Developer Eric Cohen spent a lot of time trying to figure out downtown’s housing market and whether he could pull off an apartment project there. His company moved to former bakery Holsum Lofts, immersing itself in the neighborhood as Cohen looked into possible deals.
Today, he and partner Doug Eisner are building sprawling apartment complexes around the valley, but nothing downtown. And their company, the Calida Group, has left for the suburbs.
“We actually just moved our offices to Summerlin,” Cohen said.
At first glance, downtown Las Vegas seems like a good place to build housing, especially rentals. Compared with just a few years ago, far more people are working and hanging out there as bars, restaurants and other businesses pop up, thanks largely to online retailer Zappos’ move to the old City Hall in 2013 and CEO Tony Hsieh’s $350 million effort to boost commerce in the area.
Also, young professionals and empty-nesters nationwide increasingly want to move to lively urban areas, not buy homes in suburban cul-de-sacs.
Locals often say downtown has a housing shortage, and if there were more places to live, more residents would move there, which would further boost the area’s turnaround. But, like Calida, Southern Nevada apartment developers are largely avoiding downtown.
“It almost doesn’t make sense,” said KRE Capital partner Uri Vaknin, whose company partially owns downtown high-rises Ogden and Juhl.
Almost. Despite the economic resurgence, real estate pros say there are plenty of reasons investors are building elsewhere.
Land is more expensive downtown than in the suburbs, and a city block typically is owned by several different groups, making it harder and costlier for investors to cobble together a project site. Even if they assemble land, city blocks are far smaller than sprawling, desert sites available in the suburbs, where it’s easier and cheaper to build.
As a result, developers would have to build high-density, expensive properties that, to be profitable, would be crammed with smaller units and generate rents that many locals can’t afford or are unwilling to pay. Persuading lenders to finance pricey projects downtown is a stretch, given the risks involved. The suburbs, on the other hand, are “a safe bet” for banks, Vaknin said.
Meanwhile, the Fremont Street corridor still lacks a full-service supermarket, and downtown remains laced with boarded-up buildings, vacant lots and vagrants.
“People still think it’s kind of a rough area to live,” said retail-property owner Dave Charron, whose tenants include PublicUs. The trendy downtown eatery is across from shuttered, decades-old motels on one side and an empty city block on another.
The lack of construction also feeds on itself, as developers figure competitors aren’t building there for a reason, so they go elsewhere, too.
“Very few people want to be the real pathbreakers,” said Ed Coulson, director of UNLV’s Lied Institute for Real Estate Studies. “When there’s an absence of residential construction, people are going to naturally ask, ‘Well, why aren’t people moving on this?’ It takes some vision.”
To be sure, housing proposals are floating around. Most recently, the City Council last month approved plans by Hsieh's Downtown Project and partner the Wolff Co., of Scottsdale, Ariz., for a five-story, roughly 230-unit complex at Ninth and Fremont streets, next to Atomic Liquors.
That project, more than any other on the drawing board, seems poised to break ground first, observers say.
Still, local businesspeople say they expect more construction in coming years. Downtown Project, for instance, aims to build 1,000 housing units in the area.
“We’re a quarter of the way to our goal,” said DTP Ventures chief executive Mark Rowland, who oversees Downtown Project’s businesses.
Charron figures young college graduates, as well as retirees looking for an artistic area, will move downtown, even though developers may not build big.
“I don’t think anyone’s going to stick their neck out for a huge amount of units yet,” he said of builders, “but if they did, I think they’d be pleasantly surprised.”
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Downtown doesn’t have much newer housing, but if last decade’s real estate bubble had lasted longer, there could have been options towering everywhere.
As easy money sloshed around for developers and homebuyers, investors laid out plans to build luxury condo towers and other high-density projects valley-wide, including in the blighted urban core, which then-Mayor Oscar Goodman sought to revitalize.
By fall 2005, 46 residential projects had reportedly been approved for the downtown area alone. In a sign of the frenzy, Las Vegas’ Paul Murad published a book that year, titled, “Manhattanizing Las Vegas: How to Profit From the Next Phase of Mega Growth.”
Some high-end projects were built, including downtown towers Ogden, Juhl, Soho Lofts and Newport Lofts. But many were bogged down by foreclosures and bankruptcies, were abandoned mid-construction or were never built.
Plans that never materialized downtown include a 65-story condo tower at Third Street and Gass Avenue; a 55-story condo tower at the northwest corner of Eighth and Fremont streets, connected via sky bridge to a 20-story tower across Eighth; a 40-story condo tower at the southwest corner of Eighth and Fremont; two 50-story towers at First Street and Gass; a four-story, 60-unit building at 11th Street and Stewart Avenue; and Murad’s 39-story condo tower at Fourth Street and Charleston Boulevard.
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Today, Las Vegas’ construction industry has bounced back after getting pummeled by the recession. But new condo projects, especially high-rises, have all but disappeared.
Many developers are building rental complexes instead, often with a lot of amenities. They’re concentrated almost entirely in the south valley, particularly in the southwest and Henderson, and some real estate pros say investors are overbuilding.
Downtown, however, is largely quiet.
Besides the costs and public-safety concerns, the area also lacks certain retail, namely a supermarket. Downtown Project last year opened The Market, a 6,000-square-foot grocery and cafe on Fremont between Sixth and Seventh streets, but it’s a fraction of the size of, say, a Smith’s or a Whole Foods.
Grocers need a large enough population base before they open a store, but more housing developers likely would flock to an area that has a supermarket.
“That’s something we talk about a lot,” Bill Arent, the city’s economic and urban development director, said of the missing grocers.
Downtown does have a growing lineup of eateries and retailers that draw locals and tourists alike, but some people worry there aren’t enough residents nearby to keep them all in business.
In many U.S. cities, blighted areas typically are revived after residents move in first — turning vacant warehouses into residential lofts, for example. Cafes, restaurants and other shops then follow.
In downtown Las Vegas, however, Hsieh’s group bankrolled eateries and opened retail complex Downtown Container Park before throngs of newcomers moved to the neighborhood first.
“We’ve gone the other way around,” KRE’s Vaknin said.
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Hsieh’s group seems like a logical choice to bring housing. He and his partners, as part of the $350 million Downtown Project, gobbled up properties on and near Fremont Street the past few years and now control vacant lots, shuttered motels and other real estate.
But as Arent put it, Downtown Project used “instincts and intuition” for many purchases and now needs “to figure out what to do.”
Rowland, of DTP Ventures, said the group was focused on getting more people to live, work and play downtown. He said management has identified possible housing-development sites, including the motels near PublicUs, but nothing beyond the Wolff project near Atomic Liquors is finalized.
He noted that downtown casinos were performing well — this year through September, gambling revenue there was up 6 percent from the same period in 2014, compared to a 1.5 percent drop on the Strip, according to the Las Vegas Convention and Visitors Authority.
And while most housing investors are avoiding downtown, one project could lead to others and then, eventually, an oversupply.
“All it takes is one person to do it ... and then everybody wants to do it,” Rowland said.
Plans are indeed on the drawing board.
“Big Daddy” Carlos Adley — a burly, tattooed music-venue owner — received city Planning Commission approval a year ago for a 20-story mixed-use tower. The project, dubbed the Central, would be built at Sixth Street and Carson Avenue, behind his Backstage Bar & Billiards.
Adley said he's finalizing his permits and hopes to break ground within the next year on the tower, which he said would cost in the $100 million range and have live-work units and hotel suites. The concept, he said, is a "rock and roll Taj Mahal."
New York investor Barnet Liberman has plans to build a 17-story mixed-use tower at Casino Center Boulevard and Coolidge Avenue, city documents show. The project is called the Royale at Casino Center, and Liberman has been looking to develop that site since at least 2011. Efforts to speak with him were unsuccessful.
Pursuing a high-rise was all too common during the bubble last decade, but not today.
“I would love it to happen,” real estate investor Andrew Donner, who works with Downtown Project on its property deals, said of high-rises. “I’m just not optimistic that you’ll see it in the near-term.”
Meanwhile, developer Sam Cherry, who built the Soho and Newport towers, confirmed he is scouting for sites downtown to build apartments.
“There's definitely a demand for rentals down there,” he said.
Calida Group’s Cohen, for one, is plenty busy these days. He and Eisner are building a 466-unit project at Tropicana Avenue and the 215 Beltway and a 124-unit project next to Downtown Summerlin.
They’re also gearing up for a 370-unit project at Flamingo Road and Hualapai Way and a 360-unit project at Stephanie Street and Wigwam Parkway in Henderson.
He said his group had spoken with Hsieh about developing downtown, but nothing panned out.
“It seems to be easier for us in the suburbs,” he said.