real estate:

Developers eye Las Vegas Valley’s unfinished buildings

Boyd Gaming’s unfinished Echelon sits vacant on the Strip.

Unfinished Projects

Echelon Place Launch slideshow »

All across the valley stand half-finished buildings, abandoned construction sites and boarded-up condominium projects.

To many, the abandoned structures and shelved projects are reminders of Las Vegas’ real estate bust.

To a few, they signal opportunity.

A handful of local developers are buying mothballed projects with plans to finish them. The deals have the potential for big profits, thanks to cheap prices and discounted construction costs since they’re often partially built.

But acquiring and finishing them is never easy. The process can take much longer and prove far more expensive than developers expect. And that’s assuming the buyers don’t back out midway through the deal.

The process “can range from fairly difficult to borderline impossible,” said Mike Montandon, a managing director with Voit Real Estate Services and a former mayor of North Las Vegas.

First, developers must identify the seller — sometimes a complicated task. A large bank may have foreclosed on the property, or it may have been sold at auction to someone who then flipped it to another buyer. The property’s mortgage loan could be bundled in a Wall Street investment vehicle, making it unclear who actually holds the loan. Complicating matters further, big real estate projects typically are owned by limited liability companies, and tracking the people behind LLCs can be difficult.

Buyers also must figure out a project’s debt load and determine who is owed what. They need to see what repairs are needed, particularly if a partial structure is exposed or unsecured. They need to check if wiring and pipes were stolen, if utility connections work, and if construction permits are still valid. And, they have to determine whether there’s any demand for the finished product.

To be sure, there are far more stalled projects in the Las Vegas Valley with no completion date in sight than those earmarked for revival.

On the Strip alone, those with unknown futures include the 68-story Fontainebleau, the 87-acre Echelon and a 398-unit luxury condo complex, the St. Regis Residences. Around the valley, other mothballed projects are mostly residential developments, including the 113-condo Mercer project at Tropicana Avenue near the 215 Beltway, the 65-condo Parkline Lofts at Basic Road and Pacific Street in Henderson and the 400-luxury-unit Spanish View Towers near the Beltway and Buffalo Drive.

Despite the risks, some developers are moving ahead on stalled projects. The most notable is the Shops at Summerlin.

The planned retail district near Red Rock Resort was supposed to include more than 1 million square feet of shopping and entertainment but was shelved four years ago by then-owner General Growth Properties. Its steel skeleton has sat off the Beltway ever since, a glaring reminder of Las Vegas’ building bust.

In September, current owner Howard Hughes Corp., a company spun off from General Growth with control of the project, announced the shopping hub was back on track with Macy’s as an anchor tenant. The project is slated to open in late 2014 with more than 125 stores and restaurants.

Given the region’s dry climate, Howard Hughes officials believe much of the steel can be used in the revamped center, company spokesman Tom Warden has said.

Las Vegas’ dry air and low humidity help minimize sun damage at exposed construction sites, and rust can usually be sandblasted or scraped off. Rain, however, can cause mold, corrosion and other problems.

Mothballed projects typically are fenced off, sometimes with barbed wire. But people can still sneak in and cause trouble, possible injuring themselves, and thieves can ransack the place, UNLV construction management Professor Neil Opfer said.

Opfer once was asked by a lawyer to help determine a building’s value after thieves stole the copper wiring and water pipes from it.

“They probably caused $80,000 of damage for $1,000 of scrap,” he said. “It’s just amazing.”

Physical questions aside, there also are legal problems associated with taking over a project. Buying a property out of bankruptcy court — where many Las Vegas projects wound up in recent years — can be messy. Creditors can delay the case with objections and lawsuits, and the property’s sale must be approved by a federal judge. As the case drags on, legal fees mount.

If the property is not bankrupt, it still could have millions of dollars of liens from unpaid contractors. It’s also highly likely the construction loan was never paid off, leaving another potential multi-million dollar debt.

Vantage Lofts, a condo project in Henderson, was mothballed in spring 2008 and went bankrupt a few months later. Rothwell Gornt Cos. bought it out of bankruptcy court in February.

The project has three buildings and 110 units. The original developers spent more than $70 million on it and left one building 90 percent complete, another 80 percent complete and one more 70 percent complete, Rothwell Gornt principal Rich Crighton said. Three two-story parking garages also were built.

Crighton said his firm will spend $15 million to finish the project on Gibson Road near Horizon Ridge Parkway, with construction lasting six to nine months. He said it takes a “serious amount of due diligence” to take over a stalled project and ensure that the property is structurally safe. Investors could inherit a mountain of problems, he added.

The previous developer, Slade Development, lost the project partly because it “spent so much money making each condo unit like a custom home,” Crighton said. The glass-ensconced units were intended to sell for between $400,000 and $1.6 million.

Crighton wouldn’t say what his company will sell the condos for, but noted that Slade’s prices were “astronomical compared to what we’ll do.”

When Slade pushed the project into bankruptcy, it listed $72 million of liabilities and $45 million in assets. Crighton declined to say what he paid for the development but indicated sales price was a big factor.

“The only way to make this work is for someone to go in and pick it up at the bargain-basement prices that our economy allows,” he said.

At the Calida Group, partners Doug Eisner and Eric Cohen have bought six unfinished projects. They include a 176-unit planned condo development in Henderson where only 40 units were built; a condo project in North Las Vegas, which was slated for 146 condos but had only 36 when it was abandoned; and vacant land at the District at Green Valley Ranch, where the developers plan to build apartments and a hotel. (The Greenspun family, owner of VEGAS INC, developed the Henderson retail hub through American Nevada Company but no longer owns it.)

Eisner and Cohen have looked at about 40 stalled projects and rejected all but a handful. Some developments, Eisner said, are simply “unsaveable.”

He said they don’t focus exclusively on reviving troubled projects, but sometimes those are the best deals.

“Dealing with assets in distress was the most effective way at getting great locations the past few years,” he said.

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