There won't be as many Las Vegas units as expected with a view of the strip. During the last few months, several developers have pulled the plug on high-profile high-rise con-do projects, citing rapidly escalating construction prices that damaged their ability to turn a profit on the deals.
Related Las Vegas, a joint venture between the Related Cos., of New York, and the Florida-based Related Group, made news with one of the most recent cancellations. Its Icon Las Vegas project was planned as two 48-story towers, but on Jan. 6 it announced it would return deposits—with interest—to about 350 buyers. “We were unable to build Icon based on original pricing without seriously impacting the integrity of the development,” said Marty Burger, president of Related Las Vegas, in a statement.
Visitors to Las Vegas are often reminded that “the house”—namely, whichever casino they're playing their chips in—always wins. That seems to be the case in construction, too, right now. At the same time that thousands of condo units are being planned, commercial developers are moving forward with several new multibillion-dollar casino and hotel complexes. They're taking the construction labor force, which has far more work available than it can handle, with them. “Contractors would much rather build those hotels and casinos than condo projects,” says Dennis Smith, president of Home Builders Research, a local market research firm, adding that this has driven up residential construction costs.
A rapid run-up in land prices and continued high materials prices—themes familiar to builders throughout the country—have also contributed to 20 percent to 30 percent annual jumps in the cost of high-rise construction during the last two years, says Richard Worthington, president and CEO of the Molasky Group of Cos., a longtime Las Vegas development firm.
Bruce Weiner, president of Turnberry Associates, attributes some of the project cancellations to developers' lack of market-specific knowledge, particularly about the workforce. “Our research told us in 1997 and 1998 that there was room for 15,000 high-rise units in Las Vegas over a 10- to 15-year period. Everyone ran out there and tried to do it in a year,” he says. More than 100 high-rise projects have been proposed or scheduled in recent years.
Anecdotally, builders report that buyer traffic has dropped somewhat since the spate of project cancellations. Trump International Hotel and Tower, Donald Trump's entry into the Las Vegas market, with 1,282 luxury units, has fewer than 100 units left for sale, though the project isn't scheduled to be completed until early 2008. But recent visitors have been less willing to purchase as quickly as in the past, says Jack Christie, the project's vice president of sales and marketing.
But both Weiner and Worthington remain optimistic about long-term demand for condo development in Las Vegas, due largely to the forecasts of strong continued job growth and migration to the area over the next few decades. “The well-planned, well-financed, well-entrenched groups will do extremely well, and the fly-by-nights will be gone,” says Weiner, whose company will finish its four-tower Turnberry Place project this year and is building two more.
In the rush to build all high-rise projects, says Worthington, developers missed out on opportunities to serve more of the market with incrementally increasing densities—opportunities that Molasky Group, which builds everything except single-family detached housing, may take advantage of. “I believe there's a market here that will only get better as projects get redesigned,” he says. “We can't wait for things to settle down.”
Learn more about markets featured in this article: Las Vegas, NV.