraction of that but rising, typically ranging from about $300,000 an acre to $700,000 per acre, Gragson said.

One line of business that boomed with the Beltway was home construction. The southwest has been the top submarket in the valley ranked by homes sold for about 10 years, Home Builders Research President Dennis Smith said.

Builders sold 2,016 homes there last year, a third of all new-home sales in Southern Nevada, he said. The second-best market, the northwest, had 1,520 sales.

Perhaps the biggest project in the southwest before the freeway expansion was developer Jim Rhodes’ sprawling Rhodes Ranch community on South Durango Drive at West Windmill Lane.

“It was considered to be out in the middle of nowhere,” Smith said. “But the Beltway changed that.”


Large Private Equity Firms Among Most Active Buyers and Lenders for Commercial Property

Major private equity firms are increasingly pursuing a dual-track commercial real estate (CRE) investment strategy as they remain among the most aggressive buyers of commercial property and most active lenders in the market.

American Realty Capital, Blackstone Group, Colony Financial, Northstar Realty Finance, and Starwood Capital have originated more than $1.8 billion in CRE loans in the last five months. All of them have also been making headlines with their property buys.

For example, Blackstone Group recently agreed to acquire Chicago’s Willis Tower (the former Sears Tower) for $1.3 billion. At 110 stories, the 3.8 million square-foot office building in downtown Chicago is the second-tallest office building in the country.

Blackstone has also been active on the lending side. In Q4 2014, the private equity giant closed eight loans totaling $781 million. The largest was a $181 million loan on a New York City condominium project.   In Q1 2015, Blackstone has originated another $315 million in loans.

“We have an additional $1 billion of loans with agreed terms that we expect to close over the coming months and our pipeline remains active, reflecting strong borrower demand and our ability to succeed in an increasingly competitive market for senior mortgage loans,” Steve Plavin, president and CEO of Blackstone Mortgage Trust (Blackstone Group’s public held mortgage banking REIT), told investors last month.

Private equity firms like Blackstone are targeting the bigger deals on which to make loans where they think they offer an advantage over bank consortiums.

“The banks often look to syndicate bigger exposures, which limits their ability to commit quickly and efficiently,” Plavin said. “With our increased scale and Blackstone real estate affiliation, we are strongest on bigger deals. The larger loans have the added benefits of better institutional sponsorship and higher quality real estate collateral located in stronger gateway markets.”

The average size of loans Blackstone has closed since the start of the fourth quarter is $148 million as compared to $89 million to its existing portfolio heading into the fourth quarter.

Unlike banks, Blackstone and other private equity lenders are focusing on short-term transitional lending. The three largest U.S. loans Blackstone has made in the last five months all have 3-year maturities as compared to a typical 10-year maturity generally offered by banks.

Starwood Capital Group, with more than $42 billion of CRE assets under management, is also active on both the buying and lending fronts. This past week, Starwood Capital closed on its 10th opportunistic real estate fund at $5.6 billion, its largest fund to date.

Starwood Global Opportunity Fund X is off to a strong start. The fund has already closed or is committed to $6 billion worth of transactions- roughly split equally between real estate investments in the U.S. and in Europe.

Its acquisition deals include the $1.2 billion purchase of TMI Hospitality, one of the largest owners, managers and developers of select-service hotels in the country, with 184 operating hotels and more than a dozen in the development pipeline. It also has a pending acquisition of a prime suburban office portfolio totaling almost 7 million square feet in fast growing areas including Raleigh, NC, Nashville, TN, South Florida and St. Louis, MO, for a purchase price of $1.1 billion.

On the lending side, Starwood’s mortgage lending arm, publicly held Starwood Property Trust Inc., has originated or co-originated nearly $835 million in loans. Among its most recent loans was a $201 million first mortgage and mezzanine loan for the acquisition and recapitalization of a 49-story and a 23-story office tower complex in Chicago; a $200 million first mortgage and mezzanine loan for the acquisition of a office buildings, a sports club and a 294-room hotel in Dallas/Fort Worth; and a $120 million first mortgage and mezzanine loan to refinance two office buildings in New Orleans, one of which includes a new 195-room hotel.

It also co-originated a $224.5 million first mortgage and $74.8 million mezzanine loan for the refinancing and redevelopment of two office buildings located in New York.

Looking forward, Starwood said it continues to have a strong pipeline of high-quality transactions that meet its criteria.

“You will see us probably do more in the core space, core-plus space, value-added space and the equity and will grow as a percentage of our assets. It’s in our pipeline in several transactions,” Barry Sternlicht, chairman and CEO of the REIT told investors last month.

Despite the dwindling supply of distressed property, Sternlicht says he still sees opportunity iin that sector.

“I’m particularly looking forward to the maturity of the 2016 and 2006 and 2007, 10 years legacy CMBS investments. They should provide further growth and opportunities for us, both to buy assets out of trust and also to lend, then refinance and restructure the loans that are coming due,” said the Starwood chairman.

Additional recent private equity CRE lending highlights include:

  • Colony Financial Inc. in the fourth quarter originated 10 first mortgage loans and four mezzanine loans totaling $328 million within its transitional CRE lending platform. It also originated a $77 million first mortgage acquisition loan on a 2.5 acre land parcel in San Francisco. And in February, it agreed to fund up to $80 million of preferred equity to recapitalize a primarily stabilized multifamily portfolio of 16 communities with 4,800 units in Georgia, Texas and Louisiana.
  • Northstar Real Estate Income II Inc., which originated an $84 million senior loan on a Class A office complex Irving, Texas, a $41 million senior loan on a state-of-the-art data center in Norwalk, Connecticut, and a $42 million senior loan on a Marriott-branded full-service hotel located in Coraopolis, Pennsylvania.
  • Realty Finance Trust Inc. (formerly: ARC Realty Finance Trust), an affiliate of American Realty Capital, originated a $38.5 million loan on Denver Highlands, comprising 362,234 square feet of office space at 10065 & 10375 East Harvard Avenue in southeast Denver, Colorado.

To learn more about commercial real estate investing and current investment opportunities, please contact Antone and Stacy Brazill.


2015 Real Estate Forecast: Southern Nevada’s Commercial Market Landscape

The economic outlook for Southern Nevada is looking positive!  According to the a recent presentation by Marcus Conklin, of UNLV’s Lee Business School, Lied Institute for Real Estate Studies, 2015 should be a great year for our commercial real estate market!

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Las Vegas Real Estate Market Snapshot | 2014

While Southern Nevada’s economy has not reached the dizzying heights of the boom, it does seem to have safely left the bust behind! In fact, we think it’s safe to say the Great Recession appears to be officially over and the initial phases of recovery and stabilization are well underway, both in our overall economic position and our local real estate market. Is the Valley poised to grow anew?

Moderate growth continues unabated and is expected to continue into 2015. Between 2010 and 2013, new home sales increased 37.6 percent, out-of-state drivers licenses turned in to the DMV increased 28.6 percent, taxable sales increased 18.4 percent, and gaming revenue increased 8.6 percent. Though 2014 has shown some deterioration in terms of new home sales and in-migration into the area, taxable sales improved. Employment also increased 3 percent from July 2013 to July 2014.

These economic improvements have translated into improvements in our local real estate market. Occupancy in commercial real estate projects has increased by three percentage points to 2.9 percent and we are seeing growth in other sectors as well.

Las Vegas Industrial Market

The first half of 2014 looked promising for Southern Nevada’s industrial market, racking up over 2 million square feet of net absorption and knocking industrial vacancy below 10 percent for the first time since 2008. The question then was whether we could expect similar numbers in the second half of the year. If the third quarter of 2014 is any indication, the answer is maybe.

Net absorption in the third quarter of 2014 was 635,780 square feet, roughly equal to net absorption in the first quarter of 2014, and occurring in concert with only 14,248 square feet of new completions, far less completions than in the first quarter. Strong net absorption in speculative projects is a sign of sustainable recovery, and important given that speculative construction will likely loom larger in 2015 than in the past five years. Industrial vacancy decreased to 9.2 percent, two percentage points lower than one year ago. The weighted average asking rental rate increased to $0.55 per square foot (psf) on a triple net (NNN) basis, $0.04 cents higher than one year ago.

Las Vegas Office Market

Every year, Southern Nevada’s office market begins a new recovery, and every year it comes up just a little short in the end. Though the office market recovery has not been pretty, it is a recovery of sorts.

In the third quarter of 2014, net absorption decreased to 44,964 square feet from almost one half-million in the second quarter of 2014 and the third quarter of 2013. New completions were slightly higher, at 12,000 square feet. Vacancy rates managed to decrease to 19.3 percent from 19.4 percent in the second quarter of 2014. Asking rates remained in neutral, ringing in at $1.87 per square foot (psf) on a Full Service Gross (FSG) basis.

Las Vegas Retail Market

The second quarter of 2014 saw the retail market turn around and post positive net absorption after two quarters of negative net absorption. The third quarter of 2014 continued the positive trend, with net absorption staying just one step ahead of new completions; a good performance, but not a great performance.

Net absorption in the third quarter was 242,296 square feet, slightly higher than in the second quarter of 2014, and more than double net absorption in the third quarter of 2013. New completions also increased quarter-over-quarter and year-over-year, with a 220,000 square foot power center added to inventory this quarter. Retail vacancy decreased by 0.1 percentage points to 9.0 percent, while the average asking rental rate increased to $1.31 per square foot (psf) on a triple net (NNN) basis.

Las Vegas Medical Office Market

When we write that Southern Nevada’s medical office has gone from bad to worse, we feel as though we must be repeating ourselves. In fact, a pattern of positive net absorption for one or two quarters followed by one or two quarters of negative net absorption is emerging in the medical office market, creating a sense of running in place.

Net absorption in the third quarter of 2014 was negative 104,034 square feet, sending medical office vacancy up to 18.7 percent. Asking lease rates remained stable at $2.15 per square foot (PSF) on a full service gross (FSG) basis.

Las Vegas Land Market

Total sales volume for land in Southern Nevada remains well below the levels seen in 2007, but the market has recovered dramatically since the years of the Great Recession. The number of acres sold in the first three quarters of 2014 is higher than in the first three quarters of 2013, with 1,889 acres trading so far this year compared to 1,455 acres trading in 2013. Sales volume was higher than in 2013 in the first three quarters of the year, and naturally this means that the price per square foot of land is also higher. In 2007, land was selling, on average, for $22.93 per square foot (psf). After the market collapsed in 2008, land prices reached a low of $4.41 psf in 2012. In the third quarter of 2014, the average price for land stood at $7.61. This increase in land prices is indicative of the greater interest developers and investors are showing in the Valley’s land market.

Las Vegas Hotel & Hospitality Market

Southern Nevada’s hospitality market continued to improve through the second quarter of 2014. Average annual room occupancy, for example, jumped from 87.0 percent to 89.5 percent, and the average annual ADR (average daily room rate) dropped slightly from $121.73 to $119.75. This brought revenue per available room (RevPAR) up to $104.61 from $101.77. In 2014, RevPAR is now almost $10 higher than it was in 2013, a significant leap (though not as significant as the $15 leap between 2010 and 2011). This suggests that Las Vegas has largely recovered from the Great Recession, just in time for new expansions of the Valley’s room inventory.

Las Vegas Multifamily Market

According to statistics provided by REIS, multifamily vacancy in Southern Nevada decreased in the second quarter of 2014 (the most recent quarter of available data), extending a three year long streak. Vacancy stood at 5.5 percent in the second quarter, 0.4 percentage points lower than one year ago, and 0.2 percentage points lower than in the first quarter of 2014. Class A properties were 5.7 percent vacant in the second quarter, the same as in the first quarter of 2014. Class B/C properties were 5.3 percent vacant, 0.5 points lower than in the first quarter of 2014.

To learn more about the current state of Las Vegas’ real estate market, or to discuss real estate opportunities, please contact us or call Antone Brazill at 702.434.0091.