Las Vegas High-Rise – Good Deal or High Risk?
At the height of the Las Vegas real estate bubble there were well over one hundred high-rise condominium projects in some stage of development. Most of them never went beyond the planning stage. When the bubble burst those developers that didn’t get past the drawing board seemed to be the lucky ones in that they hadn’t committed vast sums of money to build units that couldn’t be sold.
The projects that did actually get to the sales stage were often pricing their units at more than $1,000 per square foot. My have things changed. The median price for resale units on the MLS is $259 per square foot. While there are only a little more than 800 units available for resale, there are more than 5,500 completed units that have yet to be sold. Average closings per month? Twenty-two! Many real estate professionals call a 3-6 month supply of homes to be a sign of a healthy market – what do you call a supply of more than twenty years?
Opportunity or White Elephant?
Plenty of units have been sold only to fall out of escrow. Even though many projects have slashed prices and offered incentives, a number of buyers have walked away from their contracts. Others aren’t able to close because the financing falls through. Banks are reluctant to lend on these projects and several builders are now offering their own financing.
These are not low-end units. Most were designed to appeal to high-end buyers and offered many luxury amenities. It just seems to be a case of oversupply, far too many units were built based on the assumption that the market would expand forever. Does the current glut constitute an opportunity for investors?
Deal or No Deal?
Turnberry Towers has slashed prices of their new units in half with prices now starting below $300,000. They are even offering seller financing at attractive rates with 15% down. But is it a good deal? One real estate agent I know has sold a number of MGM Signature condos to cash investors at prices that are a fraction of what they originally sold for. The big question is how much are they really worth with such a significant available supply? Maintenance fees on these units are another factor. The MGM Signature fees range from about $350/month on a studio unit to well over $1,000 on larger units.
For those looking for a Las Vegas vacation home it may be the perfect time to buy. For an investor it may be a different story altogether. While I doubt that it will really take twenty years to absorb this inventory, it will certainly take a very long time. The risk-reward equation would seem to point away from high-rise condos as an investment. However, the contrarian view says you should buy when no one else wants to. If you do, good luck!
Risk comes from not knowing what you’re doing. – Warren Buffett
Photo Credit: ml18