Saturday, January 07, 2006

Loss of an Icon a threat to market

Ripple effect feared as Related pulls out of its condo project
By Jennifer Shubinski <
js@lasvegassun.com>Las Vegas Sun
While the Related Cos.' vaunted Icon towers will never cast a shadow over the Las Vegas Strip - their demise is casting a shadow of a different kind.
Related's surprising withdrawal from the project is making buyers of Las Vegas high-rise condos skittish and is giving investors some pause. Related confirmed Friday that it was scuttling its plans for Icon even though buyers had signed contracts for most of the 514 units in the two buildings.
Related Las Vegas, a partnership between Related Cos. in New York and Related Group in Miami, has long been viewed as a serious contender in the Las Vegas high-rise residential scene, a solid company with a strong record--unlike the many unproven developers who jumped into the market with big splashes only to withdraw later.
The failure of Icon also left hundreds of buyers angry and suspicious. They will get back their deposits, which reached as high as $80,000.
But those trusting enough to look elsewhere for a condo locally face higher prices than the ones they had locked in over the last year. They also say they think Related's true motive might be to kill this project and start another on the same land in hopes of getting higher prices.
"I don't even know what to think, I am very upset," said buyer Eli Verdnikov of San Francisco. "They've played a very dirty game; I think they'll come back in a year and resell."
Industry experts said the cancellation by one of the nation's largest developers will cast a pall over the valley's nascent high-rise community.
"The headlines are going to be that the Vegas condo market is collapsing, that Related is backing out and they are going to say 'uh oh'," said Richard Lee, a local land and development expert. "It makes people have the perception that the Las Vegas market is not as strong as it was. It's going to be more difficult."
Besides making potential buyers wary of Las Vegas, Related's decision also seems certain to make lenders more cautious.
"The lender community is going to become very conservative. They already are, but even more so," Lee said. "They're the ones that get chicken first."
Marty Burger, president of Related Las Vegas, said it was a painful decision to terminate the project. The company ultimately had no choice because of rising construction costs, he said. Other developers who have backed out have cited the same reason.
Related cited delays it said stemmed from a lawsuit filed last year by Lorenzo Doumani, who planned a high-rise tower nearby. Doumani claimed that Related's towers would conflict with his tower. That lawsuit was dropped after six months, but by then, prices for materials and labor had jumped significantly, Burger said.
Related's construction company, MJ Dean Construction, quoted prices so high that the project no longer penciled out, Burger said. Related officials would not be more specific.
Doumani's project also has yet to be built, and he has cited construction costs as the reason.
Construction and labor cost increases have been the bane of developers not only in Las Vegas, but nationwide.
Pat Warren, a partner in Boreman Development and a former vice president for Martin Harris, one of the valley's largest general contractors, said material costs have gone up at least 14 percent, with some materials up as much as 30 percent after Hurricanes Katrina and Rita.
Labor is another issue. Warren said union carpenters start at $28 an hour - and they are in short supply. To woo them away from a casino project, which generally provide years of employment, a condo developer will have to offer wages above the going rate, he said.
Burger said the higher costs wiped out Related's profit. The options were to break the contracts and resell all of the units or cancel it all together, he said.
"We've had an increase in costs in every market we're dealing with. It's exacerbated in the Las Vegas market," Burger said. "One, the casinos are a different animal that we don't have in Miami, New York or Chicago. The subcontractors would rather do casino work.
"It's not easy in Las Vegas. It's a smaller market with a set number of union members and subcontractors, which is a larger barrier to entry."
Marty said he doesn't know what the company will do with the 4-acre parcel, for which Related paid $15 million just over a year ago. David Atwell, a resort broker who sold the parcel to Related, said the land is now worth at least $25 million.
"We're not land flippers; any piece of land we buy we buy to develop on," Burger said.
This isn't the first Las Vegas project from which Related has withdrawn. The company and Las Vegas parted ways in October after 10 months of negotiations over developing the city's prized 61-acres downtown.
Related remains committed to the World Market Center, a multiphase tradeshow complex dedicated to the furniture and design industry, Burger said. The company also said it plans to go forward with Las Ramblas, a $3 billion hotel, casino and condo project with Las Vegas-based Centra Properties and actor George Clooney.
But David Ezra, broker/owner of Ezra International Realty, said he thinks Related is underestimating the ripple effect of its decision on Icon.
"In the same breath they said they were sorry to our clients that bought (in Icon) and they said they'd still like us to put our clients in Las Ramblas," Ezra said. "If you can't build Icon on Convention Center Drive, which was a home run, how can you build Las Ramblas?"
Burger said he hopes that Las Ramblas will stand on its own.
"It was the market conditions. They were out of our control," he said. "The market burned Related, and that's what happened."
But real estate agents said the people who were really burned were those who signed up for Icon condos.
Verdnikov and Gity Stone were planning on selling their Bay Area home and retiring to Las Vegas in the next two years, taking up residence at Icon.
Verdnikov and Stone bought a 1,500-square-foot unit in February for $738,000. They took out a loan for the initial payments, planning to pay it off after they sold their San Francisco house.
Now the couple doesn't know what to do. Units of similar size along and near Las Vegas Boulevard cost $850,000 or more, which is out of their price range.
"We are in our mid-60s. We love Vegas," Verdnikov said. "We were planning to move there and retire."

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