Why Investors Are Betting Big on Vegas's Recovery

SAN DIEGO—Solid population growth, a more diversified economy, job creation and limited new supply are the key reasons the Las Vegas commercial real estate market is coming back, San Diego-based Pathfinder Partners' senior managing director Lorne Polger tells GlobeSt.com. The firm recently acquired Tierra Bella, an 98-unit apartment community at 10620 Alexander Rd. in Las Vegas for $12.5 million from what Real Capital Analytics reports was a joint venture between National Commercial Ventures and RAIT Financial.

According to Polger, the deal marked Pathfinder's third acquisition in the area. Last year, Pathfinder acquired 39 of 83 units in Park House Condominiums near Summerlin and 64 of 409 units in the Sky Condominiums on Las Vegas Blvd.

We spoke with Polger about the Las Vegas multifamily market, why it took such a hit during the recession and why investors are betting big there now.

GlobeSt.com: Why did the Las Vegas multifamily market fall so hard during the recession? 

Polger: Speculative real estate investing fueled Las Vegas growth and was ultimately part of its downfall.  In addition, significant job loss led to population outmigration. It was a triple whammy for the market.

GlobeSt.com: How has the market fared since then?

Polger: The Las Vegas apartment community was hit very hard during the recession, but has now bounced back with strength. Average apartment rent peaked at $945 here in 2006 and did not bottom until 2012. Since the bottom, average rent has increased by more than 20%. We expect rents to continue to grow as the supply remains somewhat limited.

GlobeSt.com: What do you believe is responsible for the market's comeback?

Polger: Solid population growth, a more diversified economy, job creation and limited new supply are the key reasons the market is coming back. The metro area's population increased by 54,000 last year and similar gains are forecast through 2019. Although leisure and hospitality still account for more than 30% of employment, the economy has begun to diversify as new jobs are added in other sectors including healthcare and technology. The Las Vegas unemployment rate peaked at 13.8% in 2010 and dropped to 5.1% in Nov. 2016.

Finally, although there has been recent construction of multifamily units, they are virtually all class-A product located primarily in or near the Summerlin area of town, so supply is limited.

GlobeSt.com: Where do you see this market heading in the future?

Polger: We are optimistic about the long-term viability of the marketplace, given the magnitude of homeownership lost in the Las Vegas market—arguably the hardest hit of all US markets. We believe Las Vegas will continue to be a renter's market. We don't think any new class-B units will be constructed and think there is strength and future rent grow in that particular segment.

GlobeSt.com: What else should our readers know about the Las Vegas market?

Polger: Las Vegas continues to demonstrate strong market dynamics with solid population and job growth and an increased demand for renovated, newer-vintage apartments. However, the Las Vegas multifamily market can still be finicky, and we think you have to really understand the various submarkets to be successful there.

SAN DIEGO—Solid population growth, a more diversified economy, job creation and limited new supply are the key reasons the Las Vegas commercial real estate market is coming back, San Diego-based Pathfinder Partners' senior managing director Lorne Polger tells GlobeSt.com. The firm recently acquired Tierra Bella, an 98-unit apartment community at 10620 Alexander Rd. in Las Vegas for $12.5 million from what Real Capital Analytics reports was a joint venture between National Commercial Ventures and RAIT Financial.

According to Polger, the deal marked Pathfinder's third acquisition in the area. Last year, Pathfinder acquired 39 of 83 units in Park House Condominiums near Summerlin and 64 of 409 units in the Sky Condominiums on Las Vegas Blvd.

We spoke with Polger about the Las Vegas multifamily market, why it took such a hit during the recession and why investors are betting big there now.

GlobeSt.com: Why did the Las Vegas multifamily market fall so hard during the recession? 

Polger: Speculative real estate investing fueled Las Vegas growth and was ultimately part of its downfall.  In addition, significant job loss led to population outmigration. It was a triple whammy for the market.

GlobeSt.com: How has the market fared since then?

Polger: The Las Vegas apartment community was hit very hard during the recession, but has now bounced back with strength. Average apartment rent peaked at $945 here in 2006 and did not bottom until 2012. Since the bottom, average rent has increased by more than 20%. We expect rents to continue to grow as the supply remains somewhat limited.

GlobeSt.com: What do you believe is responsible for the market's comeback?

Polger: Solid population growth, a more diversified economy, job creation and limited new supply are the key reasons the market is coming back. The metro area's population increased by 54,000 last year and similar gains are forecast through 2019. Although leisure and hospitality still account for more than 30% of employment, the economy has begun to diversify as new jobs are added in other sectors including healthcare and technology. The Las Vegas unemployment rate peaked at 13.8% in 2010 and dropped to 5.1% in Nov. 2016.

Finally, although there has been recent construction of multifamily units, they are virtually all class-A product located primarily in or near the Summerlin area of town, so supply is limited.

GlobeSt.com: Where do you see this market heading in the future?

Polger: We are optimistic about the long-term viability of the marketplace, given the magnitude of homeownership lost in the Las Vegas market—arguably the hardest hit of all US markets. We believe Las Vegas will continue to be a renter's market. We don't think any new class-B units will be constructed and think there is strength and future rent grow in that particular segment.

GlobeSt.com: What else should our readers know about the Las Vegas market?

Polger: Las Vegas continues to demonstrate strong market dynamics with solid population and job growth and an increased demand for renovated, newer-vintage apartments. However, the Las Vegas multifamily market can still be finicky, and we think you have to really understand the various submarkets to be successful there.