One of the largest power centers in Las Vegas, Best in the West center traded earlier this year for $64.9 million.

Real estate pundits continue to tout Las Vegas as a hot market for sellers. Real Capital Analytics, in its December 2002 report, referenced Las Vegas as the market with the most growth in office investment sales. Mid-year 2003 sales data also appeared promising.

Clearly, Las Vegas is a great market for real estate investment. Spurred by the tenant-friendly, low tax, pro-growth business climate and the lack of a state income tax, investors enjoy the benefits of property ownership in Nevada. California’s 1031 exchange investors are especially attracted to southern Nevada because of the relatively better yields compared to properties at home, especially when California’s high state income tax and looming budget deficits are considered.

Furthermore, because interest rates have been at a 50-year record low, investors are currently able to capitalize on very favorable spreads between interest rates and property yields. This is generating some fantastic returns for investors, who are in a position to place new loans on properties that they acquire. To that end, this is very much a buyer’s market.

Conversely, given the record level of investment activity and values in the last year, this is very much a seller’s market as well, with buyer demand continuing at strong levels. For those owners with quality properties that can be delivered free of debt, the opportunity still exists to take advantage of top-of-the-market pricing for their assets. As the economy continues to struggle, especially with foreign policy concerns abroad, real estate continues to be the investment vehicle of choice. Despite recent modest rises in the 10-year Treasury rate, the general expectation is for interest rates to remain at historically low levels throughout this year. Buyers in Las Vegas are still paying aggressive prices for assets while obtaining strong leveraged returns on their investments. This may be the first time in quite a while when the market has achieved a win-win for both buyers and sellers.

The gaming and entertainment industry has become a mainstay of American society and Las Vegas is often a Number 1 domestic travel choice for its overall value. Because of the strong tourism draw, the Las Vegas metropolitan area continues to be comparatively immune to national economic cycles, making it an excellent location for purchasing investment real estate. While the national economy continues to sputter, Las Vegas has managed to outpace much of the nation in terms of population and economic growth as well as commercial and industrial sales and leasing.

Retail properties continue to be in high demand throughout the country, and Las Vegas is no exception. Demand for grocery-anchored product has almost reached a frenzied pace with many quality properties trading at record sub-8 percent cap rates. Lack of available product for purchase in the anchored categories is creating a trickle-down effect at the strip-center level with well-located properties experiencing a much higher level of investor interest than ever before.

Industrial investment offerings are scarce in the $5 million-plus range, and investors are hunting for off-market opportunities, just as they have been for the past 10 years. Multi-tenant office properties are trading at a new high-water mark with the highest sales around $200 per square foot while cap rates for these properties are posting in the 8.5 to 9.25 percent range. Much of this office demand is equally attributable to low interest rates and the lack of available retail and industrial alternatives.

Single-tenant deals of any kind, especially those with a credit tenant, continue to be the most sought after real estate investment vehicle — bar none. NNN-leased single-tenant deals have become the holy grail of real estate investment due to the limited amount of property management required by the owner. Single-tenant properties represent attractive alternatives for inexperienced real estate investors. In instances where the property is well located and a quality credit tenant can be found on a true triple-net lease, many of these properties are commanding extraordinary cap rates of less than 7 percent because they often represent a lower risk investment than multi-tenant product or stock market alternatives.

2003 trends indicate that investment activity continues to be strong in all product types, and the buying flurry shows no signs of waning. With continued investor uncertainty in the stock market and the overall economic malaise, a continued flight to safety in single-tenant NNN investments is expected as novice real estate investors reallocate their retirement savings from stock market investments to real property investments. Seasoned real estate investors continue to jump aggressively into the multi-tenant retail and industrial sectors while office lags in terms of overall interest but benefits from a severe shortage of available net-leased product type available for acquisition.

As 2003 draws to a close, Las Vegas commercial real estate investment activity should reach similar volume levels as prior years — around $550 million to $650 million. At mid-year 2003, investment sale totals for all product types already exceeded $440 million. Although fewer properties overall are being brought to market, several large sales have traded already this year, including the Stephanie Street Power Center ($50 million) and Best in the West power center (more than $60 million).

Charles Moore and Christina Roush are first vice presidents in the Private Client Investment Group at CB Richard Ellis’ Las Vegas office.

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