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LAS VEGAS-There have been lots of reports issued about the Las Vegas apartment market in the past several weeks, all of them pegging average apartment vacancy in the fourth quarter somewhere in the 8% range. Only the CB Richard Ellis report, however, provided the real news, which is that average market-wide vacancy rose to 10.96% in the final month of the year, and that the situation is expected to worsen in 2009.

CBR’s monthly survey covers more than 100,000 units in the region. “We’re been tracking vacancy here since the 1980s and it has never been above 10%,” Spence Ballif, a Las Vegas apartment broker with CB Richard Ellis, tells GlobeSt.com. “I see a lot of operating statements; things are much worse than is being reported.”

That having been said, Ballif adds that investors, developers, and existing owners are now looking forward to a brighter 2010. The hope is that projects like City Center, Cosmopolitan and Fontainebleau bring in new employment opportunities and that more stringent standard for home ownership create additional demand for rentals, he says.

Overall average apartment vacancy for all of 2008 was 8.76%. Class A vacancy for the year was 7.8% while class B vacancy was 9.3% and class C vacancy was 9.0%. In December, the overall average was 10.96% and the vacancy by class was 9.9% for class A, 11.36% for class B and 11.53% for class C.

“Rental rates will decline and concessions will increase through the first three quarters of the year,” states the report. “As the casino openings begin in the fourth quarter, the market should begin to stabilize.”

While the average rental rate showed only a 1% decline in the final three months of 2008, to $925 from $932, actual rental collections have fallen by as much as 10% in some submarkets as concessions have grown. At the end of 2007, the typical concession was one-month fee on a 12-month commitment. Today, that is being enhanced with reduced rent and reduced move-in costs, according to the report, which found that the Green Valley ($1,006 per month) and Southwest ($968) submarkets maintained their monthly rental rates while those in the Northeast ($785) submarket declined by 2.7%.

“In 2009, we believe the Green Valley and southwest submarkets will continue to be the best performing submarkets due to their in-fill locations and desirable master planned communities,” states the report. “We expect the Northwest and North Las Vegas submarkets to be the poorest performing locations due to the largest amount of new construction taking place in these areas along with the largest commute times to the majority of the employment centers.”

New construction deliveries in 2008 totaled approximately 4,200 units, down a few hundred units from 2007. In 2009, CBRE is predicting a 43% increase in completions to 6,000 units, including 1,734 in Noth Las Vegas and 2,576 units in the Northwest submarket. Over the past 12 years, Las Vegas has averaged 5,300 units completed annually, according to the report.

Looking (beyond) 2009, CBRE says it expects new apartment deliveries to decline dramatically, to below 3,000 units. “Market conditions and limited construction lending availability will [limit] new construction.”

On the investment front, sales volume is down dramatically, a sign of both the troubled financial markets as well as disconnect between buyer and seller on what the capitalization rate should be. There were 13 plus 200-unit transactions in 2008, down 67.5% from 40 in 2007. Total consideration paid for all apartment sales in 2008 was $291 million, down more than 77% from $1.28 billion in 2007.

While cap rates on average increased just 38 basis points during the year to 5.39%, CBRE says “the spread between buyers’ and sellers’ cap rate expectations remains significant and few transactions are being completed as a result.”

The firm’s 2009 prediction is that 2009 sales volume will mimic 2008. The big difference will be that the number one source for buyers in 2009 will be banks that recently foreclosed on the property.

“Finding Sellers who are willing to meet the market will be the greatest challenge,” concludes the report. “Owners who are not forced to sell will wait for better market conditions and more liquidity in the lending market. For those transactions that are completed we expect that cap rates will rise significantly over 2008 levels due to the increasing cost of debt and equity. The loan constant of the cost of debt will be a minimum bench mark for cap rates in 2009.”

Real Capital Analytics’ transactions database shows only two apartment property changing since Oct. 1, 2008. Last month, a 75-unit, circa 1988 property in Henderson called Woodcreek Village changed hands for $7.5 million, or approximately $750,000 more than it traded for in 2005. In December, Arabella, a circa 1989 garden-style complex also in Henderson, NV, with 120 units sold for $10.4 million, or approximately $100,000 less than it sold for in 2005, in a deal that included seller financing. The $86,667 per-unit acquisition price represented a 6.2% cap rate on then pro forma 2009 returns, according to RCA. CB Richard Ellis brokers Jeff Swinger and Spence Ballif brokered the deal.

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