Rising Stars on the Strip
The boom in high-rise condo projects in this city’s canyon of casinos known as the Strip has spawned its own new status symbol -- the celebrity resident.
About 8,000 condominium units are under construction or about to start, according to SalesTraq, a Las Vegas real estate information company. It’s a building explosion fueled in part by speculators in the torrid real estate market here and the desire of buyers from California and Asia to own a piece of Sin City’s action.
But like everything Vegas does, this building bonanza comes with an extra helping of glitz: Developers are using Hollywood stars to make their projects stand out from the more than 100 residential skyscrapers proposed for Las Vegas.
Leonardo DiCaprio and Tobey Maguire have purchased units at the Panorama Towers complex. Jessica Simpson has reserved a unit at Palms Place, the 50-story high-rise planned at the Palms Hotel and Casino. Baseball Hall of Famer Reggie Jackson has snagged a spot at the Icon Las Vegas.
“I am sure these celebrities are getting very good deals,” said Peter Dennehy, senior vice president of Sullivan Group Real Estate Advisors in San Diego. “It is a marketing thing. People want to live near the stars.”
But some analysts wonder if the market will be left with a Las Vegas-sized hangover in the form of a real estate bubble fueled by the large number of speculators -- estimated to be as high as 40% -- who never intend to live in the units they are buying. The high-rise condo market has proved to be particularly sensitive to market gyrations, said Delores Conway, a USC real estate economist.
Las Vegas isn’t the only town that is going vertical. High-rise living, a long-standing tradition in New York, has spread to the likes of Boston, Denver, Miami, San Francisco and Kansas City, Mo. At least half a dozen new condo towers are planned for Los Angeles, Irvine and Pasadena.
Nationally, the number of condominium and town home development construction starts jumped 38% to 120,000 last year, according to the U.S. Census Bureau. And that came on top of a 23% gain in the previous year.
“Cities across the United States are booming with these projects and many of the developments are quite spectacular,” said Max Neiman, senior fellow at the Public Policy Institute of California.
Many of the buildings are following the pattern of Miami, where residential towers offer luxury-hotel-style amenities such as concierge service, valet parking, restaurants, fitness centers and spas. Some developments are tailored to unique markets. Cristalla, a 22-story high-rise residential tower in downtown Seattle, will feature a rooftop dog park. Much of the demand “is coming from people who want to live in convenient urban settings, near bookstores, jazz clubs, theaters and good restaurants,” Neiman said.
However, with so many high-end properties on the drawing board, it’s easy for a development to get lost in the crowd. That’s where the celebrities come in, assuming the real estate equivalent of a walk-on role: Most aren’t investors in projects, but their presence gives condo buyers the hope of an occasional star sighting near the mailboxes.
Don’t expect anything so crass as celebrity advertising endorsements; Vegas developers prefer the subtle approach, placing tidbits in gossip columns and prominently displaying celeb glamour shots in sales offices.
“It makes a building cool and hip,” said Dennehy, the real estate consultant. “You always want to sell lifestyle when you are selling condo projects like these.”
There are familiar names behind some projects, too. Donald Trump is building the Trump International Hotel & Tower at the north end of the Strip. And not to be outdone by her ex, Ivana Trump plans the eponymous Ivana Las Vegas 82-story development nearby.
Typically, high-rise condo buyers are empty nesters who no longer want to maintain a 2,500-square-foot home in the suburbs, said Ross DeVol, a Milken Institute economist.
“There are 80 million baby boomers, most in their 50s, and that’s a big market,” DeVol said.
Other buyers are young urban professionals without children who want to live in what they consider marquee areas, DeVol said.
Even in Las Vegas, once one of the more affordable real estate markets, no one considers these condos to be cheap housing.
A 972-square-foot one-bedroom unit at Icon Las Vegas, the future Reggie Jackson hangout that Related Cos. is building, starts north of $600,000.
“If one of these condos were in the $300,000s, I might do it. It would be nice to be just minutes from work,” said Chris Dingell, a senior planner with Clark County. “But I can’t afford what they are asking for the units on the Strip.”
But for those with the money, the towers, with their luxury amenities and chic granite-and-wood fixtures, hold an allure even at prices that range from $500 to $1,000 a square foot.
“With the poker boom, I find myself spending at least three months a year in Vegas and we needed a home there,” said Barry Greenstein, a Rancho Palos Verdes resident and professional poker player.
Greenstein paid $1.2 million for a 2,300-square-foot unit on the 16th floor of the first Panorama tower because of its proximity to the Bellagio, where he won $215,969 in a World Poker Tour no-limit Texas hold ‘em event last year.
“Some of the other high-stakes players are moving into that building, so we will have a little community there,” he said.
Although his job is unusual, Greenstein is typical of many who are plunking down 20% deposits for Las Vegas condo units. Few are eager to call the Strip their permanent home.
“I plan to go every couple of months. Although I am not a gambler, I enjoy the excitement of the city,” said Doug McCafferty, a real estate broker who lives in Dana Point. He purchased a $346,500 studio unit at the Residences, a joint project between high-rise builder Turnberry Associates and MGM Mirage at the MGM Grand Hotel & Casino.
McCafferty bought into the project’s first tower, which opens next year and sold out in just 90 days. The Residences has sold out a planned second tower and half the units in a third.
“There seems to be an insatiable demand for condominiums in Las Vegas right now and it hasn’t slowed,” said Marty Burger, who heads the Las Vegas operations for New York-based real estate developer Related Cos.
A veteran of 35 projects in greater Miami, Related quickly peddled all 248 units in its planned Icon tower between the Strip and the Los Vegas Convention Center. Business was so good that the company has launched a second tower and has sold all but 100 of its 268 units well before it will break ground.
Donald Trump’s 1,283-unit condominium project sold out in just five days after it was announced in December.
Burger said that as much as 60% of the buyers at the Icon tower were Californians purchasing vacation homes. But he and other developers concede that a large percentage are real estate brokers and other speculators attempting to lock up positions with the expectation that they can resell at a profit.
Janine Hogg, a San Francisco Bay Area transplant who owns a smoothie shop in the Las Vegas suburb of Summerlin, has placed down payments on four condos in three projects and is considering purchasing a fifth.
“Real estate investments are my retirement strategy,” Hogg said. “Hopefully I am not gauging the market wrong.”
Las Vegas real estate analyst John Restrepo estimates that speculators such as Hogg make up as much as 40% of the market. This has prompted some of the projects to limit purchases to one per person and to require buyers to close escrow before allowing a unit to be resold.
The number of investors in the Las Vegas condo market should be a matter of concern to both developers and other buyers, said Conway of USC.
“Las Vegas prices are not going to go up forever,” she said, “and when the market shifts, a percentage of speculators like that is enough to change the price of all the units in the building.”
Speculators tend to liquidate their positions quickly if their investments are losing money or aren’t producing the expected returns, Conway said, sending prices tumbling.
However, some real estate experts say the unique nature of the Las Vegas market helps insulate it from the type of steep downturn seen in other markets.
The city is running out of developable land, and people continue to pour into the region, said Steve Bottfeld, an analyst with the local research firm Marketing Solutions.
The Las Vegas metropolitan area had a population of 1 million in 1997 and that’s expected to double by 2007, he said. That influx provides a steady supply of buyers, which is what the speculators are counting on.
Moreover, with 38 million visitors annually, the city remains one of the nation’s top vacation destinations and will maintain its attraction for second-home buyers, Bottfeld said.
Finally, no one expects all the projects on the books to get built.
“There’s not enough skilled labor in this town to build even half of what has been proposed,” said Richard Lee, a vice president in the Las Vegas office of First American Title Co.
Even more circumspect is developer Irwin Molasky, whose Park Towers opened in 2001, demonstrating that Las Vegas was a prime market for luxury high-rise condos.
“I don’t think more than 25% or 30% of the proposed projects will get built,” he said. “Building these high-rises are not for the faint of heart.”
Indeed, even star power won’t guarantee every venture success. The proliferation of projects forced Chicago real estate developer Diversified Real Estate Concepts Inc. to scuttle plans for Aqua Blue, an 825-unit high-rise near the Strip, even though it had signed basketball superstar Michael Jordan to license an athletic center and two namesake restaurants.