BluefoxToday blog : Southern Nevada condo development adjusts to soft market

Southern Nevada condo development adjusts to soft market

The Meridian Luxury Suites used to be an apartment complex within an easy walking distance to the Strip and then in 2005 all the units were converted into condominiums. Condo conversions were all the rage those days in Las Vegas. That's when the real estate market here was still doing pretty good and mortgage money was plentiful and available at almost every corner with flexible terms. But today's business environment is vastly different.

Meridian has 678 condominiums in all and only around 12 are owner-occupied, according to Clark County records. The rest are owned by investors, just about all of whom are out-of-towners. When they bought in they paid prices that were going through the roof. That was in 2005. Fast-forward to summer of 2008 and now the Meridian's homeowners association president says that the values have dropped roughly 50%. That kind of value decrease can cause many of these investors to lose a few hours of sleep every night.

Most of the investors were leasing out their units long-term but they probably weren't getting enough money to cover their mortgage payments doing so and now that the anticipated steady appreciation year after year has turned into a nightmare, they had to figure out another way to generate revenue. Either that or face a possible foreclosure. Make the investment look like a real investment.

So they came up with the idea of renting out these condos short-term. Operating more or less like a hotel and with the Strip only a few steps away, it was a viable alternative. And with a decent marketing campaign it should easily generate more rental income than a long-term leasing would.

But a couple of problems erupted soon after the program got off the ground. The owner-occupants at Meridian of course don't like to see overnight renting going on around them. They have definitely made their feelings known regarding that. That's actually the smaller of the two problems. The other is that Meridian is using residential property for transient lodging and that violates county licensing regulations. It is currently permitted to execute leases that last longer than a month and that's it. Knowing that, Clark County is now reviewing Meridian's operations and weighing its options, legal and otherwise.

Meridian is presently applying to change its status to a condo hotel, although there is no word yet as to when that might be approved by the County. Since it has been in violation of the existing license agreement for months, the County may on purpose delay action on it as a form of punishment. Who knows? The soft real estate market forced the investors to turn creative, but they also skirted local regulations in doing so.

 

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Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst 

www.BluefoxToday.com - syndicated mortgage, housing and property management blog

eskokiuru@gmail.com
My cell: 702-499-1006

Comment balloon 2 commentsEsko Kiuru • July 22 2008 11:46PM

Comments

Esko some times there is a price to pay for skirting around the rules, and most town officials are very good at that.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) almost 10 years ago

George,

These guys got a bit too creative.

Posted by Esko Kiuru almost 10 years ago

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