Gaming is the engine that drives the Southern Nevada economy, and hopes for the future of the entertainment capital of the world are riding on the 4.5-mile stretch of byway better known as the Las Vegas Strip.
Steve Wynn, the casino mogul who sparked the 1990s mega resort building boom on the Strip is at it again. Wynn, who built Treasure Island (now renamed the “T.I.”), the Mirage, and the Bellagio hotel and casinos, is going full-speed ahead with his $2 billion, 50-story Wynn Las Vegas.
Construction continues on the 2,800-room, 95,000 sq. ft. casino that will be situated on the site of the now-imploded Desert Inn hotel and casino on Las Vegas Boulevard. Wynn Las Vegas will include 18 restaurants, 200,000 sq. ft. of convention space, 77,500 sq. ft. of retail space and Ferrari and Maserati car dealerships.
The April 2005 scheduled opening of Wynn Las Vegas will mark the first mega-resort opening since the debut of the Aladdin hotel and casino in 2000. The Aladdin's opening capped a two-year period of building activity that added 12,000 rooms to the Las Vegas Valley, which now boasts a total of 130,000 rooms. The current building wave is not quite as ambitious. Some 5,000 to 6,000 additional rooms are slated for construction over the next two years, according to Bill Thompson, a gaming expert and professor at the University of Nevada, Las Vegas.
“There is room for two or three new mega-resorts,” says Thompson, who predicts that Wynn will be very successful. “I think that the outlook for gaming and hotels is wonderful. The only monkey wrench is terrorism and how it will affect international travel.”
Thompson believes that Wynn will set the trend for two or three more resorts. He anticipates that other resort developers, including possibly Donald Trump (who recently received a gaming license in Nevada) will build on the Strip, if Wynn Las Vegas succeeds. Thompson believes the valley could absorb another 20,000 rooms to bring the total to around 150,000 rooms.
If Wynn Las Vegas proves to be a success, it will provide further evidence that the economy of the valley, with 1.6 million residents, is back on track after the terrorist attacks on 9-11 resulted in more than 5,000 layoffs in the gaming industry.
Also encouraging is the state's seasonally adjusted unemployment rate, which dropped from 5.2% in January 2003 to 4.5% in January of this year, according to the Nevada Department of Training and Rehabilitation.
Even if the national economy remains flat, Nevada's economic fortunes should continue to improve, says Keith Schwer, the director of the UNLV Center for Business and Economic Research. Nevada was tops in the nation in job growth in 2003 and could repeat that feat again this year with job growth of approximately 3%, he predicts.
“Residential and retail growth have been the hottest,” says Schwer of the strong local economy, which helps drive some 6,000-plus new adult residents to move to the valley every month. December, in fact, showed a higher-than-expected total of 7,930 new residents were issued driver's licenses or state identification, according to the Nevada Department of Motor Vehicles.
Wynn's Not the Only Game in Town
While the future of tourist-driven hotel development in Las Vegas could be largely dependent on the success or failure of Wynn Las Vegas, several other projects are in the planning stages.
The Venetian Resort's planned second tower is a $1 billion, 3,000-room hotel on the corner of Twain Avenue and the Strip that has yet to break ground. The Venetian opened a new 22-story tower last year to bring its room total to more than 4,000. The Venetian is owned by local businessman Sheldon Adelson.
Dallas-based real estate developer Jackson-Shaw is looking to carve out a non-gaming niche for convention exhibitors with its planned $100 million, 548-room Marriott Renaissance hotel, next door to the Las Vegas Convention Center on Paradise Road. Marriott International owns the Renaissance brand.
The largest non-gaming resort, the Marriott Renaissance hotel is expected to create 1,000 jobs when it opens in February 2005. Lewis W. Shaw II, chairman and CEO of Jackson-Shaw, confirms that the firm received financing for the project from Orix Financial Services, a Japanese bank.
Hotel fundamentals are improving in the region. The hotel occupancy rate registered 82.1% in the fourth quarter of 2003, up from 80.2% during the same period a year ago, according to UNLV. Visitor volume was up 0.6% in December 2003 compared with December 2002. Average daily room rates in the fourth quarter of 2003 rose to $83.11 from $78.32 in the fourth quarter of 2002, according to the Las Vegas Convention and Visitors Authority
Retail Cashes In on Growth
Southern Nevada's tourist-driven and resident-driven retail markets are both flourishing. Key to that growth has been the construction of the Interstate 215 beltway, which now spans from Henderson to Centennial Hills in the northwest, according to Mark Bouchard, managing director at CB Richard Ellis in Las Vegas.
The easy access across the valley has caused retail to flock to sites along the beltway, but absorption is having a hard time keeping up. Retail completions totaled 843,500 sq. ft. in the third quarter of 2003, slowing to 355,000 sq. ft. in the fourth quarter, according to Colliers/Restrepo Consulting. Net absorption in the same time period dropped from 642,300 sq. ft. to 238,000 sq. ft.
Grandiose projects aren't limited to the hotel sector. Alberta, Canada-based Triple-Five Development, one of the developers of the Mall of America in Minneapolis, unveiled plans recently to build the largest mall in Las Vegas in the northwest valley. The project is expected to be at least 2 million sq. ft. and would be situated at the southeast corner of the U.S. 95 freeway and the beltway.
Also on tap is a 1 million sq. ft. regional mall in southwest valley on land near the 2,400-acre master-planned Southern Highlands community. Both projects are being developed by Southern Highlands Development.
In response to the new mall initiatives under way and the intense competition, some malls are reinventing themselves. Last year, the Fashion Show Mall on the Las Vegas Strip completed its $1 billion expansion that added 117,000 sq. ft. of retail space and an 11,288 sq. ft. food court.
The Fashion Show targets both tourists and locals, says Greg Zimmerman, vice president and development director for Rouse Co., the Columbia, Md.-based owner of the Fashion Show. Rouse is also the parent company of the Las Vegas-based developer Howard Hughes Corp. Zimmerman says only increasing land prices and a land shortage could stop the retail growth boom in Southern Nevada. “I guess the question is, ‘How high is up?’”
Vacancy rates in the retail sector climbed slightly from 4.3% at the end of 2002 to 4.7% in the fourth quarter of 2003, according to CB Richard Ellis. Bouchard notes especially hot areas for retail include southwest Henderson's Anthem and Seven Hills master-planned communities and the U.S. 95 and Centennial Hills area in northwest Las Vegas.
The 400,000 sq. ft. The District in Green Valley Ranch — a project first dubbed The Shops at Green Valley Ranch — will set a new precedent in retail, predicts Christopher LoBello, regional manager of the Las Vegas office of Marcus & Millichap.
Henderson-based American Nevada Co., which developed the Green Valley master-planned community in Henderson, is developing the project at the southwest corner of the Green Valley Parkway and the I-215 beltway in southeast Henderson (which is part of Green Valley). The project will include 40 specialty retail shops and boutiques, restaurants, 88 luxury lofts and Class-A office space. It will be adjacent to the Green Valley Ranch Station, a hotel and casino co-owned by American Nevada and Las Vegas-based Station Casinos. The retail shops are already 90% leased, according to American Nevada.
“It's live, work and play. It's all right there,” LoBello says of the District's proximity to the hotel and casino. “It's a different type of center. It will really take development to the next level.”
But retail is not all a bed of roses. Older areas saw increases in vacancy rates, as well as negative net absorption, including the West Central submarket (negative 40,000 sq. ft.), Downtown (negative 29,000 sq. ft.) and North Las Vegas (negative 3,200 sq. ft.), reports Colliers/Restrepo. The lack of absorption was primarily driven by grocery-store space vacancies that had yet to be filled, according to the firm.
LoBello believes the market can absorb the retail and other commercial development. “The population growth is really driving each of these sectors,” he says. Who's investing in retail in this region? Nevadans still account for the majority of retail investors, Marcus & Millichap reports. Out of nearly 200 retail transactions in 2003, 55% of the buyers were in-state investors, while 32% were from California.
Multifamily Rides Residential Wave
The population influx has made the Las Vegas housing market red hot and, combined with near-record low interest rates, has enabled the average single-family home price to surge past $200,000. That has made condominiums — normally priced between $100,000 and $200,000 — and apartments even more attractive buys, says Colliers Vice President Melissa Salas.
Many Californians are selling their homes in the Golden State and buying residential properties in greater Las Vegas, she says. The increase in land prices and condominium conversions will help the rental market in the future, Salas adds. The multifamily vacancy rate dropped to 7.9% in the fourth quarter of 2003 compared with 8.4% recorded in that same quarter in 2002, CB Richard Ellis reports.
Some 4,753 multifamily units were built in 2003, virtually unchanged from 4,725 units built in 2002. The good news for investors is that the annual construction figures are below the 10-year average of 5,860 units. The average rent for apartments increased from $755 per month in the fourth quarter of 2002 to $768 in the fourth quarter of 2003.
Las Vegas-based Pageantry Cos. is now selling its $40 million, 162-unit Adventine and 184-unit Tramonti luxury condo and townhouses in the Centennial Hills town center area. Bill Hoover, president of Pageantry's Nevada division, says his company plans on building 300 to 350 attached condos this year. “In 2003, the market was so good that we sold everything we had by August,” he notes.
Over by Lake Mead, within Henderson city limits (population about 200,000) is the Lake Las Vegas community. There, Vancouver-based Intrawest is building the Viera community of 177 resort condominiums, which is part of the $500 million MonteLago Village mixed-use project. “Most buyers are from California and rent out the condos [like hotel suites] when they are not in town,” says Intrawest Regional Vice President Doug Ogilvy. The financing was done through Wells Fargo Bank.
Industrial: An Endangered Species
The conversion of industrial land to residential, rising land prices and the lack of larger available parcels could create an industrial shortage in the future, according to Ralph Murphy, executive vice president and regional manager for Portland-based Harsch Investment Properties. Harsch is building the $30 million, 390,000 sq. ft. Henderson Commerce Center. Murphy says he hopes the local municipalities act to preserve the industrial land, and the employment base and tax dollars that come with it.
The industrial vacancy rate registered 11.1% in the fourth quarter of 2003, up from 9.1% during the same period in 2002, but industry experts say the sharp jump is a temporary blip. Colliers/Restrepo notes in its report that the industrial market generally improved during 2003, largely the result of improving local and national economies.
“It [the vacancy rate] has steadily gone up over the last two years because of an enormous amount of speculative construction,” explains Colliers Senior Vice President Dan Doherty. “In 2002, [developers] built 4 million sq. ft. of new industrial buildings in the Las Vegas Valley. In 2003, we had about 3 million sq. ft., which was about a 25% drop-off.”
In addition to the Henderson Commerce Center, the top industrial projects, according to Colliers, include DP Partners' 2.2 million sq. ft. LogistiCenter in North Las Vegas, CENTRA Properties' 733,000 sq. ft. CENTRA Craig Distribution Center in North Las Vegas and the Operating Engineers Pension Fund's 1.5 million sq. ft. Golden Triangle Industrial Park in North Las Vegas.
North Las Vegas proved to be the shinning star in industrial completions in 2003 with 1.3 million sq. ft., compared with its 2002 total of 1.1 million sq. ft. of completions. More and more, however, industrial developers say the residential boom in North Las Vegas (and the city's rezoning of industrial to residential) is threatening to make industrial parcels scarce, even in North Las Vegas.
Office on the Fast Track
As is the case with retail activity, the movement of office development is toward the I-215 beltway, says Bouchard of CB Richard Ellis. One example is phase one of the $55 million CENTRA Point office park. The project, which is located on the north side of the I-215 and Durango Drive, opened in February with three buildings and 150,000 sq. ft. It will eventually include 300,000 sq. ft. in six buildings.
Locally based Thomas & Mack Development Group and Majestic Realty are jointly developing the Beltway Business Park, which is bordered by I-215 and Jones Boulevard. The 850,000 sq. ft. first phase opened last year. The 102,450 sq. ft. second phase will include two light flex office buildings.
CENTRA CEO Jim Stuart has no complaints about his company's beltway location. “We are leasing at a very brisk pace,” he says of CENTRA Point. “Our first phase of 100,000 sq. ft. is 100% leased.”
The Internal Revenue Service is actually being welcomed in Las Vegas — or at least its office building is. Construction began in January on the $17 million, 4-story, 92,000 sq. ft. office building, which is considered to be a key project in the revitalization of downtown Las Vegas. Locally based The Molasky Group of Cos. is building the project, which will also have tenants that include the General Services Administration and the Federal Mediation and Conciliation Service. The IRS building is scheduled for a December completion.
The office vacancy rate in the Las Vegas Valley remained virtually unchanged at 14.7% in the fourth quarter of 2003 compared with the same period a year ago, according to CB Richard Ellis. The average leasing rates declined slightly during the same period from $1.64 per sq. ft. to $1.63 per sq. ft. on a monthly basis.
The fourth quarter of 2003 also showed strong employment growth in the office sector with 1,200 jobs added, noted the Colliers/Restrepo report. That was a 4.6% increase from the last quarter of 2002.
Rick Myers, president of the National Association of Industrial and Office Properties (NAIOP) in Nevada and head of the Thomas and Mack Development Group, says the record-low interest rates have created an attractive purchasing environment, so many tenants are opting to buy rather than lease.
No matter what sector of Southern Nevada development investors find themselves in, all eyes are still focused on the man with the magic touch — Steve Wynn. “If Wynn sets off another building boom, like he did with the Mirage,” predicts Marcus & Millichap's LoBello, “we are poised for another substantial surge in the economy that could last 10 to 15 years.”
Carol Miller is a Las Vegas-based writer.
LAS VEGAS - BY THE NUMBERS
POPULATION OF METRO AREA: 1.6 million
Source: UNLV Center for Business and Economic Research
UNEMPLOYMENT RATE: 4.6%
Clark County School District
Nellis Air Force Base
Source: MGM Mirage, CCSD, U.S. Air Force
METRO AREA STATS
14.7% vacancy, 4Q 2003
14.4% vacancy, 4Q 2002
Rent per sq. ft. (monthly): $1.63, 4Q 2003
Source: CB Richard Ellis
7.9% vacancy, 4Q 2003
8.4% vacancy, 4Q 2002
Rent per unit: $768, 4Q 2003
Source: CB Richard Ellis
4.7% vacancy, 4Q 2003
4.3% vacancy, 4Q 2002
Rent per sq. ft. (monthly): $1.59, 4Q 2003
Source: CB Richard Ellis
11.1% vacancy, 4Q 2003
9.1% vacancy, 4Q 2002
Rent per sq. ft. (monthly): $0.50, 4Q 2003
Source: United Properties
82.1% occupancy, 4Q 2003
80.2% occupancy, 4Q 2002
Average Daily Rate: $83.11, 4Q 2003
Source: UNLV Center for Business and Economic Research, Las Vegas Convention & Visitors Authority
MAJOR PROJECTS UNDER CONSTRUCTION:
Wynn Las Vegas, a 50-story 2,800-room hotel and 95,000 sq. ft. casino with 18 restaurants, 200,000 sq. ft. of convention space and 77,500 sq. ft. of retail
Cost: $2 billion
Owner: Steve Wynn/Wynn Resorts
Completion: April 2005
The Venetian Resort's second tower, a 3,000-room hotel on the Las Vegas Strip
Cost: $1 billion
Owner: Sheldon Adelson
Internal Revenue Service Building, a 92,000 sq. ft., four-story office building in downtown Las Vegas
Cost: $17 million
Developer: The Molasky Group of Cos.
Completion: December 2004