Construction Costs Stall Many Las Vegas Condo Projects

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By HUBBLE SMITH

Rising land and construction costs have created major barriers for entry into the Las Vegas high-rise luxury condominium market, giving early projects such as SoHo Lofts, Panorama and Sky Las Vegas a clear advantage over newcomers, executives of two projects under construction said.

Anything built on or around the Strip is going to sell for $1,300 to $1,500 a square foot, said David Pourbaba, president of Sky Las Vegas, which recently topped out construction of its 45-story tower next to Circus Circus.

"They will be priced to make the land and construction cost work," he said. "It's all relative. People pay $2,000 and $3,000 a foot in New York and London."

At the end of the second quarter, there were 246 existing luxury condo units on the market for resale at an average price of $1.1 million, or $631 a square foot, local research firm Applied Analysis reported. Units sold during the quarter averaged $787,000, or $459 a foot.

A market snapshot shows 135 projects with 91,934 units proposed for Las Vegas, including 2,321 existing units, 1,379 canceled units and 6,888 suspended units. About 13,500 are under construction and 16,286 are planned and pre-selling.

"From our perspective, it's nice to be on the front end of that wave," said Dusty Allen, managing member of the 275-unit Streamline tower being built by Martin-Harris Construction at Las Vegas Boulevard and Ogden Avenue.

Of the 15,811 units proposed for downtown Las Vegas, about 900 are under construction, he estimated. They include Streamline, SoHo Lofts, Newport Lofts and Juhl.

Among the projects that have been announced for downtown but have yet to break ground are Club Renaissance, Sandhurst, Cielo Vista, Liberty Tower and Gateway Las Vegas.

"The price per square foot to build has gone up significantly," Allen said. "Fortunately, we were able to lock in our construction prices early and provide a price-per-square-foot basis lower than $600. We still have some units priced under $500 a square foot."

Pourbaba estimated that hard costs for construction of Sky Las Vegas, with M.J. Dean as general contractor, have risen 8 percent to 10 percent to about $200 million. "What do they say? It ain't over till the fat lady sings," he said.

A lot of predevelopment planning went into the project, including purchasing steel and concrete at prices from two years ago, Pourbaba said. As a result, few changes were made to the plan.

Most of the projects canceled in Las Vegas were due to lack of construction companies capable of doing the job, not lack of buyers, he said.

Certainly, there is insufficient demand to absorb all of the luxury condo units in the pipeline, Applied Analysis principal Brian Gordon said. Observers have predicted that 25 percent to 50 percent of the proposed units will get built.

"While projects that are currently under construction have reached the critical mass in terms of sales to provide sufficient financing, the remaining 16,300 units vying for potential buyers will either prove their ability to move forward in the next 12 months or not," Gordon said. "Construction cost dynamics and consumer perceptions about extended sales periods decrease the likelihood for success for many of these projects."

Location, branding and experience remain keys to success, Gordon said. Projects announced by major operators and development companies are likely to enter the market with greater success.

Nearly 40,000 units in the pipeline are categorized as the hybrid condo-hotel and maintain some sort of rental program. About 70 percent are located around the Strip, including The Residences at MGM, Platinum, Project CityCenter and Cosmopolitan.