Las Vegas High Rise Market – Boom or Bust?

With the overall housing slowdown, the explosive move to vertical high rise projects in Las Vegas has become downright risky; greater future potential may now exist for innovative mid-rise and mixed use projects that are more compatible with the Vegas demographics and lifestyle.

High rise construction costs have increased 30-50% in the past two years and too many inexperienced developers often on unremarkable sites misjudged costs, availability of quality contractors, sales prices and prospects. Further, the extremely high cost to build high rises per square foot has placed most of these projects out of the availability reach of a large segment of the potential target market.

Celebrities with minimal real estate experience like Ivana Trump, Michael Jordan, George Clooney have also tried to capitalize on the allure of the Las Vegas new virtual trend, but their projects, Ivana Las Vegas, Aqua Blue Las Ramblas have all dropped out; yet select developers with a solid brand and credibility including Donald Trump, Turnberry Place, and MGM’s Residences have so far been very successful in a difficult and highly competitive Las Vegas market.

Even some developers with a long track record have struggled here, such as Icon Towers, developer Related Las Vegas. The project, which would have included two towers with 48 stories each, was scrapped before construction could begin. The developers, a joint venture of East Coast real estate tycoons Stephen M. Ross and Jorge Perez, are returning deposits to about 350 buyers; the buyers are suing the developer for breaking the purchase agreement.

According to Applied Analysis, of the nearly 90,000 proposed high rise condos for the Las Vegas market, about 13,500 are under construction (including Trump International Hotel & Tower), an additional 16,300 in pre-sales, and more than 50,000 are in limbo.

Even when the high rise condo craze began a few years ago, most analysts predicted that only 50% would ever get built; now the number that will complete may be closer to only 10%.

The condo craze has also hit the suburbs. I live in Summerlin, the largest planned community in the U.S. and located in Las Vegas, west of the strip, near the Red Rock national park and mountains. Station Casinos has just scrapped a high-rise developed next to its Red Rock Resort after the company’s partnership with a pair of developers dissolved. However, the most likely reason the project was dropped by Station Casino’s was the projected ROI, and the fact that better alternatives exist for use of the land such as expansion room for its casino.

Also located in Summerlin are other luxury condo projects in various stages of completion including:

·One Queensridge Place. Phase one has approximately 219 units available for sale in two 18-story buildings with two levels of parking. Phase two will include another two buildings. Prices now begin at an amazing, $1.5 million with startup prices in the low $1 million range. The project is rich in amenities including a 24 hour guard-gated entrance, European style spa & fitness center, billiards & games room, sun terrace, house concierge, indoor 3 lane lap pool, distinctive wine cellar, 25-seat theatre room, enclosed garages with parking levels and more.

·Queensridge Village, a million dollar mixed use project that is expected to have 700,000 square feet of boutique shops, restaurants, cinemas and professional office space, along with 340 luxury condominium units in two five-story towers and one 10-story tower, priced from the $600,000s to more than $1 million. Queensridge Village is similar in concept to the District, another mixed-use project located adjacent to the Station Casino’s successful Green Valley Casino. Perhaps, these are the templates for future development in Vegas and other cities where high rises are simply not viable. The estimated cost of the project is now $750 million, a 50 percent increase from what the Review-Journal reported in May 2005. The increase is due to rising construction costs and to changes in design of the residential component.

Several condo projects are also planned for downtown Las Vegas.Of the 15,811 units proposed for downtown, 900 are under construction. They include Streamline Tower, SoHo Lofts, Newport Lofts and Juhl. Among the projects planned for downtown, but have yet to break ground are Club Renaissance, Sandhurst, Cielo Vista, Liberty Tower and Gateway Las Vegas.

Downtown's renovation has experienced some false starts and wasted tax dollars along the way. They key issue is whether these new condo projects draw people to the center of the city to live, and help jump start a successful turnaround of a transition area.Others, however, believe that some of these projects are coming too soon and that more revitalization of the downtown area is needed before spur condo development can really prosper. Discussion is also underway for potential arena development to attract the first professional sports franchise to Las Vegas.

Luxury condos also face competition from condo-hotels which represent a large component of the overall pipeline. John Restrepo of Las Vegas-based Restrepo Consulting Group LLC, says there are 25 planned condo-hotel projects, which include 19,000 units. However, other research indicates that this market could even be much larger. The Las Vegas Review Journal indicates that there are nearly 40,000 units in the pipeline in Las Vegas that could be classified as the hybrid condo-hotel and maintain some sort of rental program. Approximately, 70% are located around the strip, including Trump Place, The Residences at MGM, Platinum, Project CityCenter and Cosmopolitan. Condo-hotels have the advantage of being developed and operated by major, brand-name companies and earning rental fees when not used by the owner.

In conclusion, the high rise condo craze was an inevitable part of the evolution of real estate market in Las Vegas. And with that came overestimated demand, outside investors, speculators, neophyte developers, the celebrities, and some poorly planned projects. There are a variety of law suits with varying levels of merit on the canceled projects, and some buyers are even trying to recoup lost appreciation for their units. Many of the projects canceled were due to lack of quality construction companies capable of doing the job and not necessarily a lack of buyers. But when the dust settles, the Vegas skyline will be more vertical on the strip, downtown, and in the suburbs. Perhaps in a few years after this shake-out if over, new vertical projects will emerge along with quality new mid-rise, mixed-use projects and innovative housing concepts.