BluefoxToday blog : January 2008

In multiple areas nationwide the residential real estate market remains soft and offers home buyers splendid opportunities. Prices are coming down and many sellers are at last realizing that the marketplace determines the listing price and not them. They are now more willing to negotiate rather than just turn down unappealing offers. And mortgage interest rates in recent weeks have reached new lows, hovering right around 5.5%. These developments should be boosting transaction activity, but are they making as big a difference as expected?

The word affordability plays a large role in that. The Center for Housing Policy conducted a study on the very issue and according to its findings things are getting a bit better. Some noteworthy advances have been made in the expensive areas like California, Arizona and Florida, which also happen to be the states where prices rose really fast during the boom years. They are also three of the four leading mortgage foreclosures states, with Nevada being the fourth. So it makes market sense that prices are now receding in them and helping out with the affordability assessment.

Despite the marginal improvement, the working families are the ones who still face a shortage of homes they can manage to get a mortgage for. Workers like registered nurses, retail sales persons and customer service representatives - all deemed high-growth occupations - are simply priced out in many regions. In the Center for Housing Policy's report registered nurses, for instance, can't afford a median-priced house in 108 out of the 201 markets the study looked at. And customer service reps were left out in 185 markets.

Las Vegas mirrors pretty much the national trend. Prices soared a few years ago to unprecedented highs and are now retreating, narrowing the affordability gap that grew way out of control. Stagnant home sales in the valley will improve as soon as median household incomes and home prices come closer together, reaching a comfortable and workable balance. Bulk of the adjustment has to come from the price sector because wages predictably increase at a slow pace. There already are small single-family houses on the market for under $200,000, indicating that the affordability issue is getting corrected here. 

2007 was one of those years in Las Vegas residential real estate that many will remember for a long time. The glut of homes on the market, new and resales alike, from single-family houses and townhomes to condominiums, put tremendous pressure on prices. On top of that the mortgage industry ran into homeowner and investor payment problems and as a result foreclosures began to rise steeply. In summary, it was an ugly year.

Let's look at some specific statistics. New home sales totaled 19,670 for all of 2007, a serious 45.6% decline from 2006. On the resale side last year's final number was 24,838 which amounted to a 40.7% drop from 2006, as was recorded by Home Builders Research. Combined sales haven't been this low since 1997 when they were 39,187 units. This last comparison alone is enough to indicate how far the market has up to now dropped. To read the entire article, please click on the link in the first paragraph.

Southern Nevada Home Builders Association, or SNHBA, is becoming very active in embracing the green housing concept. It has combined efforts with the Green Building Initiative to draw up guidelines for the Southern Nevada Green Building Partnership, an entity that sets standards for water management, energy use and the employment of recycled and renewable construction materials in the valley. It issues certificates to builders who participate in the program, assuring home buyers that certain criteria have been met.

Thus far five local builders have signed up and they are Pinnacle Homes, Pulte Homes, R/S Development, Signature Custom Homes and Signature Homes. The first green certificate under the initiative goes to a Pulte subdivision in Northwest.

Among the environmentally progressive features there are blown-in insulation manufactured from cellulose, like recycled newspaper, that is more compact than the usual fiberglass and thus forms fewer air gaps. The windows are specially treated to prevent heat from passing into and out of the house. All appliances, air conditioners and furnaces are energy-efficient. Water consumption is a huge issue in Southern Nevada and in light of that the plumbing is state-of-the-art in efficiency and landscaping design maximizes low water use and minimum runoff.

The Las Vegas builders participating consider the increased construction cost of 3% to 5% not an impediment to marketing these homes. The consumer is getting more educated about the value of green housing and accepts the minor price hike. He is now helping the environment and also has a home that is more attractive when it comes time to sell.

Photo by Mella Doll

This week has really been up and down in the Las Vegas condominium market. Earlier Sinifox Financial reported how well the MGM Mirage's CityCenter condos were accepted by the luxury home buyer. A few days later the news turned sour as an item surfaced about a downtown condominium project called Newport Lofts being taken over by its lead bank. And now there is another case of premature lender involvement.

Cosmopolitan, a $3 billion condo and hotel project wedged between the Bellagio and CityCenter, was served a notice of default by Deutsche Bank when payments on a $760 million construction loan were missed. The developer, 3700 Associates LLC, has already sent out a management team to scout the financial landscape for a potential equity partner that would ultimately lead to another loan. However, in today's soft residential real estate market and tough mortgage environment it can become a major challenge.

But then Deutsche Bank obviously had a change of heart and worked out a temporary arrangement with Perini Building Co. to continue construction on the project toward its estimated December 2009 opening. In the meantime 3700 Associates and the banks are discussing new financing options and availabilities.

This may be the best alternative for Deutsche Bank. If it pulled out of the project altogether, it would likely lose all of its to-this-point investment in it. Should a new lender emerge in the coming weeks, so much the better. Or it could let Perini finish everything as scheduled and then seek a buyer for the project. The real estate market in Las Vegas and the national mortgage conditions in late 2009 and beyond could be much improved and actually allow the bank to break even or even make a decent profit.

The frustrating mortgage lending environment and soft residential real estate market in Las Vegas is testing the resolve of many condo developers. Several projects in the past few years have been cancelled or put on hold. Some that are presently under construction are struggling to attract buyers offering their usual amenities, so they have done the next best thing and lowered prices, sometimes substantially. But even that hasn't always been enough, though.

Newport Lofts is a downtown condo project being built by West Seegmiller that had recently advertised an auction of 60 of its units, priced from $229,000 on up. Evidently sales had been lagging, so an auction became a viable option. Soon after the announcement one of the lenders, Pyramis Global Advisors which is the institutional asset management arm of Fidelity Investments, decided to intervene and assumed control of the 23-story development. That effectively cancelled the planned auction.

By July Newport Lofts had in its books 32 sales with an average price of $536,315, according to Home Builders Research, which is far removed from the much lower auction offering and that must have raised serious concerns with the lenders. In addition, since July only one unit has been contracted for and that will put any project on notice to seek different answers.

The banks involved and West Seegmiller have scheduled a meeting in the near future to hash out possible solutions to the issue. But it's going to be tough to find the right recipe. Unless the developer bears a name and an organization like Turnberry Associates or Trump, the successful marketing of a condo project in this market becomes a true task.

MGM Mirage's CityCenter is a massive entertainment and residential enterprise located right on the Las Vegas Strip south of Bellagio. Construction is moving forward on schedule and the project is estimated to open its doors in November of 2009.

The development will have a total of 2,650 luxury condominiums in four separate buildings, namely in Veer Towers, Mandarin Oriental, Vdara Condo Hotel and Harmon Hotel. About half of the available units have been sold to date which has produced $1.63 billion in revenue, nearly 60% of the total projection at sell-out. Please click on the link in this paragraph to read the entire article.

The newest jewel to the Las Vegas Sands Corp.'s resort portfolio is ready for the grand opening this weekend, scheduled from Thursday through Sunday. A host of special events are on tap and one of them is a concert where Motown megastar Diana Ross and three-time Grammy winner Seal will perform. The Palazzo's soft opening took place during the New Year's weekend and ever since more of the property has become available in stages to the public.

The $1.9 billion casino-hotel's 50-story tower with over 3,000 suites is called the tallest hotel in town. It sits right next to its sister resort the Venetian and the two are connected. The passage houses a number of amenities, from famous restaurants like Delmonico by Emeril Lagasse and B&B Ristorante to plenty of fancy shops to a Blue Man Group showroom.

On its vast property Las Vegas Sands operates over 2 million square feet of convention and meeting space and one of the central ideas was to build the Venetian and the Palazzo an equal distance from that huge event arena, making it easy for convention goers to navigate between all three points. Another unique feature - Las Vegas is known for parking garages set behind hotels - is the parking facility here which is underground and able to hold 4,400 vehicles. 

The Palazzo site is still growing, though. A 50-story condominium tower is under construction with up-and-down views of the irresistible Strip. The condominium component obviously is a must feature nowadays at new mega resort here. The building will consist of about 300 high-end units and the sales office is projected to open during the summer. Despite the current turmoil in the mortgage and local real estate markets, marketing them shouldn't be much of a problem since the luxury condo sector continues to thrive in Las Vegas.

Union Park is a large tract of land, 61 acres in all, southwest of downtown and for years the City of Las Vegas has identified it as one of the priorities for development. Progress has been agonizingly slow, though, for a number of reasons, one of them being the current woes in the mortgage industry.

This year is supposed to mark the rebirth of efforts to move the project forward. It just took the first tentative step in the right direction when Las Vegas approved a plan to erect a high-rise tower for the jewelry industry there. The developer is Heritage-Nevada VIII that intends to build a 50-story tower on a 5.8-acre site at a cost of $927 million. For now ground-breaking is estimated for 2009 and completion in 2012.

It'll be called the World Jewelry Center and consist of office, residential and retail space. The goal is to fashion Las Vegas into a hub for the global jewelry and gemstone industry. The early indications are promising as so far almost 70 companies from around the world have decided to join.

The residential component of course involves condominiums and would be the first of its kind in Union Park, at this stage anyway. The master plan calls for more condo towers in the future and prospective developers of those will undoubtedly keep a close eye on how these initial units will be accepted by the public.

All in all, it's encouraging to see that Union Park is finally gaining a little bit of forward momentum and when it eventually will be completed, it'll be a gem in its own right for the downtown area.

Famous corporate raider Carl Icahn is one step closer to selling a company under his control, the American Casino & Entertainment Properties, as the Nevada Gaming Control Board recommends the transaction for approval. The buyer is Whitehall Street Real Estate Funds, an affiliate of the Wall Street powerhouse Goldman Sachs. The sale is set to close in February.

American Casino operates locally the Stratosphere and two Arizona Charlie's gaming houses in the suburbs and also the Aquarius at the southern tip of Nevada in Laughlin.

For the near term, Whitehall Street plans to spend about $54 million in upgrades and additions in the acquired properties. In the long term it may have much bigger ideas. Stratosphere comes with a chunk of undeveloped land and it could be used for a high-rise condominium tower, which now is the hot trend in Las Vegas. Stratosphere sits at the northern end of the Strip, the rapidly growing stretch that has several mega resorts under construction, including the Encore by Wynn Resorts, Echelon Place by Boyd Gaming and the Fontainebleau hotel, casino and condominiums. To make the most of that, it's only a matter of time when Whitehall Street will announce a new project for the property.

Whitehall Street is gradually becoming an important player on the Vegas scene because it already owns a 40% share of the Las Vegas Hilton. That property also includes quite a bit of land that can be developed many different ways, among them more condominiums. 

Photo by Eva and Daniel

Transcontinental Corp. began developing the 3,592-acre Lake Las Vegas site near Henderson in 1990 and was building upscale houses, condominiums and townhouses along the slopes of the man-made lake. Besides homes, the project also includes three luxury resorts, the MonteLago Casino and an Italian-themed village.

The soft real estate market in Southern Nevada ultimately forced last fall the ambitious developer to default on a large loan. The site has about 400 acres of raw land left and when homebuilders scheduled to develop the land missed the required option payments, the default became imminent. The demand for new housing at that juncture wasn't there any more and the builders decided to forgo the opportunity.

The Atalon Group is the new owner of the project, being nationally known for turning around financially weakened enterprises. It purchased the assets of Lake Las Vegas for an unannounced sum of money. The transaction includes a part ownership in the Ritz-Carlton Hotel, three golf courses, some businesses on the Strip and most significantly the around 400 acres of undeveloped land.

Although undisclosed, the acquisition price was likely low and rather advantageous to Atalon in the long term. It can likely afford to wait for a while until the real estate and mortgage markets settle down and then either proceed to finish developing the project under its own umbrella or sell all of it, or just some parts. Right now Lake Las Vegas as a location is still somewhat distant from the Strip, but as the city grows, it'll draw closer and becomes a more valuable destination for chic living.