2018 was a strong year for our Las Vegas team and the greater Las Vegas market—Greater Las Vegas apartment operators advanced effective rent on average 6.5 percent, to lead all major metros for growth in 2018, and expansion across the Las Vegas metropolitan area bodes well for the future of the apartment market. Employment is forecast to expand 2.9 percent in 2019 and effective rent is forecast to grow 6.5 percent to $1,076 per month in December. (Read more in our 2019 Las Vegas Outlook.)
In this positive environment, we’re tracking three main factors that we think will have a strong impact in 2019:
- Diversification of our investor base and profile;
- Greater capital flow into Class B and C product; and
- Affordability driving expansion.
Diversification of our investor base and profile
We’re seeing increased investment from major institutional players and broader interest from new entrants looking to do their first development deal in Vegas. These investors have been following Vegas’ emergence as a gateway city over the last 18 months and are eager to buy in this market given the confluence of favorable factors including affordability, rental growth and economic diversification.
And this is true across Nevada, with Reno fast becoming a hub for major tech firms’ back office support and infrastructure operations. Google, Apple, Intel and Microsoft have all set up shop in Reno, creating a pipeline of high paying jobs that have strengthened the apartment market, kept occupancy high and yielded double digit rent growth.
The investor profile is also shifting as private equity engagement has died down and sponsors with institutional or high net wealth backing are ramping up activity. At the same time, the generational representation within capital ownership is diversifying, bringing a millennial lens to multifamily that reflects the rising generations appetite for tech integration and experiential lifestyle in residential living.
Capital flow into Class B and C product
The years since the recession have seen tremendous investment in Class A product, but we’re starting to see greater interest in Class B and C assets, with strong equity investment in value-add Class B opportunities and growing interest in Class C product. With plenty of value-add fund money still on the table, older assets with the potential for strategic upgrades are becoming more attractive to investors.
Vegas has evolved from a secondary to a gateway market and pricing reflects that, which, combined with compressed cap rates, has made it harder to for investors to achieve 3-5 year exit timelines. In this environment, we’re seeing deal criteria broaden and investors move a bit outside the box. This might mean moving from value-add to seeking more core/core plus opportunities or, as we’ve worked on with several clients recently, capitalizing on broken condo projects.
Affordability driving expansion
Vegas remains an affordable place to live relative to other markets, particularly as pricing in California has the middle class moving further out to get the most for their money. At the same time, higher home prices in the Valley and rising rates have more families looking to remain in the rental market, increasing pricing for multifamily assets and creating a strong market for owners and investors.
As prices have risen, opportunities remain strong, but financing structure has begun to play a more significant role in deal making. We’re regularly tapping our robust mortgage banking network—more than 130 experts across the US—to help structure deals that will get clients across the finish line, whether that means identifying bridge financing or sourcing a JV partner.
As prices rise, Vegas, like other major metros across the US, is experiencing an affordable housing shortage of its own that is driving development. Clark County, which has a 20-year waitlist for those who need affordable housing, has plans to release 110 acres of federal land for workforce/affordable development and significant development is already underway across the region.
The Vegas market has experienced tremendous growth in recent years and yielded significant value for multifamily investors. We expect that investors will continue to find value in this market by exploring more diverse opportunities, particularly with guidance from an experienced investment sales partner with a deep understanding of the region. We’re excited to see what 2019 holds.
– Angela Powers, Brian Anderson and Jared Glover