Upward Mobility

IT SEEMS FITTING THAT THE LAS VEGAS Strip boasts the tallest building west of the Mississippi River, a hotel and casino called the Stratosphere—that's just where the Las Vegas area's economy appears headed.

Consider these numbers: According to the Bureau of Labor Statistics, between November 2003 and November 2004, the Las Vegas metropolitan statistical area (MSA) added 113,600 non-farm jobs, a 5.2 percent increase—the biggest jump of any MSA nationwide. The area's unemployment rate fell 1.3 percentage points over the same period, to 3.5 percent. The U.S. average unemployment rate in November 2004: 5.2 percent.

Planned developments look like they'll stoke the fiery Las Vegas market even more. Wynn Las Vegas, a casino, convention center, and 2,700-room hotel resort by developer Steve Wynn, is slated to open in April. In fact, Vegas resorts have cited plans to add nearly 20,000 hotel rooms to the area's 131,000 during the next five years; the Las Vegas Convention Center recently announced a $400 million expansion of its own.

Where the economy goes, housing is sure to follow. With all those new rooms come jobs—2.5 per room, by one estimate—and, therefore, new people. (The population of Clark County—home to the Las Vegas Strip and the cities of Las Vegas, North Las Vegas, and Henderson—skyrocketed a full 85.6 percent between 1990 and 2000, and the trend has continued since.)

OLD KID ON THE BLOCK: Turnberry Associates, a longtime builder of condo towers in Florida, helped introduce high-rise living to The Strip in 2001. The company sold out all four of its Las Vegas towers in five years, two years earlier than expected.

Photo Credit: Courtesy: Turnberry Associates

But where to house them all? Demand for new housing far exceeds the available supply, and despite Vegas' location in the Nevada desert, there's strikingly little readily available land. As in almost all segments of a diversifying housing market across the country, higher density and higher buildings appear to be the answer.

Las Vegas is in a literal bind. The federal government owns about 87 percent of Nevada's land, and the 2002 Southern Nevada Public Land Management Act drew a boundary around the Las Vegas Valley. Land within the ring can be auctioned off by the federal Bureau of Land Management (BLM). But nearly all the non-BLM land inside the boundary has been bought, leaving builders and developers to compete at auction for the remaining parcels.

The combination of scarce available land and the predominance of national builders in the market who can afford to pay more has sent prices for dirt upwards of $700,000 per acre. Home prices have mirrored that trend, with appreciation leaping nearly 50 percent between the third quarters of 2003 and 2004. Speculators almost certainly fueled some of that jump, but they've left the market and high prices remain.

Dennis Smith, president of Home Builders Research, a Las Vegas market research firm, believes the balance between housing demand and land supply in Las Vegas is gone forever. “I don't see the price of land coming down at all,” he says. “How can the cost of a new home come down when it comes from the price of land?”

CALIFORNIA TRANSPLANT: San Diego–based CityMark Development chose downtown Las Vegas as the site for its first infill project outside California. The redeveloped city block will feature 344 lofts and townhomes, live/work units, and commercial space.

The Las Vegas housing market long has been marked by such large master planned communities of detached single-family homes as Summerlin and Green Valley. But questions like Smith's have people in the Vegas housing market rethinking the traditional formula.

“The typical, traditional model for a Western city has to be crumpled up and thrown out the window. Las Vegas has to think of itself as something other than a Western city,” says Richard Lee, director of public relations for First American Title Company of Nevada. Planners, developers, and builders should look toward major metropolitan cities—New York, Miami, even Paris—for models of higher density, he says.

The industry has already started to move in that direction. The average density in 2000 was five units per acre; it is now 6.5 units per acre and “is moving steadily higher,” says John Ritter, CEO of Focus Property Group, a longtime developer of Las Vegas–area master planned communities.

In the middle of the Nevada desert, water shortages used to rank among developers' greatest challenges. Education, water-sharing deals with neighboring states, and improved landscaping have largely solved that problem.

A new issue has taken its place, though. Las Vegas residents' incomes haven't climbed nearly as quickly as area home prices. According to the Bureau of Labor Statistics, the area's average annual income was $35,061 in 2003, up from $32,648 two years earlier. That statistic, combined with home price appreciation rates, led to a dramatic drop in housing affordability during the past several years. “We must do something differently as the median price of new homes approaches $300,000,” says Monica Caruso, spokesperson for the Southern Nevada HBA. “We think it will be done through density. In many cases, that's the way people want to live.”

Tom McCormick, president of Astoria Homes, the area's largest private builder, says strong sales of his new three-story, single-family detached product prove buyers do want density. He went vertical in Tapestry, already a dense neighborhood of 1,250 planned homes on 106 acres, specifically to address affordability.

“A finished lot has gone from 20 percent to 30 percent of the total price of the home to now more than the home itself. We need to maximize the amount of home we can put on that lot,” he says. With the three-story design, McCormick can fit 2,200 square feet of living space and a garage on a 1,700-square-foot lot.

Even with McCormick's effort, the stock of affordable detached homes is dwindling. But builders in Vegas have begun filling the gap with another type of vertical product: condo conversions, which have caught on in other land-constrained markets. “It addresses the entry-level market segment that has been priced out,” says Smith, who estimates that apartments converted to condos accounted for as many as 1,000 new-home sales in 2004.

The challenge of housing Las Vegas' new residents has introduced new terms to the area's vocabulary, including “live/work,” “new urbanism,” and, especially, “mixed-use.” In 2003, Clark County planners received three applications for mixed-use developments; last year, that number rose to 40 and will continue to grow in 2005, says Rod Allison, planning manager for the county's Comprehensive Planning Department (see “Growing Up Right,” page 146).

A1,940-acre master planned community taking shape southeast of Las Vegas, in Henderson, will be designed according to principles of new urbanism, says Ritter of Focus, which is heading up the community's land development and brought together its seven builders to buy the land at a BLM auction last summer.

The development will be the area's most dense master planned community, featuring a core of four-story townhomes and apartment buildings, a mix of retail and commercial businesses, and pedestrian-friendly streets. Detached homes of various sizes will sit on narrow streets in neighborhoods farther out, Ritter says.

“It shows that density can be done in an aesthetically pleasing way,” says Jim Widner, Nevada division president of KB Home, the area's top builder, which controls 48.5 percent of the Henderson development's land.

KB will continue introducing higher-density products into its other developments, Widner says. The company recently introduced its first attached product in the market, and by the end of 2005, it will begin building attached townhomes of 16 or 18 to the acre.

Though high-rise buildings aren't in KB Home's near-term plans—Widner says the builder will be “walking rather than diving” into stacked, flat condo construction—dozens of other companies are taking the plunge, marketing 50-, 60-, and even 70-story condo towers to another segment of the market: upscale, second-home buyers who want to both play and live on The Strip. (Some industry observers credit the 2003 passage of Nevada's right-to-repair act with stimulating the dormant condo market.)

“It's the Manhattanization of Las Vegas,” Ritter says. Lured to Las Vegas by The Strip's rebirth as an adult playground, buyers of high-rise condos are coming from all over the country and beyond, adding an untold number of potential homeowners to the market.

Condo towers particularly appeal to foreigners for two reasons, Smith says: the weak U.S. dollar and more cultural tolerance for apartment living. “No one knows how deep the market is because you can't measure it by looking at Las Vegas numbers or California numbers. It's coming from people around the world,” he adds.

Donald Trump has garnered national headlines with his plans for two 64-story condo towers on The Strip, but Turnberry Associates is one of the few companies to have a proven tower success story. The Aventura, Fla.–based company targeted Las Vegas in 2000 for a four-tower development, each 40 stories, when it began noticing market changes similar to what happened in South Florida in the last few decades. “The Strip is an amenity similar to the ocean in Florida,” says Jeffrey Soffer, principal at Turnberry.

Turnberry correctly gauged its new market, selling out all four towers in five years; the company projected it would take seven. “The demand was stronger than we anticipated,” Soffer says. “Most of the people we've sold to would not be prospects for any other kind of living. They're urban people who want to be close to The Strip. Until now, they stayed in hotels.”

The towers aren't the only things going up quickly at Turnberry Place—so are the prices. The lowest price when sales of the first tower opened in January 2000 was about $285,000; that same unit in the fourth tower, now under construction and already sold out, went for about $550,000.

Price escalation of that sort attracted large numbers of get-rich-quick speculators to Vegas last year, but Soffer says Turnberry has measures in place to make its towers less attractive to those investors. “We require 30 percent down payment. The buyer must close. We don't sell multiple units to one buyer,” he says. “Speculation is dangerous for the market. It's artificial demand, and we do what we can to discourage it.”

Most of the proposed towers are concentrated around The Strip, but Las Vegas Mayor Oscar Goodman is encouraging developers to look at the city's downtown area, as well. The city has finalized a contract to redevelop a 61-acre parcel of downtown with high-density residential, retail, arts, and academic buildings.

“Manhattanization is the answer,” Goodman says. “When we go vertical, we address sustainable growth issues: water and air quality, living and working in the same place.”

CityMark Development chose downtown Las Vegas for its first project outside California, a mixed-use development of 344 lofts and townhouses, 14,000 square feet of live/work shopkeeper units, and 10,000 square feet of retail space. “Las Vegas reminds us of San Diego five or six years ago,” says Rich Gustafson, CityMark's president. “People have sprawled out to the borders, and they're starting to turn back in. They're looking at downtown. They don't want to commute, and they're more accepting of an urban lifestyle.”

The Las Vegas project will mark a bit of a departure for infill specialists who target their units to middle-income buyers. While most of CityMark's San Diego projects have topped out at seven or eight stories, its buildings in Vegas will reach heights of 14 stories. “We're getting a little bigger in Las Vegas,” Gustafson says.

Teeming with new residents and inundated with requests for new development, Clark County wants to plan smart for growth.

When planners in Clark County, Nev., saw applications for proposed mixed-use developments jump from three in 2003 to 40 last year, they decided the time was right to draft an ordinance to guide the new neighborhoods. County commissioners specifically asked the comprehensive planning department to write standards on the location, height, and density of the developments, recalls Rod Allison, the department's planning manager.

The new mixed-use ordinance, adopted in January, allows four types of mixed-use developments, ranging from an intense urban form with no height limits and a density of 50 units per acre to the least intense suburban form, which limits buildings to heights of 35 feet and density to 18 units per acre.

The ordinance has flexibility built in: It permits for density and height bonuses for builders who include design elements that improve pedestrian access or address environmental concerns. “We anticipate making adjustments to the ordinance. It's a good first step. We'll be building on it from here,” Allison says.

Rory Reed, chairman of the Clark County Council, championed the ordinance, which he says gives both developers and home buyers predictability about the future and positions the county well moving forward. “We have recognized that we're a young city, as cities go,” he says. “We have an opportunity to decide what we want to look like for the next 20 years. You probably only get one chance like that, and we're trying to take [advantage of] that opportunity.”

The county welcomed feedback from stakeholders in dozens of public meetings before approving the ordinance. At least one builder credits the county's approach. “The growth issues that normally plague people don't happen here. The planning's so good,” says Ken Becker, vice president of corporate marketing for Carina Homes. “They're wise in not trying to stunt growth but, just as in the past, to plan for it.”