The Las Vegas multifamily market is back with a vengeance. The market went into a meltdown in 2009 while the financial crisis was in full swing, delivering the biggest blow to the local economy in Vegas’ history. What had been low unemployment and a development boom to rival all past development cycles quickly turned into a downward spiral.
Construction came to a standstill and workers fled the city in search of work elsewhere. Apartment fundamentals dropped to record lows. Asking rents dropped 19.25 percent between 2009 and the second quarter of 2012, while concessions stood at 8.5 percent.
Even with all this in play, the Las Vegas market is known for reinventing itself. The market recovery was in full swing last year. Stalled projects were restarted with a whole new set of players, and employment was picking up speed. An exodus from California to Nevada is currently underway, with Penske Truck Rental citing Las Vegas as one of its top 10 places where new residents are moving. Unfortunately, unemployment is still above the national average, but that is changing fast.
Fundamentals are improving with concession shrinking to 5.25 percent compared to a high of 8.5 percent in 2009. Asking rents are on the rise, up 2.9 percent year-over-year for all unit types. This is an 8 percent improvement, considering the 19.25 percent drop the city experienced during the recession. Though fundamentals have not fully improved, the future is bright for the Las Vegas apartment market. Projected absorption is forecast to be 2,593 units in 2014, though only 1,526 units are presently being permitted. Although cap rates have returned to pre-recession levels, those cap rates are based on lower net operating incomes.
The Integra Realty Viewpoint report and forecast shows a substantial recovery taking place in Las Vegas. Last year’s real estate cycle analysis showed Las Vegas in the first stage of recovery. The 2014 report shows Las Vegas has moved up a notch to the second phase of recovery, with plenty of upside on the table. Last year’s sales volume was up 61 percent when compared to 2012. The cap rates for 2014 have also fallen 80 basis points since 2013.
Cross-border acquisitions are also up 60 percent, with China leading this sales activity. CMBS lending has returned to pre-recession levels as well. Large portfolio transactions led to a 182 percent climb in acquisitions in a year-over-year comparison. Buying entities were mostly composed of 50 percent private and 50 institutional investors. So far this year, institutional capital has doubled that of private equity.
Although the country has seen resurgence in multifamily development, barriers to entry caused by limited development land will see Las Vegas fundamentals improve at a faster rate than most other regions. Single-family development suffers the same malady as multifamily, with little land left to develop for residential homes. Add to the supply issue the fact that Baby Boomers are retiring after seeing an improved economy – and the fact that many are fleeing California for lower taxes in favor of the cheaper cost of living in Nevada – and you have a very good outlook for multifamily investment in Las Vegas.
The word is out that multifamily investment is the place to be in Las Vegas. Investors are seeing the obvious upside in increasing fundamentals and equity appreciation. Long-term Las Vegas is back, and a great place to invest.
By David Baird, Managing Director, National Director Multifamily, Sperry Van Ness Nevada LLC. This article originally appeared in the March 2014 issue of Western Real Estate Business magazine.