Eric Cohen is making a big bet. Cohen, the managing director of Las Vegas-based The Calida Group, and his partner, Phoenix-based Alliance Residential alum Doug Eisner, are planning more than 1,800 starts in the Vegas area over the next year.
The duo started buying land at distressed prices during the downturn and now want to take Class A finishes and services to “the next level” in the market. Cohen, a veteran of Atlanta-based Trammell Crow, is not the only one that sees the opportunity to be first out of the ground in Vegas. Builders like Picerne Real Estate Group in Phoenix, and Las Vegas-based Nevada West Development, are among a handful of developers starting projects in Sin City. There are 2,126 apartment units slated for completion in the Las Vegas Valley this year, and 1,022 units in 2013, according to CBRichard Ellis. There were 539 multifamily units permitted during the first quarter for Clark County, Nev., in numbers compiled by market analyst John Restrepo.
But one question looms large: Is there enough demand in Las Vegas, ridden with single family foreclosures and multifamily defaults, to justify new development? Cohen believes the performance at his existing portfolio proves the answer is yes. “Our existing product averages about 100 percent occupancy with a waiting list,” Cohen says. “If you're in the right submarket and have the right product and services, those properties are really strong.”
While the economy has been hit hard over the past few years, tourism is resuming and new construction, like the $550 million Linq retail complex, which will employ 3,000 construction workers and 1,500 permanent employees, are boosting the economy. Dallas-based Axiometrics says rents are still struggling in the area though, falling 1.75 percent from April 2011 to 2012. Yet, the research firm expects rents to rise 2.4 percent in 2012.
Still, you wonder, how can Class A apartments be so strong in a market that supposedly still has excess housing? Restrepo says problems in the single family business are feeding apartment demand in Vegas. “The renter population is growing pretty dramatically,” he says. “There's a huge demand for apartments. There's a lot of concern in the renter community about jumping into a single family home they can afford because they don't know what that investor will do with that home in a couple of years. It's much more stable and secure to rent an apartment.”
Though some segments of the economy have picked up, Restrepo says there’s still “continued economic distress.” That, he says, could actually help the rental business. “I think the rental market will stay relatively strong for another couple of years,” he says.
That should serve builders such as Cohen well. But when single family comes back strong, apartment owners in Vegas could once again feel a squeeze.