VEGAS INC coverage
If you live in a valley apartment complex, odds are you soon could get a new landlord.
Investors are snapping up local apartment buildings at the fastest pace seen in years, thanks to low prices, cheap financing and a large base of potential tenants. Las Vegas has a large number of renters, as many residents can't buy homes because of past foreclosures, bad credit or financial hardship.
Steep prices in nearby markets, such as Phoenix and Southern California, also are steering investors to Las Vegas, where deals are riskier but offer the possibility of high returns.
At least 28 local apartment complexes with 100 or more units have been sold so far this year. That’s up from 26 in all of 2012 and just two in 2009, when the market bottomed out, according to real estate broker Spencer Ballif, a senior vice president with CBRE Group.
Most recently, the Wolff Co., of Scottsdale, Ariz., acquired 14 local apartment complexes from Houston’s Camden Property Trust and New York’s DRA Advisors. The $200 million deal, which included almost 3,100 rental units, was announced Tuesday.
Other deals this year include the $41 million sale of the 310-unit Quest Apartments and the $30 million sale of 234-unit Adobe Ranch, both in Henderson.
The apartment business is one of the stronger aspects of Las Vegas’ sluggish real estate industry.
“It’s one of the few asset classes that started recovering early,” said John Stater, Las Vegas research manager for the brokerage firm Colliers International.
About 10,000 apartment units were sold in Southern Nevada last year, up from 7,500 in 2011, 3,000 in 2010 and 820 in 2009, according to Colliers.
The average sales price per unit last year was about $64,700, up from $50,300 in 2011 and $42,500 in 2010.
Many of the deals in recent years have involved low-quality foreclosed complexes, but nicer buildings now are trading hands, as well, Ballif said. Some investors are doing or planning upgrades to their newly acquired buildings, though most aren't overhauling apartments or raising rents too much.
The valley’s average asking rent is expected to reach $846 a month by year’s end, up 3 percent from 2012 and almost 6 percent from 2011, according to Marcus & Millichap Real Estate Investment Services.
And owners of high-quality projects could potentially raise rents without sparking a tenant exodus.
That’s not the case, however, with low-end properties, which are plentiful in Las Vegas. If those landlords raise the rent by even $5 a month, tenants simply will “move across the street,” said Perry White, a vice president of investments with Marcus & Millichap.
Nevertheless, the valley appears to be an ideal rental market and good place to buy apartment buildings. The collapse of Las Vegas’ housing industry wiped out people’s finances and made it impossible for many to afford a house or qualify for a mortgage.
Apartment buildings are filling up. The vacancy rate is expected to reach 5.8 percent by year’s end, down from 6.5 percent last year, 7.5 percent in 2011 and 9.1 percent in 2010, according to Marcus & Millichap.
Still, apartment purchases aren't without risk.
Las Vegas is expected to continue having one of the highest vacancy rates in the country this year, well above the forecasted national rate of 4.3 percent, Marcus & Millichap reported.
Additionally, cash investors are buying cheap homes in bulk across the valley and turning them into rentals, creating increased competition for tenants. And even though sales prices of apartment buildings are rising, they pale in comparison to during the boom years.
The top price for a complex so far this year was for Quest Apartments, which sold for $132,500 per unit. At the peak of the market in 2007, White sold a 90-unit apartment complex near Valley Hospital Medical Center for $18 million, or $200,000 per unit.
“They couldn’t get near that today,” he said.