Another Apartment Building Sold

December 21, 2009: Noah Klika of McQuaid Commercial announced today the sale of a 14 unit apartment building on Capitol Hill for $1,600,000.

“This deal is proof that maximum value is achieved by maximum exposure.” said Klika, who represented the seller in the transaction. “A first time buyer unknown to us or any of our competitors with a million dollar down payment was selected as the best buyer with the most certainty in an uncertain sales and lending market.”

The property was sold by local owners who had the property in the same family for decades, with the sellers having purchased it from their parents. After self-managing the property through several market cycles the sellers decided that it was finally time to retire from the apartment business. The buyer is a local investor buying their first apartment building.

The GRM was 10.5 and the CAP rate was 6.08, relatively high according to Klika who attributed those metrics to the very small unit sizes averaging about 450 square feet. The price per net rentable foot was about $250. The buyer secured new fixed-rate debt in the amount of $650,000 (paying $950,000 cash down) from US Bank.

Both buyer and seller completed the transaction as LLC entities and prefer to not disclose their names.

MGM City Center Grand Opening

Finally, after years of construction and financial turbulence, the $8.5 billion dollar MGM City Center is making its grand debut on the Las Vegas Strip on 67 acres between the Bellagio and Monte Carlo resorts. Las Vegas residents are hopeful that an influx of tourists to the latest mega attraction and over 12,000 more jobs generated by the project will infuse new life into the Las Vegas real estate market and Las Vegas condo sales.

This week MGM Mirage celebrated the openings of several key elements of its long awaited urban lifestyle mixed use development. The Vdara Hotel and Spa was the first to open on December 1st with a gala that was co-hosted by Vanity Fair and attended by celebrity guests Orlando Bloom and Rosario Dawson. Vdara features 1,495 condo hotel suites, an 18,000 square foot two-level spa and salon, a world class fitness facility, and over 10,000 square feet of meeting space.

Next to open on December 3rd was Crystals, the City Center's 500,000 square foot retail and entertainment complex. Crystals shopping mall features high-end retailers like Louis Vuitton, Hermes, Prada, Christian Dior, Bulgari, Van Cleef & Arpels, Tiffany & Co., Mikimoto and Ermenegildo Zegna, as well as five gourmet dining restaurants. “Originally, when we put together a portfolio of all the stores, we realized this is a niche that the market is missing — a selection of retailers under one canopy that are extremely high end, and that’s what we went after,” Crystals Vice President and General Manager Farid Matraki said. Matraki also added that it was a priority to capture brands not already in the market.

Then on December 4th the latest Mandarin Oriental with 392 guest rooms, 227 private luxury condominium residences, a 27,000-square-foot spa and 12,000 square feet of meeting space. The condominiums in this most recent edition of the internationally acclaimed Mandarin Oriental Hotels are already 93% sold out, with price tags starting at over $1M for a one bedroom residence.

And on December 16th the center piece of the City Center, the massive 4,004 room (including 568 suites) Aria Hotel and Casino, will debut with its own grand opening celebrations. I will be attending a special VIP party that night and expect to have lots to report later next week on all the amenities which include: 150,000 square feet of gaming, three primary pools with 50 cabanas and one European-style pool, 16 restaurants and 10 bars and lounges, including a nightclub, an 80,000 square foot two level spa and salon with 62 individual spa treatment rooms and 55 salon stations, and an 1,800 seat theater that includes the celebration of the timeless musical legacy of Elvis Presley from Cirque du Soleil.

If the project takes off as expected, by spring new employees of the MGM City Center should feel confident enough in their jobs to fuel a fresh spate of home buying, just in time to take advantage of the first time home buyer tax credit and the affordable homes for sale in Las Vegas. With the number of Las Vegas foreclosures at an all time low, we may even see price increases during the first half of 2010.

Today

There was an article in the Wall Street Journal today, page C10, that talks about Dubai and its troubled real estate investments. The article contained a very interesting statement: “There is no product out there, there is nothing to buy, and there’s lots of money out there that would love to buy”, a quote from Sam Zell who is considered by many to be one of the world’s foremost authorities on when to buy and when to sell.

Another part of the article pointed out that “banks and troubled borrowers haven’t flooded the market with cheap properties, even though rent and occupancy are still declining around the world, financing remains scarce, and defaults are soaring…that has left investors thirsting for deals”.

Yet another section points out “perversely, increased availability of good quality assets to buy would improve liquidity in the market as there is strong demand at present for limited stock” said the head of research for U.K. CBRE.

Could this all be, in other words, that the bottom of the market has come and gone with no real steals ever coming around? Perhaps this is because investors in real estate are typically in it for a long run, not a short haul, and as such they will not dump quality assets and instead will hold and adjust expectations and continue to enjoy the benefits of a relatively stable investment vehicle.

Further to my point is that this morning I reviewed a December 2009 rent roll for a high quality property that showed a very modest decline in rents from two years ago and I distinctly recall thinking 2 years ago that the rents for this particular property were high. This points me to the conclusion that high quality properties in high quality areas persevere despite significant changes in general market conditions.

So in the end the market didn’t get flooded with super-deals, lenders are creeping back in with great rates, and quality real estate remains relatively stable. This may be the actual bottom of the market.