Saturday, February 10, 2007

Real Estate and Development

Real Estate and Development
For a true picture, look past the statistics
By Brian Wargo / Staff Writer
When it comes to the price of land in the Las Vegas Valley, Derek Rafie said he's telling clients to look beyond the statistics.
Rafie, a first vice president of the land services group at CB Richard Ellis in Las Vegas, said media accounts last week portraying the price of land jumping 78 percent in the Las Vegas Valley during the past year has left some explaining to do with clients who have been sitting on the sidelines waiting to purchase property.
The clients didn't make a mistake by not jumping in and avoiding paying steeper prices later, Rafie said. Instead, he tells them the raw numbers don't tell the true picture.
The price per acre of all land transactions during the fourth quarter rose 78 percent over the same quarter in 2005 as reported by consulting firm Applied Analysis.
That number, reported in a Review-Journal news story, can't be taken at its face value because it includes resort property, Rafie said. Excluding that transaction, the percentage rose only 24 percent over the previous year, he said.
But even that number is deceiving and doesn't tell the whole story of what's happening in the land market, Rafie said.
There were only 572 acres sold during the fourth quarter, which is down about 70 percent from the number of acres sold in the fourth quarter of 2005. With such a small sampling, it's hard to view the numbers and come away with a clear understanding of the market, Rafie said.
Someone looking to purchase land has to look at apples-to-apples comparisons of properties from year-to-year. You have to compare office land to office land and not residential property sold in one quarter to office land sold in another, he said.
"When you lump everything together, especially when you have gaming property, it looks like a large appreciation when it really wasn't," Rafie said.
The market has to be viewed through the various property classifications, Rafie said.
In the office market, prices have remained about the same for the last 8 to 12 months because of the expectation that there will be a glut of office space in the next year with a number of projects coming on line, Rafie said.
The only people acquiring office land are long-term developers from outside Nevada who "can hold it and weather the storm," he said.
"Right now, I am not sure landowners understand the value of their properties have decreased," Rafie said. "There is a softening. If you need to sell your property in the short term, you have to discount your price."
While that's true about office property, that's not the case for industrial properties where a low vacancy rate has increased the demand for the scarce land, Rafie said.
In the Southwest, property owners are asking for $22 a square foot and getting $16 to $18 for industrial, Rafie said. A year earlier, it was $13 to $14 a square foot in that area.
Few can afford to pay the higher prices. The exceptions are some displaced tenants and those companies who need to be located in the southwest because of its proximity to the freeway and California and ability to service the gaming industry. They hope to offset the high land costs in fuel savings by being elsewhere in the valley, he said.
The biggest appreciation in land prices is the industrial market in North Las Vegas, Rafie said. In the past year, the price has gone up from $6 a foot to $10 to $12 a foot near the Las Vegas Motor Speedway.
In the retail market, developers are willing to pay a premium for a site if it's in a great location where it is surrounded by rooftops but there are few of those properties to be found, Rafie said.
Retail land prices are holding steady for the most part, Rafie said. The problem with retail, as with other property types, is that developers can only charge so much in rent for the projects to be feasible.
As for properties within a mile of Strip with a mixed-use designation that combine retail with residential uses, especially high rise, those prices also remain flat, Rafie said.
Land owners with that zoning are trying to market those properties, but there are not takers right now, he says.
Unless you have experience as a developer, loans aren't available to purchase those properties, Rafie said.
"There were over 120 projects planned at one point, and it looks like we are only going to get 20 built," Rafie said.
If developers are looking for mixed-use land, they are looking farther away from the Strip where they can keep housing prices down in four-to six-story units that are more affordable, he said. Some companies have been aggressive in seeking out those properties, he said.
"We need to create a lower-cost alternative. That's why if you are going to do a condo project, you need to keep the price down as low as you can," Rafie said.
Over the course of his career, Rafie said he always thought land prices have hit their limit, only to be proven wrong. He said he doesn't want to make that same prediction now but said something has to give because land is only worth what end users can sell and lease it for.
"If you look at some of the markets like New York, they make it work," Rafie said. "The reality of Las Vegas and Southern Nevada is that we are surrounded by federal land."
Rafie said he believes Las Vegas will be more like Southern California where companies and residents look to cheaper land alternatives in the Inland Empire. That means more development on lower-cost land in Pahrump, Northern Arizona and other areas 45 minutes to an hour from Las Vegas, he said.
Applied Analysis had several interesting findings in its fourth quarter land sales report in which it compared the quarter to the same period in 2005. Among the findings:
The northwest reported average sales prices of $626,000 per acre, an 11 percent increase over the previous year. That included several residential-lot sales.
Parcels changing hands in the north portion of the valley totaled 104 acres, which was one-fifth of the activity in the previous year. Prices were $424,000 an acre, a 15.7 percent decline from 2005.
Prices in the northeast rose nearly 33 percent compared to 2005. The average price per acre was $391,000. The prices are attracting developers and speculators given high costs elsewhere.
The west had an average price of $943,000 per acre, a 10.5 percent increase. That included the sale by Howard Hughes Properties of 14 acres of high-density residential land along West Charleston Boulevard.
The central and east reported average values of $813,300, a discount over 2005 when there were more high-density residential transactions.
Valuations in the southwest averaged $665,000 per acre, a 7.3 percent discount over last year.
The airport and south had an average price of $2.3 million, which included land between Las Vegas Boulevard and I-15, north of the Blue Diamond Road interchange.
Southeast Las Vegas and Henderson reported average sales prices of $500,000 an acre, down 26 percent from 2005.

Las Vegas Home prices heading south

Home prices heading south

By Brian Wargo / Staff Writer
It's not the burst housing bubble that some doomsayers have predicted, but Las Vegas homeowners are cutting prices to sell their homes in this soft real estate market.
The median price of homes sold on the Multiple Listing Service dropped 1.3 percent in January to bring the total decline to 4.4 percent since June, when the sales price was an all-time high of $315,000, according to statistics released by the Greater Las Vegas Association of Realtors.
The median price of homes sold in January on the service was $302,000 and is poised to fall below $300,000 for the first time in nearly two years. The prices, however, don't account for any incentives many sellers have been offering in recent months such as paying closing costs and other expenses, which one analyst said could be worth as much as 5 percent, further eroding the value of existing homes.
"I think we are starting to see people come to the reality of where the market is and adjust their prices," said Ken Perlman, vice president of Sullivan Group Real Estate Advisors. "Those who bought homes in 2004, 2005 or earlier have gotten over the euphoria of appreciations they've had and don't expect to recover every cent of it," he said.
"What's happening in Las Vegas is no different than in Phoenix, San Diego or other parts of Southern California," Perlman said. "All of the markets had great years and people had a lot of fun, but it wasn't realistic to sustain those price increases."
Perlman won't speculate on how much further prices will fall but called the reduction healthy for the Las Vegas housing market. When owners are willing to drop their prices to levels buyers can afford, that's like hitting the "reset button" on the marketplace and putting it back on track for sustainable growth.
More people can afford to buy existing homes, which helps appreciation in the long term. Existing homeowners can sell their properties and move into new homes, triggering construction in that market, Perlman said.
"It benefits the builders selling new homes and generates momentum for the marketplace," Perlman said.
Dennis Smith, president of HomeBuilders Research, who has anticipated a slight decrease in resale prices, said he wouldn't be surprised if housing prices fell another 1 percent to 2 percent overall and as much as 4 percent in some neighborhoods where plenty of inventory remains.
With homebuilders running out of supply, that will force more buyers to look at the existing-home market and whittle away at the existing inventory of nearly 19,000 homes, Smith said.
Some national analysts have long predicted that Las Vegas could see housing values drop as much as 30 percent, but that hasn't been the case.
Recently, BusinessWeek analysts said Las Vegas will lose the most of any major city in 2007 with 9.9 percent of its value disappearing. Fortune predicts prices will drop 6.6 percent in 2007 and 8.1 percent in 2008.
Bob Hamrick, president of Coldwell Banker Premier Realty, urged people not to read too much into any national predictions on the housing market since analysts predicted its demise in 2006.
Prices could certainly drop further because foreclosures are increasing and homeowners who bought at higher prices can't fetch the same amount if they want to sell, but the strengths of Las Vegas will prevent any large drop in prices, he said.
"Certainly our market has changed," Hamrick said. "It doesn't take these large publications to tell us that. What tends to be overlooked when these type of predictions are made is that the housing market tends to be closely tied to employment and job growth, two areas where Las Vegas undisputedly shines. It's very easy to predict that 'what goes up so fast must come down.' But nationally, if you look at the markets that had the most depreciation, they did not participate too much in the appreciation of recent years."
Last week during this Crystal Ball seminar for the housing industry, Las Vegas housing analyst Steve Bottfeld, executive vice president of Marketing Solutions, rejected the predictions of the national publications. He said he expects prices to remain stable in the first six months and as inventory lowers, resale homes will appreciate 3 percent to 7 percent by the end of the year.
Bottfeld predicts there were will 50,000 resales in 2007, up from nearly 42,000 in 2006.
Meanwhile, GLVAR President Devin Reiss said he believes prices will remain flat and inventory will gradually decline. The demand for housing will catch up with the supply, he said.
"Our message starting 2007 is much the same as it was during 2006," Reiss said. "We don't believe that home prices will drop significantly here in Southern Nevada."
The drop in prices in January comes as the number of homes listed for sale inched back up after falling in November and December.
There were 18,774 homes listed for sale in January, up a little less than a 1,000 homes or 5 percent from December. That's still well below the high of 23,474 in October but disappointing to those homeowners who hoped inventory would fall and decrease competition for sales.
Hamrick said too much can't be read into the increase in inventory in January. That's the case historically in the early part of the year.
There were 1,397 homes sold in January, down 15 percent from December and 21 percent from January 2006. That drop in sales was coupled with an increase in the number of homes put on the market.
Single-family homeowners put 5,809 homes on the market in January, up 82 percent from December.
Those listing their homes for sale at a median price of $349,000 are asking 4 percent more money than property owners sought in December.
But it appears homeowners are more realistic about the market. That price is nearly 3 percent below what homeowners listed their home for in January 2006.
In January, nearly 46 percent of the homes sold were on the market 60 days or less. Some 53 percent of homes sold in December were on the market 60 days or less.
Nearly 36 percent of homes sold in December were on the market four months or longer.
In the condo and town home market, the median price of units sold in January rose nearly 5 percent from December to reach $204,450. That price is up 4 percent from January 2006.
The inventory of condos and town homes grew in January by nearly 6 percent to 5,116 units. The 1,504 new listings in January were up 54 percent from December. Brian Wargo covers real estate and development for In Business Las Vegas and its sister publication, the Las Vegas Sun. He can be reached at (702) 443-3604 or by e-mail at