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Reviewing The Market 2015 continued the pattern of growth we saw in 2014 and based on what we see on the horizon, 2016 appears to be starting off well for the Las Vegas area. A drive around many parts of the Valley reveals that one of the features Las Vegas is famous for-growth, has reemerged. The Las Vegas Strip continues to be dynamic with significant renovation and new development activity. Industrial development has once again returned to North Las Vegas and in the Southwest Valley and multifamily construction extends from Henderson to the 215 curve in the Southwest. IKEA is nearly complete (near the 215 and Durango) and the second phase of Tivoli Village continues in Summerlin. New master plan communities are adding more options for families seeking a move to Las Vegas or an opportunity to purchase their first home. One clearly visual attribute of the Valley today is road construction, a sign that population and visitor growth is back strongly and the need to add infrastructure to certain areas is very apparent. Many of the scars of the housing bubble and subsequent recession are fading away. Resorts World Las Vegas, which purchased the stalled Boyd Gaming site on the North Strip continues to slowly develop the property. The County Commission recently gave the project the go-ahead, clearing the way for full-scale development.1 The shuttered Citibank campus in The Lakes area now has a parking lot full of cars, as employees continue to be added to the workforce at Sutherland Global, which took over the campus and anticipates having nearly 2,000 employees on site.2 Similarly, Barclaycard, which absorbed the space vacated by Zappos in Henderson (which moved its headquarters to Downtown Las Vegas) in 2014, continued to expand in 2015. Completed at the end of 2014, Downtown Summerlin, which was frame-only construction for years following the great recession, is now one of the most popular retail spots in the region and continues to add retailers and restaurants. The steel framing that stood for years near the I-15 by The Rio is now the completed Wyndham Desert Blue. Finally, if you drove through the Mountain’s Edge and Providence master planned communities during the depth of the great recession, you would have observed acres of vacant, partially finished and finished home sites. Today, most of those lots have homes
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with families living in them. In fact, Cadence and Skye Canyon were opened to feed demand for more home sites. One of the greatest achievements of the leisure and hospitality in Las Vegas is the ability to get in front of or grasp emerging trends in entertainment. Although gaming is still a prominent entertainment option, it certainly isn’t the only one. Local entertainment properties have redefined themselves with a broad array of revenue sources, from the traditional buffets to massive nightclubs and theatrical productions. Despite increasing average daily room rates, Las Vegas remains a relative bargain for lodging when compared to other global cities. As a result of these options, travelers gave Las Vegas a new record for visitation in 2015 with over 42 million people.3 Employment in the region continues to grow and is just shy of the 2007 peak. While this is obviously a bright spot, part-time jobs remain common and many of these individuals are seeking full-time employment. Further, there are distinctive moves in some sectors, for example, Solar City, laid off 550 workers after the Public Utilities Commission, which regulates NV Energy, approved new rates that increase the fixed service fees for solar and reduces the value of the credits solar providers get for their excess electricity.4 Despite some specific challenges like underemployment and weak wage growth in some sectors, on the net, the employment picture has improved substantially. The December 2015 reading shows we are almost 17,400 employees away from peak historical employment and there is a good chance the employment level will drive through that peak in 2016. With Resorts World Las Vegas and Faraday Future on the horizon, we believe this is very much a possibility. Additionally, we are working within the leasing markets for several small businesses either expanding in or moving to Las Vegas. This is the kind of organic growth we love to see.
1. http://www.reviewjournal.com/business/county-oks-land-use-4-billion-resorts-world-project 2. http://www.reviewjournal.com/business/economic-development/sutherland-global-open-2000-employeeoperations-center-las-vegas 3. http://www.nevadabusiness.com/2016/02/a-boon-to-nevadas-economy-tourism-growth/ 4. http://lasvegassun.com/news/2016/jan/06/solarcity-lays-off-more-than-550-in-nevada/
Non-Farm Employment-Las Vegas-Paradise MSA
Existing Home Sales Closing activity surpassed 2014 figures, albeit on slightly higher prices. The mixture of buyers has shifted from the investor heavy period of 2010-2013 to a more traditional composition, with more first-time and move-up buyers in the mix.
Source: Nevada Department of Education and Rehabilitation
Although we rarely provide commentary on our view of the future, we like to examine the risks embedded in the marketplace and we are impressed with the gains Las Vegas has made so far. Once the poster child for bubble excess, some of the risks that grew during those bubble years, like excessive debt, have largely been reduced. The number of negative equity homes has dropped substantially from peak and the number of homes with any mortgages at all have been reduced, partially the result of foreclosures that have already occurred, increased home prices and cash only sales. This should serve to buffer any negative impacts to housing in the region.
new business & expansions Scientific Games • Fidelity National Financial • Sutherland Global Services
leisure & hospitality Wyndham Desert Blue • Marriott Grand Chateau (phase 3) • Grand Bazzar Shops
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One interesting fact is that the relatively strong sales measured in 2015 is against a low listing inventory environment. Buyer demand is challenging to measure when you lack supply since some home searchers experience delays in finding a home that matches their requirements. For most of 2015, months-of-supply, or the time it would take to sell the active inventory at the recent pace of sales, was around three months. While months-ofsupply was closer to two months in 2013, three months is
Existing Home Sales
Source: GLVAR
still historically very low (many analysts consider six months to be balanced). The increase in equity both nationally and locally over the past couple of years has likely resulted in more households that are able to move on their own terms. Similar to our 2014 observations, migration to Southern Nevada continues with mobility presumably helped by both homeowner equity position improvements and a stronger job market. The United Van Lines survey, which is a good proxy for genuine movers, finds Nevada to be a high inbound state. This survey, along with electric meter hookups and declining vacancy rates across multifamily and single family
United Van Lines 2015 National Movers Study
are home options appropriate for a significant proportion of home searchers, from single story three car garages geared towards a move-up buyer to three story homes with rooftop decks, which envision first-time buyers and Millennials. In master plans, a lot has transpired in the past year with builders finishing the year at Skye Canyon with homes to sell and the Skye Canyon Park well under way. Similarly, Cadence, a Henderson master plan, has multiple builders delivering homes.
High Inbound High Outbound Balanced
Source: United Van Lines
homes, confirms what we observe anecdotally as real estate professionals, assisting buyers and sellers of homes.
Selling Your Home The professionals at Coldwell Banker Premier Realty are experts within the real estate industry and constantly educate themselves to provide their clients with the most accurate information to make well- informed decisions. The real estate market is very fluid and dynamic and staying current on trends, legislative changes and economic factors is necessary in providing our clients with the service they deserve, creating loyalty and trust. As practitioners of their chosen profession, CBPR agents have a solid track record of pricing and marketing homes. Homes sold by agents at CBPR closed for an average of 98.5% of their listed price. 47% sold at or above their list price. CBPR has an array of specialists including luxury, short sale, high-rise, investor and commercial.
New Home Sales
Inspirada, which was challenged by the recession, is now one of the country’s top selling master plans. Summerlin, a massive master plan of nearly 22,500 acres, continues to be one of the best-selling master plans in the country, despite encompassing some of the most expensive homes in the Las Vegas Valley. This proves location, amenities and housing quality are primary motivators for many home buyers. Summerlin developer Howard Hughes and Discovery Land Company are doing land development work on The Summit, the new 555-acre luxury home community in the Southwest Valley, which will be Summerlin’s most exclusive neighborhood. New home prices are substantially higher than existing homes, with median home prices landing around $312,000 in 2015 and existing homes sales tracking at about $188,000. While initially this gap seems alarming, one really needs to segment the market into comparable size ranges and geographies before making any conclusions about whether or not this sizable gap is even an issue. For example, in the Providence master plan, new homes sold for a median price of $230,000 while homes that were built between 2007 and 2014 had a median sales price of $220,000. So undoubtedly, we need to be careful that we are measuring apples-toapples.
New home sales continue the mild uptrend in the postrecession period, however relative to existing homes, the new home market remains an almost niche industry. In 2015 nearly 6,800 new homes were sold.5 So while it looks like there is a tremendous amount of new home construction in the Valley, this is somewhat illusory since recent figures remain a portion of what was being delivered even in normal years, including the 1990’s. What we like about the market are the actual home designs and available geographies. There Construction is well underway at Skye Canyon. 5. Homebuilders Research.
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New Home Closings & Permits
newest masterplans MASTERPLAN ACRES
Skye Canyon 1,700 Inspirada 1,900 Cadence 2,200 Most recent masterplans with active home sales.
Of the TOP 50 Masterplanned communities by sales, Clark County NV had several. BY RANKING: • Summerlin (6) • Providence (14)
Source: Salestraq, Coldwell Banker Premier Realty
•
Inspirada (24) • Mountain’s Edge (37) Source: John Burns Real-Estate Consulting
New Home Closings 2015 Skye Canyon Aliante
Providence
Sun City Summerlin Summerlin
Lake Las Vegas South Summerlin Tuscany Cadence Rhodes Ranch
Mountain’s Edge
Southern Highlands
Anthem Inspirada
Pricing
S&P / Case-Shiller Home Price Index
Measured by the widely cited Case-Shiller Index, home price increases have slowed down, most prominently in the second half of 2015. In our minds, this is a good thing since we do not want to see home prices depart from fundamental values. It’s nice to see the market taking a breath while the underlying drivers like employment and migration continue to strengthen. Further, another common metric for estimating fundamental values is the sale pricerent ratio and rents have generally been on the increase for much of 2015. Price-rent ratios roughly correspond to the levels of the early 2000’s before the froth emerged that ultimately turned into a home price bubble. Source: Standards & Poor’s
An additional factor that led to significant price increases ahead of 2014 was the number of foreclosed homes (“REO”). Typically foreclosed homes resulted in a discount from similar traditional sales and as the mixture of homes sold shifted from REO and short sales (where homes are worth less than the mortgage balance) to traditional sales, overall market pricing grew.
The green line is drawn in order to illustrate approximately where the market would be had the pre-bubble trend stayed intact. When we look at price-rent ratios, we are likely close to “fundamental values.” In some locations, buying is still favorable to renting for households with a long-term need for local housing. Other areas have become slightly heated and the purchase favorability to renting has been diminished. In our view, the market is fairly priced. It is no longer the deal of a lifetime, but is also not a terrifying risk, however, we believe risks increase as prices increase in the absence of a compelling fundamental story. Luckily, recent business activity in the region appears to be supportive of prices at these levels. Nevertheless, all homebuyers should evaluate their own appetite for risk and ability to mitigate temporary hardships.
30 Year Conventional Mortgage
Our overall impression of the residential market in 2015 was a continuation of the emerging trends of 2014, which included a decline in investor activity and a return to the traditional reasons to buy and sell homes, such as household growth, job related and retirement moves. While the 2010-2013 period was characterized heavily by a recognition of an undervalued situation and spiking rental yields, thereby attracting investors like a pheromone, home prices amplified as both investors and traditional homebuyers competed for deals. 2015, while still in a relatively low supply condition, around three months-of-supply, was more favorable to buyers and resulted in fewer bidding wars, with the exception being well-priced, desirable properties. 2015 saw single family homes finish the year at a median price of $217,000.
2015 reflected a moderating price trajectory
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Source: Federal Reserve, Fred II Over the past few years, many firms predicted an increase in mortgage interest rates and while rates are generally off of their lows, mortgage rates remain historically very low, despite predictions to the contrary. One of the reasons rates remain low is economic turbulence in Asia, Europe and the Middle East. The U.S continues to benefit from a status as a relatively safe place to invest. As demand for treasury bonds increases, yields decline and ultimately this trickles over into the mortgage market and this mechanism has helped to suppress rates. Some economists have expressed concerns that the U.S bond market is overvalued and in our view, the longer rates remained suppressed, the greater the risk of an unforeseen increase. For expected changes in the market, when the Federal Reserve moved its short-term target rate in December, mortgage rates did not react significantly, implying that expected changes in the Federal Funds rate could be tolerated relatively well.
Distressed homes
Investors/Rental Market
Las Vegas continues to be known as a market with significant distressed inventory. Relative to many other U.S. Cities, this is true, the region has an above average level of foreclosures and negative equity. Relative to itself, 2015 continued to reflect additional curing in the distressed space. Negative equity share of mortgaged homes was almost 73% in Nevada in Q1, 2010. That share is now estimated to be about 19% in Q3, 2015.6
Investors continued to play an important, although diminished role in 2015. Cash buyers, a soft proxy for investors, finished December at just 22% of single family closings, down from 52% in May 2013. Institutional interest (REITs, Private Equity) has waned substantially with most of the recent acquisitions coming from foreclosures that were collateral for notes purchased by these investors. Several of the big bulk trades were part of larger portfolio acquisitions, for example, American Homes 4 Rent’s (AMH) acquisition of a portfolio from American Residential Properties (“ARPI”) in June 2015. ARPI, a publicly traded company, later became part of a merger proposal with AMH.
While REO homes and short sales are a significant component of the active inventory, they are no longer dominant components. Overall, short sales remain the most challenging type of sale and requires additional skill by real estate agents and are often best facilitated using the assistance of attorneys that specialize in the subject. Even so, short sales may still linger on the market substantially longer than traditional sales, up to 176% longer than traditional homes (149 days versus 54 in May 2015). Additionally, banks often counter the buyer late in the process and in our experience, occasionally present a counter offer that would place the home above current market value, particularly in a market that has flattened.
For-Sale Single Family Inventory (not under contract)
Particularly in 2013, investors were responding to a perceived undervalued situation in Las Vegas asset prices and relatively high capitalization rates. While most of the easy pickings were gone by 2015, the worldwide lowyield environment continues to push capital towards real estate investments and Las Vegas continues to see capital placement in both commercial and rental residential real estate. This includes “mom and pop” investors, whom have had challenges in finding adequate returns in some financial instruments. Additionally, many local homeowners purchase investment properties because they can monitor their investment. Some owners decide to self-manage their properties, however a good many employ property
Relative Yields Across Asset Classes
Source: GLVAR, Coldwell Banker Premier Realty The Las Vegas Market is beginning to resemble a more normal market and is no longer dominated by distressed homes. The traditional reasons to buy and sell are now the most common motivators. 6. http://www.corelogic.com/research/negative-equity/corelogic-q3-2015-equity-report.pdf
Source: Trading Economics, FRED II, NAREIT,IRR,Yahoo!Finance,Wall Street Journal,Costar, Coldwell Banker Premier Realty
management firms. Using a property management firm is often a good idea, particularly since investors often want an insulator between themselves and their tenants in order to avoid midnight calls and emotional issues. The single family rental sector was one of the most interesting sectors in 2015. After a multi-year flat or declining trend in rental rates (even in nominal terms), median rental prices grew substantially throughout 2015. Within our own managed pool of homes, we noticed strengthening demand and reduced supply in some submarkets. Using multiple listing service data as a proxy for single family rental supply, available listings have been halved between December 2013 and December 2015, which finished the year with 1,821 homes that were not reserved. An additional factor that may be altering the pricing landscape are the higher-quality homes that have been added to the supply of homes by investors, including the institutionally owned homes which often have nice, modern specifications. Days on market is a nice observable variable which also captures some of the demand and supply conditions in the rental market. In the spring and summer of 2015, marketing times fell to the lowest point in our measurement period, indicating strength in the sector. Note that the market does have strong seasonal implications on marketing times, while price is more stable.
Single Family Median Lease Rate Per-Square Foot
Source: GLVAR, Coldwell Banker Premier Realty
Single Family Rental Days on Market
Source: GLVAR, Coldwell Banker Premier Realty
Institutional Purchases - 2012 through 2015
Although many early renters in the single family space were displaced families who lost homes to foreclosure or used a rental following a short sale, many new renters are within the “rent-by-choice” category or are households that moved for employment purposes. The rental market appears to be quickly benefiting from the turnaround in the job market.
terminology CAPITALIZATION RATE – A measure of return, the cap rate is the annual net operating income divided by the price of the asset. REIT – Real Estate Investment Trust. A company that owns or finances income producing real estate. REITs usually pay out a majority of their taxable incomes as dividends to shareholders. Many are traded on stock exchanges. INSTITUTIONALLY OWNED – For our purposes, we define it as a REIT, or a group backed by private equity, a pension or a hedge fund as well as certain sophisticated investors.
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Source: Clark County Assessors, Coldwell Banker Premier Realty
Luxury Homes
Number of Single Family Homes that Sold for $1 Million or More
Luxury homes are challenging to define and so they are usually characterized by price and our threshold is $1 million or more. 2015 experienced an up-tick in single family homes that closed for over $1 million, reflecting the continued interest in having both primary and second homes in Las Vegas. Although one can make the case for having a residence in Southern Nevada based on tax reasons, investment and proximity to important industries, the prime motivator always has been a lifestyle choice. Las Vegas has several months of what many consider to be perfect weather and several months of what is often called “pool weather� and this is well accommodated by most of the great luxury home options in Las Vegas, which typically feature expansive pools, great views and lush landscaping. Source: GLVAR
Some of the many areas in which to find the best examples of luxury homes include but are not limited to; The Ridges, a Summerlin community featuring large home sites, views of The Strip from most home, and modern elevations and interiors. In Henderson, Foothills at MacDonald Ranch is a great place to find luxury listings and many homes have vantage points toward The Strip. Located in the southern portion of the Valley with quick access to the I-15, the Estates at Southern Highlands continues to have great examples of the luxury lifestyle. Red Rock Country Club, Seven Hills, Anthem Country Club, Star Canyon and Lake Las Vegas had some very interesting closings in 2015, ranging from modernist designs with home sites of 90 degree angles, clean lines and the latest in home technology to Tuscan style homes that examine a sense of pride in craftsmanship and a historical legacy of construction engineering brought into modern times. The subdivision price leader this year remained The Ridges, with an $11 million sale ($760/sq.ft.) and an $8 million sale ($647/sq.ft.). Outside of master plans, there were several great examples including a private compound on Tomiyasu Lane and an equestrian property in the Northwest Valley that was on 4.5 acres. Coldwell Banker Premier continues to play an active role in this fascinating market segment, with several agents that specialize in fine estates.
Selected Luxury Home communities
Mountain Trails Vineyards Star Canyon Palisades Red Rock Country Club
Eagle Hills Country Club Hills Canyon Fairways Queensridge The Lakes
Willow Creek The Ridges Spanish Trails Spanish Hills Estates
Southern Highlands
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Lake Las Vegas
Foothills at Macdonald Ranch Macdonald Highlands Roma Hills Seven Hills Anthem Country Club
Top 5 High-Rise Condominiums by Price per Square-Foot in 2015 The Residences at Mandarin Oriental
Veer Towers
Park Towers
One Queensridge Place
Turnberry Towers
$781
$537
$515
$451
$346
Source: Clark County Assessor, Coldwell Banker Premier Realty Note that Mandarin Oriental may include some gray shell sales. Further, price per-square foot is related to home size and these buildings have a variety of unit sizes. Prices are also a function of floor level and view. Prices noted are weighted average prices per-square foot.
High-Rise The high-rise sector is one of the few remaining sectors that appears to be a relative bargain, with many condos selling for less than replacement cost but still offering a lifestyle equivalent to many of the projects on the west coast, including Los Angeles and San Francisco. Many of the vertical buildings in those areas will cost you a multiple of what similarly sized homes would cost in Las Vegas. Although Las Vegas lacks an ocean view, many residents are home in the evenings and few sights can compare to the Las Vegas Strip at night. Many of the projects on or near the Las Vegas Strip have residents from a variety of backgrounds, with many of the global wealthy situated in CityCenter, The Residences at Mandarin Oriental and Veer Towers, and the Summerlin suburban high-rise One Queensridge Place. Other projects offer residences financially accessible to many, particularly since financing has been returning to the market. 2015 posted some interesting news within the sector. CityCenter Residential completed its sales of The Residences at Mandarin Oriental (“Mandarin�) and Pathfinder Partners acquired the remaining residences at Sky Las Vegas on the North Strip. Many of the Sky residences were part of a rental pool in Las Vegas. The owners of One Las Vegas on the South Strip began a formal sales program in late 2015, once again offering the
condominiums for sale that had been used as rentals following the economic downturn. 2015 saw several notable transactions, with Mandarin posting several sales above $1,000/sq.ft. and reaching $1,200/sq.ft. for an impressive 47th floor residence (a Coldwell Banker Premier Luxury Specialist represented one side of this transaction). Veer had its highest postrecession sale in September at $886/sq.ft. Although the high price point sales are the most interesting, there are opportunities to own a condominium below $250,000.
High-Rise Condominium & Condo-Hotel Closings
Source: GLVAR, Clark County Assessor Many of the spikes occurring in the above exhibit are due to projects being delivered. A majority of projects had purchase contacts before and during construction, so closings tend to stack up upon completion. Currently, we are in a more mature market, with some smaller spikes occurring with repositioned projects and their subsequent marketing programs.
Reflection 2015 confirmed the trend established in 2014 of a return to a more normal and stable housing market. We are now a few years past our 2012 inflection point in pricing and confidence in the future of the region has largely been restored. While we encourage market participants to keenly evaluate their risks, particularly during times of turbulent financial markets, the underlying narrative for the region appears to be quite hopeful. We remain on the lookout for high levels of leverage, which we see as a risk magnifier. However, most of the transactions we consummated in 2015 were underwritten with some caution. Additionally, a lot of the deal-flow we observed was driven by very fundamental motives. On the commercial side, these were cash flowing properties in solid areas and more rare, value-add projects for turnaround specialists. In residential, job related moves
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were common. Additionally, we continue to benefit from retirement moves and many retirees are either paying cash for homes or using significant equity. We believe this to be a more stable environment, a major departure from the “buy high-sell higher� days of our recent history. 2015 had relatively moderate to flat appreciation, despite having historically low supply, indicating that demand is not amazingly strong but not an alarming shift either. Currently, there is little evidence pointing towards a major resumption of price increase, however, when we say real estate is local, it can be hyper local and while macroeconomic conditions and regional trends influence buyer perceptions, neighborhood level conditions play a prominent role in evaluating the price of a home. Your CBPR agent can assist in understanding market conditions in your neighborhood in order to determine a feasible listing price.
Overall, Las Vegas had an interesting year and, contrary to the major headlines in Asia and Europe, was mostly positive. For 2016, over $760 Million in projects are scheduled to be delivered in the hotel, casino and convention industry. Faraday’s proposed 3 million square foot factory announcement in the Apex area, completion of the T-Mobile Arena (MGM-AEG) and serious talk of bringing a major sports team (along with development of a modern stadium) are all impressive and paint a bright picture for the future of Las Vegas.7 We have gone through good times and tumultuous times with serious shifts in the composition and perception of our marketplace. 2015 continued a trend of traditional motivations to buy and sell homes and the job market, despite some continuing challenges, grew further, improving the stability of the market. Some investors are sitting on some strong paper
key findings • The
number of Visitors to Las Vegas achieved another sequential Record with 42.3 Million Visitors in 2015. • Single
family home prices finished the year with a median sales price of $217,000
• 3
of the Top 25 Best Selling Masterplans are in Southern Nevada. • Unemployment
has declined but remains elevated at 6.2%.
returns and may seek to realize these gains at some point but we think that will occur at a tempered pace. Similarly, the strong dollar may have enhanced some holdings in repatriated terms and this may be a motivator going forward. We closely track the major trends in each real estate sector in order to help clarify concepts for our clients, however, our greatest pleasure is derived from helping families find a place to call home or selling homes so families can move on with the next stage in their life.
• $760
Million in convention, shopping and casino resort projects are scheduled for 2016 deliveries. Another $624 Million are expected in 2016 and another $1.8 Billion is expected to be completed in 2017. 7. LVCVA construction bulletin Sept, 2015.
Coldwell Banker Premier has facilitated a multitude of property transactions in Las Vegas. We draw on this experience and information obtained from local government, third party data providers, the Federal Reserve and the Greater Las Vegas multiple listing service. The information is deemed reliable but is not guaranteed.