LAS VEGAS-Trammell Crow Residential is directing the development of some 1,700 apartment units in the Las Vegas Valley. One 213-unit project in the suburb of Henderson called Alexan Black Mountain is nearly complete and set for leasing to begin while construction for most of the others is on pace to begin next year.
TCR directs the developments in partnership with various equity partners. TCR acquires the property using equity from the partner while taking anywhere from a 0% to 10% equity interest in the project. It then handles the entire process, from governmental approvals through construction and lease-up. For its effort, in addition to development and management fees, it gets as much as 50% of the back-end profit from the sale of the stabilized asset.
TCR's equity partners are interested in Las Vegas because supply--due to condo conversions, demolition for redevelopment and population growth--has not been keeping up with demand for the last three or four years, creating a ripe market. As a result, occupancies are running in the high 90% range and rents are rising at a 4% annual clip, a trend that is expected to sustain itself given subprime meltdown and the fact that while supply is catching up with current demand it is not catching up with the backlog from previous years.
"Condo conversions have taken 20,000 to 21,000 units off the market and redevelopment has taken another 6,000 to 7,000 units," TCR's local project director Jeffrey Allen tells GlobeSt.com. "A major local operator showed us their numbers; they are running 96 to 97% occupied on both their fee-managed and wholly owned portfolio and have virtually burned off all their concessions while attaining high absorption rates for product coming online today."
Historical multifamily construction deliveries for the Vegas Valley average 7,000 to 8,000 units per year, with absorption tracking pretty closely. In 2005, however, new supply was negative--by between 1,200 units and 4,000 units depending on who is crunching the numbers--and while 2006 didn't see negative supply it didn't keep up with demand and the same will be true for 2007, according to local market reports.
Behringer Harvard is the equity behind three of the projects and Prudential is backing two other projects. The furthest along is Alexan Black Mountain, a 213-unit, Behringer-funded project for which the final building is being framed and leasing is just about to begin. The development site is a thin, 11-acre strip of land between I-515 and Conestoga Way on the southeastern edge of Henderson, putting it within walking distance of a proposed 600-acre campus for Nevada State College and a planned regional light rail line.
As a result, Allen not only expects to achieve top-of-the-market rents, currently about $1.15 per sf, it expects to lease up the property much faster than the typical local standard of 20 to 25 units per month. "The market today for well-located, quality properties is as much as double that rate," he says.
The land for Alexan Black Mountain cost about $850,000 per acre and, as 24 units per acre, the total development cost is working out to about $180,000 per unit. The project "pencils out" in part because zoning allows the project to be three stories instead of two and because the parking requirement was relaxed just enough that the project could be built without structured parking, which adds upwards of $30,000 to the cost of each unit, Allen says.
Behringer is also the equity behind the next Henderson apartment development, Alexan St. Rose, a 430-unit project for which TCR expects to be ready to break ground for next April and complete in mid-2009. With debt from Bank of America, TCR paid approximately $22 million for the 26-acre development site, which is located immediately northeast of the confluence of Maryland Parkway and St. Rose Parkway, 14 miles east of Alexan Black Mountain.
The other Behringer-funded project is a 168-unit project at I-515 and Russell Road. Located about five miles north of the halfway point between its two other projects, the three projects form a triangle, the middle of which is the intersection of Interstates 515 and 215. Construction financing for that project is expected to close in the fourth quarter.
TCR's projects with Prudential include a 161-unit project in Las Vegas and a 312-unit project on East Craig Road in North Las Vegas. Also in North Las Vegas, TCR is gearing up for a 470-unit project for which two equity partners are still competing. Unlike the others, that project will incorporate a fourth-story element, Allen says.
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