Vegas luxury condos face skittish market
By Kathleen Hennessey
By Kathleen Hennessey
LAS VEGAS — The glossy brochures promised rooftop gardens and posh European spas. Private basketball courts and butler service. The Las Vegas Strip and billions of dollars of hedonism just past your uniformed doorman.
Such is the stuff of high-rise living in the imagined vertical Las Vegas — billed as the next sexy center of condominium living, a 21st century Manhattan or Miami, and an antidote to the sprawl plaguing lesser Western cities.
But developers' lofty dreams have met with some not-so-sexy realities — the cost of cement and copper pipes, a shortage of skilled labor and contractors, indomitable competition from deep-pocketed casinos.
By most accounts, the skyrocketing costs of materials and labor have toppled some high-profile luxury condominium projects, turning the market skittish. At least six projects have publicly folded or stalled in a little more than a year, a fraction of the more than 100 once proposed, but enough to make some real estate watchers declare a bust to the boom.
Many in the Las Vegas condo market describe the situation as more of a breather. Seventeen high-rise condominium projects are under construction, they note. Although about half are filled with a time-share hybrid called the condo-hotel, the others are filled with residential units that are 90 percent sold, real estate analyst Richard Lee said.
"What we're having here isn't a demand constraint," he said of the failed projects. "It's a situation that nobody predicted. The No. 1 problem is construction costs and lack of skilled labor."
The price of steel, diesel fuel and concrete, along with such materials as pipes and wiring, has driven up the costs of building a high-rise tower, said Ken Simonson, chief economist for the Associated General Contractors of America.
The cost of a cubic yard of concrete rose from 10 percent to 15 percent last year and will see a similar increase in 2006, he said. The average cost for diesel fuel used in construction trucks is up 36 cents a gallon from last year. The cost of gypsum, the main ingredient in wall board, rose 42 percent since 2004, and copper used in wiring and fixtures rose about 70 percent in two years, Simonson said.
"I think it's a sign of new era in which there is going to be worldwide competition for materials," he said.
At the ground level, it means the roughly 25,000 cubic yards of concrete needed to build a 15-story tower costs $625,000 more today than it did two years ago — when some of the doomed projects were planned and prices for condominium units were set.
In the case of Related Las Vegas' canceled "Icon Las Vegas" towers, a highly anticipated collaboration of two experienced developers, those prices were locked in when the units were sold. While a lawsuit over views stalled construction, building costs nearly doubled and ate into potential profit, said Related Las Vegas President Marty Burger when he scrapped the project in January.
The costs "made it impossible to build Icon based on original pricing without seriously impacting the integrity of the development," he said.
Even one of the most successful high-rise developers in Las Vegas, South Florida-based Turnberry Associates, has had to absorb costs, though the company got into the market before land and construction costs took off, according to John Riordan, vice president of sales.
The company built a reputation, targeted top-tier buyers and benefited from being one of the first in the market. Turnberry has sold more than 3,000 condominiums in Las Vegas since 1999, has six towers under construction and three completed. A 30 percent increase in costs from its third to fourth tower — identical buildings built over two years — wasn't a deal killer.
But materials are only part of the hurdle, Riordan said.
"It's little things — the cost of an electrician," he said, explaining Turnberry's choice to use union workers to "add to the quality."
"(Union labor) is a huge factor in the increase in costs," he said.
Plumbers, electricians and ironworkers are hot commodities for union and nonunion jobs. Subcontractors say they've held back from bidding on projects for fear of not getting the labor. Their biggest dilemma isn't winning the bid, but staffing the bids they win.