Sin City is evolving once again. Because of the comparatively low price of Las Vegas real estate, investors from all across the country, have been scooping up housing bargains as fast as they are built. The new craze involves high rise luxury condos, and even a new concept; condo-hotels. One recent condo project sold all 248 units in 48 hours. Should you invest?
First it was the hotels. Many of Las Vegas’ original Strip hotels such as the El Rancho, Flamingo and Desert Inn were more like big ranches. They were spread out over several acres and you could drive right up to your room. Others, such as The Dunes and Caesar’s Palace, were several stories tall but being a true high rise was never the goal. But that all changed in 1989 when developer Steve Wynn came to town and built the Mirage Resort. He envisioned something much grander for Vegas and an incredible hotel building boom began. Today, the Venetian, Mandalay Bay, Bellagio, and the MGM Grand are just a few examples of the high rise trend in hotel-casinos.
The Boom Begins
Could it be that high rise condos would be far behind? Actually it didn’t happen right away. It wasn’t until Turnberry Estates unveiled the first of its three towers in 1999 that truly opulent high rise condo living took hold in Las Vegas. Although they sold well, it didn’t start a condo building frenzy. One reason is that land in and around Las Vegas was fairly cheap and plentiful. Why would you need to build up, instead of out? Well, that all changed in 2004 when Las Vegas became the hottest real estate market not only in the U.S. but in the world! Fueled by skyrocketing housing prices in California, that state’s residents, by the thousands, discovered the housing bargains in Las Vegas. For a fraction of the cost of California homes, people could invest in residential real estate. Many didn’t even bother coming to Vegas to see the available homes. They just phoned their real estate agents and ordered as many houses as they could afford. Long lines formed at new subdivisions and soon demand far outstripped builders’ capacities to provide homes. To try and keep up, builders scooped up all the land that was available at the Bureau of Land Management’s auctions. This quickly worked to drive up land and building costs, not to mention that an average of 5,000 people each month were moving to this job and real estate Mecca.
Manhattanized?
In looking at the Las Vegas Valley one would assume there is available land everywhere. After all, isn’t this the vast desert? But that isn’t the case. As mentioned earlier, what parcels that were available have been purchased for future developments. And the BLM has a limited amount of land it annually releases. So, what is a developer to do? They elected to “move up in the world” and what some call the “Manhattanization” of Las Vegas, and the “Miami Beach of the West” is happening full throttle.
Today there are over 80 high rise condominium developments being planned or already in construction, mostly in and around the famous “Strip.” Names such as Allure, Chateau Nouveau, L’Octane, Sky Las Vegas, The Summit, and Trump Towers are being talked about as the “second coming” as far as Las Vegas real estate is concerned, according to long-time real estate broker Paul Peterson of Pacific International Realty. “I’ve been here since 1978 and I’ve never seen anything like what’s happening now. The Las Vegas skyline is going to be completely re-done.”
How About A Hybrid Condo?
First you have the conventional condo developments, and now you have the option of owning a condo-hotel. And we’re not talking time-shares. With a regular condo, you buy it and it’s yours. You can live in it or rent it out. With a time-share you and several other people co-own a unit. You can use it for so many weeks per year, or you can rent it out. A condo hotel unit is different from a time-share because of the way it is owned. A condo-hotel unit is purchased by single owner, who can use the condo at any time. When the owner is not using the unit, he or she can put in the hotel’s rental pool, and it will be rented out by the night. It should be noted that at many times of the year, despite the almost infinite hotel room capacity, the occupancy rate exceeds 97%. Several of the top Las Vegas hotels are considering building adjacent condo-hotels. In fact, Turnberry's The Residences at the MGM Grand is a well underway as an example of this new type of real estate.
Never Mind The Bumps
However, there are sure to be some bumps along the way. For example, a study commissioned by Deutsche Bank says it doesn’t expect all the condo developments to go forward. Interestingly, it estimates only about 40% will be completed. One proposed development, Krystal Sands, has already bitten the dust and has had to refund hundreds of deposits. But that still leaves at least 13,000 new units within the next five years. And there is little doubt that the condo building boom has a tremendous upside. Again, according to Peterson, “as long as real estate prices are higher in other areas of the country, we’re going to be a bargain. So a starting price of between $275,000 and $300,000 looks like a great deal…and is!”
There is also the fact that the weak dollar is attracting a lot of foreign investment in U.S. real estate, especially Las Vegas. Only a small percentage of people are expected to call their Las Vegas condos their primary residence, so it makes perfect sense for investors to buy a second home in such a glitzy entertainment and gambling resort city. And there is the fact that Nevada has no state income tax, and very relaxed taxes overall. So, wealthy Americans, along with well heeled foreigners, are looking to park their investment dollars in what many consider to be a safe place.
Selling Like Hot Cakes
And how are the condo developments doing so far? To categorize sales as brisk would be an understatement. One project sold out all 248 units in 48 hours. One reason is that there is no prohibition against absent owners buying property as eventually was the case with the housing projects. Subdivisions were becoming nothing but rows of homes purchased by out-of-state owners who had no intention of living there. They just wanted to rent out the homes and watch the values go up. The fear was it would result in a “transient” all-rental neighborhood, thereby lowering property values so the builders began to severely limit who could buy. That isn’t the case with the condos. As stated before, it is quite the reverse.
The Upside Of Condo Investing
So, is it a good investment? Well, if you consider that Las Vegas is still growing at an astonishing rate and is expected to do so well into the future, then buying a new high rise condo seems like a good get. Values will undoubtedly go up. And, if you’ve looked at gaming stocks you’ll notice that they are exceptionally strong. And that is the backbone of the area’s economy. Finally, no one sees a decline in the housing boom in other parts of the U.S., especially California. Even if that bubble were to one day burst, the prices would still remain much higher than Las Vegas real estate.
The Caution Flag Is Out
Are there any downsides? Well, yes. For one thing you can’t move into your new condo anytime soon. The earliest ones are slated to be finished late in 2006, with most completed in 2008 to 2010. That means your deposit (up to 20%) will be tied up for several years. Now how about re-sales? Let’s use Turnberry as an example. It is true that their new condos have sold well. But there have been lots of re-sales on the market for a long time. If history is a guide, they don’t sell nearly as fast.
But what the heck! After all, this is Las Vegas. It is a betting city and you take your chances. At the moment the odds look good, so “roll them dice, baby.”