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Las Vegas Condo News

Apr. 28, 2005
Copyright © Las Vegas Review-Journal   (Taken from  Review -Journal )

Las Vegas condo conversion rate among highest in U.S.

By HUBBLE SMITH
REVIEW-JOURNAL

Las Vegas has become one of the major condo conversion markets in the country with an 8 percent share of the $6.5 billion in conversion volume among 10 major metropolitan areas, a report from Marcus & Millichap Research Services shows.

The combination of low mortgage rates, significant single-family home appreciation and the rise in demand for condo units led to a sharp increase in conversion activity.

More than $9.2 billion worth of large apartment properties slated for conversions changed hands in select markets last year, up from $2.1 billion the previous year, the report said.

Some 17,000 apartment units in Las Vegas are projected to be converted to condos, said Dennis Smith, president of Home Builders Research. About 7,500 are being actively marketed as condos and 10,000 are proposed to be converted.

They're priced from $120,000 to $250,000 for a unit with a garage, an affordable alternative to the $304,734 median new home price, factoring out condo conversions, Smith said.

Last year, 249 major condo conversion transactions closed in select markets across the nation, up from 80 in 2003, Marcus & Millichap reported. All apartment and condo conversion figures are based on sales of properties priced at $5 million or more.

Activity continues to heat up, with an estimated 70 large conversion properties in these markets trading during the first quarter this year, more than double the number from a year ago.

Nearly two-thirds of the transactions were concentrated in Southern California and Florida. Miami and San Diego had the lion's share of dollar volume, with 24 percent and 22 percent, respectively.

"This is a new trend for Las Vegas," said Christopher LoBello, regional manager for Marcus & Millichap in Las Vegas. "What's driving it is low interest rates and demographics of the people that are buying these condos. They don't want to deal with the maintenance of a home. A lot of retirees are stepping up and buying these because they're more cost-effective than a home."

Las Vegas is getting more national exposure as demand for condos continues to accelerate, LoBello said.

The median price per unit for major conversion properties is $130,000 this year, up slightly from $129,000 in 2004. Prices are expected to rise substantially in the second quarter based on prices for properties under contract.

LoBello said condo converters have snapped up large apartment complexes in Las Vegas that were either already mapped as condos or meet condo specifications.

"Now they're bought up, so we're seeing people buying apartments willing to rent them until they get the necessary requirements for conversion," he said.

One of the difficult tasks for investors looking to hold is verifying income of a rental property, said Donna Coquilla, a broker with Lee & Associates in Las Vegas.

"When you hold a building, as opposed to converting, you want to look at net operating income and make sure it jibes with the price, make sure the income is high enough that you don't end up with a low cap rate," she said. "Generally speaking, if you get a substantial apartment building that's been well maintained, you should be able to come out okay."

Investors should examine lease arrangements and check them against the seller's receipt books to make sure there are no hidden concessions such as several months of free rent.

"If you have 400 leases, you've got to go through every one of them. That's part of your due diligence," Coquilla said.