Yet as the market continues to work out those kinks, there arepromising signs for Sin City's multifamily sector. Locally basedbrokerage firm Bentley Group Real Estate Advisors reportsperformance figures for the local apartment market for the secondquarter trended toward the positive, albeit slightly. Occupancyrose 20 basis points, following a 40-basis-point increase in thefirst quarter. At 92.9%, the midyear occupancy just shy of the93.7% reported in the second quarter of 2007. Rents, meanwhile,rose by 1% over the quarter to $889 per month.

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However, small, the gains are still good news, says ChristopherD. Bentley, president and broker of record for the firm'smultifamily/hospitality division. "Since 2006, the shadow market ofsingle-family homes has really affected apartment performance. It'saffected occupancy growth significantly. But if you take rentgrowth, then performance was flat," he explains, adding thatvalue-add buyers that upgraded C and D-quality product have helpedpush overall rents up. "So things have remained flat throughout2006, though they haven't decreased. And 2007 was a bad year forus. We ended up with employment growth of just 9,000, compared tothe 40,000 we're used to. This year isn't going to be muchdifferent."

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Bentley notes that there's no way to accurately quantify thesize or full impact of the shadow market since it's difficult todetermine how many single-family homes are on the market asrentals. According to data from the Bentley Group, just 19% of theLas Vegas housing market consists of traditional rentals. "Other"rentals¬--single-family residences, condos and townhomes--accountfor 21% of the pie and owner-occupied households comprise thebalance.

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Further, the firm points out, the traditional apartment marketlost a significant portion of its market share to "other" rentalsand the for-sale market. In 2007 alone, 3,944 households left theapartment pool, while other rentals gained 20,173 households. Overthe four-year period since 2003, the number of households inconventional apartments grew by 3,916, compared with 51,479 in"other" rentals. While most would expect the shadow market toimpact the class A space, Bentley says it's the lower-qualityassets--the B and C product--that are being impacted the most. "Wethink it's a function of multiple households moving intosingle-family homes," he explains.

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[IMGCAP(2)]Marty Burger, president and CEO of locally basedArtisan Real Estate Ventures, says the pressure came not fromcondos, but from single-family homes. "It seemed like there was acondo boom here, but there really wasn't," he maintains. "It wasjust eight or 10 buildings comprising 7,000 or 8,000 units. For LasVegas, that's not a lot of absorption." Plus, he adds, those unitswere on the high end of the quality spectrum and didn't necessarilytarget casino workers.

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"Where there was a huge boom was in the single-family homemarket, but now that market has obviously slowed," he continues."The homebuilders aren't building on spec anymore." So the hugeinventory of homes in the market 18 months ago is becomingdepleted. Burger anticipates the local apartment market to pick upin the near future.However the for-sale market works out itsissues, Bentley agrees it will present "an opportunity because alot of these shadow rentals will come out of the pool. Thecompetition will dissipate" as tenants in shadow space, faced withthe possibility of eviction if the homeowner is foreclosed upon,opt to return to the safety of professionally managed rentalapartments. "It used to be that landlords did a credit check of atenant. Now it's the other way around. You have to make sure thelandlord's making its payments, and in Nevada, there is a 30-daynotice on foreclosures and the papers are always reporting on this.That has boded well for apartments, and we think that's the mainreason our occupancy has grown."

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While Bentley expects this year to be flat, he says 2009 will bea year of stabilization as concessions are burned off and rentgrows slightly. The market is expected to see substantial growthbeginning in 2010, since most of the casinos currently under wayare slated to open in late 2009.

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Indeed, the city's global tourism and gaming industry is a majoremployment driver for the market. According to Bentley Group'sdata, there are 7.1 jobs--two direct and 5.1 indirect--created withevery new hotel room addition. By year's end, 9,119 rooms will beadded to the market. Next year will see a whopping 17,223 keys insuch projects as CityCenter, Grand Hyatt and Fontainebleau LasVegas, among others.

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Historically, apartment occupancy has risen as jobs were addedto the market, since the workers in these casino projects typicallyrent units. Burger, for one, is banking on that. Artisan is on itsway to acquiring 3,500 units by year's end. Its most recentbuy--the 670-unit Canyon Pointe Apartments, located just off theLas Vegas Strip--marked the sixth property in its portfolio, whichnow includes 1,975 units worth more than $200 million. The companybuys both core and value-add properties, and--despite the tightlending conditions--it was able to find financing for its last twodeals in the form of a Fannie Mae loan through Wachovia andmezzanine debt with RCG Longview. "We've been getting to just about80% financing, and we and our equity partners put in the rest,"adds Burger.

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Las Vegas continues to be one of the fastest-growing markets interms of both population and employment, says Burger, and that iscreating a supply-demand imbalance. "There's a fixed number ofunits here and because of construction costs, it's more difficultto build, so there's less product being developed," he relates.Further, all the casino projects "are going to have huge demands onthe employment sector."

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Statistics seem to support Burger's claim. With 250,000 new jobsadditions slated for the next five years, Bentley is going so faras to forecast a housing shortage as soon as 2010. In 2007, thecity had the largest oversupply of housing ever, at 29,027 extraunits. By 2010, the housing supply is expected to fall short by1,032 units, and then be in the red by 9,167 units in 2011. Forapartments only, the inventory will fall short 9,620 units in 2010and 13,054 units in 2011. That, maintains Bentley, will create anenvironment where landlords can enjoy rising occupancies and rents,with no need to offer tenants concessions.

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"Las Vegas has growth drivers you're not going to find in othermarkets such as Phoenix or Los Angeles," says Burger. "Based onthose drivers, I believe there's going to be a spike in rents sometime in the near future, and we're buying now to take advantage ofthose spikes."

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