With Las Vegas' population expected to reach 1.8 million in 2005, the region is experiencing an unprecedented boon in residential and retail growth, says Steve Stratton senior vice president and district manager for KeyBank Real Estate Capital. The watchword is “build the rooftops and retail will come.” And here's proof: The retail sector delivered 4 million square feet of new retail space in the past two years, following a record year — 25,230 units — for new home sales in 2002.
Jeff Pori, managing director for Sperry Van Ness/Transwestern Investment Realty Group in Las Vegas, says national retailers began taking area seriously a decade ago, when the region's population hit 1 million. In the past 18 months a host of new retailers have arrived, including Nordstrom, Kohl's, Whole Foods, CVS, and P.F. Chang's. Others opening this year include Wal-Mart Neighborhood Markets, REI, Cold Water Creek, Anthropologie and Sears Grand.
But this is a tale of two markets. One caters to tourists and commands rents of $180 per square foot; the other serves local consumers with rents ranging between $10 to $26 per square foot.
Much of the newest development is away from the Strip's glitz and glamour. Savvy developers are working furiously to stay ahead of demand for growing retail space along the new Interstate-215 Beltway, for example. It's opened up new territory to residential development, according to Pori, and is fueling retail growth in the short-term.
Dan Adamson, principal at ROI Commercial Real Estate Inc. in Las Vegas, agrees, but notes that growth is especially intense in North Las Vegas and northern Clark County. A variety of grocery-anchored neighborhood centers, power centers, big boxes and even a new regional mall are in the works.
Triple Five is building the new mall, Montecito Town Center, on the west side of Interstate-95, just north of I-215. KeyBank tried to finance it, but ran into tenancy issues. Retailers cut deals that would let them break their leases if, say, retailer x, y or z pulls out. “As a lender, that gives us heartburn,” Statton says. Power centers and grocery-anchored neighborhood centers are preferred by lenders and investors because, he says, “tenants are committed for 10 years or more.”
Locally based American Nevada Corp. has partnered with Pulte Homes, which recently acquired Del Webb, to develop Aliante, a 428-acre master-planned community. The project includes the 900,000-square-foot Centennial Center, along the northern I-215 Beltway where it intersects with I-95. Centennial Center has a Wal-Mart Super Center, Sam's Club, Home Depot, Circuit City and other junior boxes, as well as specialty shops, restaurants, fast food outlets and an auto mall.
A little west of Aliante is Summerlin, a 22,000-acre master-planned development by Howard Hughes Corp. and The Rouse Co. Several major retail centers have opened over the last couple of years or are under way. Canyon Pointe, a 600,000-square-foot community shopping center anchored by Costco, Best Buy, Office Depot, Bed, Bath & Beyond and Marshall's, opened in 2002, and Rouse is building Summerlin Town Centre, an upscale mall anchored by Dillard's, Lord & Taylor, Macy's and Robinsons-May. It's slated to open in the fall of 2006.
American Nevada is building the region's first open-air lifestyle center, The District, a mixed-use development with 400,000 square feet of retail space on the first level, and 88 luxury residential units and 25,000 square feet of office space overhead, plus an adjacent three-story, 65,000-square-foot free-standing Class-A office building.
The project, located southwest of Las Vegas in Green Valley off I-215 just north of Henderson, is anchored on one end by Green Valley Ranch Resort, which opened two years ago and features a movie theater, restaurant, spa, 500-room hotel, casino and nightclub. The city of Henderson's Liberty Point Center anchors the other end, featuring a 7,500-seat amphitheater and 80,000-square-foot recreational facility with indoor and outdoor pools, a raised track, climbing wall, library and police station. “Our market is young professionals and empty-nesters,” says John Kilduff, president of American Nevada Corp., noting that the project is “not set up for children.”
This urban-type project is a sign of what's to come in Las Vegas, says ROI's Adamson. “It's the ‘Manhattanization’ of Vegas,” he says. “We're going vertical.”
While Las Vegas seems to have room to grow, it is actually boxed in by federal lands controlled by the Bureau of Land Management and mountains to the east and west. That leaves the only potential growth areas to the south and north, Stratton says, noting that even Summerlin's future development is restricted to the north by Red Rock Canyon, a natural preserve. “We're landlocked literally,” he says. “The Disposal Boundary will literally take an act of Congress to get land beyond it on which to expand.”
The Bureau, however, does periodically auction off parcels of federal land. It also does land swaps with developers in other areas that may be more environmentally sensitive than desert acreage near the Las Vegas metropolitan area. David Brockman, managing principal for the Los Angeles office of EDAW, a real estate consulting firm that handled a land swap at Lake Las Vegas for Del Webb, says these deals can take 10 years to complete. Land issues “are slowing down the growth process, which is starting to reflect in land values,” he says. “Land is a precious commodity in Vegas.
The agency auctioned nearly 1,000 acres last summer and is scheduled to release another 1,600 acres this fall, according to Stratton. Pori says residential land prices for have tripled over the past few years, causing the region's Top 10 builders to compete for federal land, which brought $192 million more than the appraised value at the last auction. “Builders have gone to the edges and banked land,” he says. “At the rate we're developing land now, all developable parcels will be gone by 2017. Then we will have to do more infill and redirect development back toward the center.”
This trend is already evident. Chelsea Property Group's $95-million, 435,000-square-foot Las Vegas Premium Outlets center opened last year on the former site of Union Pacific Railroad's railyard on the western edge of downtown Las Vegas. Additionally, Christopher LoBello, regional manager for Marcus & Millichap in Las Vegas, notes that a $1-billion World Market Center Expo is proposed for downtown. Locally based Marnell Properties also is building a 550,000-square-foot power center in a joint venture with McCarran International Airport, which will open in spring 2005. The new center, on airport-owned property at the intersection of Eastern and Russell avenues, will be anchored by an as yet unnamed 200,000-square-foot home-improvement retailer.
The growing shortage of land, which is likely to become a major barrier to entry, is pushing up retail values and driving down cap rates. “We're seeing some deterioration of rents in the urban core,” says Adamson. “But overall, rents are strong, and it's pretty much a seller's market,” he adds, noting that cap rates are in the mid-6 percent to 8 percent range.
Consequently, some owner's are taking steps to add value to their existing properties to secure their market share. General Growth, for example, recently renovated its 950,000-square-foot Meadows Mall west of downtown Las Vegas off I-95, and plans to invest $20-million in reconfiguration and expansion of the 1.2-million-square-foot The Boulevard mall east of the Strip, southeast of downtown.
Meanwhile on the Strip, the new owners of the 475,000-square-foot Desert Passage retail/entertainment center, adjacent to the Aladdin, plan to redesign and re-theme this property. Details of plans will be announced May 23. Boulevard Invest LLC, a joint venture of New York-based Sutton East Corp. and RFR Holding, a German-owned investment firm, purchased the underperforming property last December from Chicago-based Trizec Properties for $240.5 million, well under the $300 million it cost to develop it.
Market Profile/ Las Vegas
DEMOGRAPHIC OVERVIEW
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Population: 1.7 million, State of Nevada
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Median Household Income: $44,616
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Unemployment Rate: 4.6%
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Hotel Rooms: 132,000
Source: U.S. Bureau of Labor Statistics, Las Vegas Convention and Visitors Authority, U.S. Census Burea
MARKET OVERVIEW
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Average Retail Rent: $19.08 per sq. ft. (off Strip)
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Average vacancy: 3.7%
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Total Inventory: 38,478,000 sq. ft.
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Under Construction: 2,466,000 sq. ft.
Source: Market Data, Applied Analysis, 1Q2004
MERCHANTS OF VENICE
General Growth paid a total of almost $1.1 billion for the Venetian's 450,000-square-foot Grand Canal Shoppes and its proposed second phase. For more info see page TK.