The past few years saw Nevada multifamily housing demand skyrocket as inbound migration came and the single-family housing market was white hot.
The U.S. multifamily market continues to be greatly in need of more units, and while the Las Vegas market has dropped a bit in terms of national markets, Nevada is also in desperate want of more developments.
According to the National Apartment Association, the U.S. needs to build 4.3 million apartments by 2035 to meet demands. In Nevada, more than 7,000 new apartments each year are needed, including 5,000 in Las Vegas.
The demand is largely driven by two factors, according to Ovation Development principal and project manager Jess Molasky. Molasky is next in line to assume CEO duties from his father and founder Alan Molasky. Ovation has designed and built 33 apartment communities in Las Vegas with more than 8,340 units. The developer is on track to finish five more developments in southern Nevada this year.
The first factor is “lifestyle renters.” Rather than a stop-over to homeownership, there is a growing trend to choose rental life among millennials, Gen X and empty-nesters.
“Not everyone aspires to the ‘white picket fence’ dream, especially those who have adopted more experiential lifestyles,” Molasky said. “These individuals are willing to postpone or abandon homeownership in exchange for the flexibility and benefits of high-end amenity-rich rental properties. Lifestyle renters typically have above-average incomes and prefer to rent in upscale communities instead of saving for a down payment or dealing with homeownership expenses and maintenance.
“Some are opting to build wealth by taking the money saved on housing expenses to make other investments other than home ownership.”
While they might have given up the comforts of homeownership, these renters like apartments that are up to date with technology and have plenty of luxury amenities. As Molasky said, “simply having a swimming pool or doorman doesn’t cut it anymore.”
Beyond “lifestyle renters” there are also those stuck in perpetual rental status, with rising interest rates, home prices and inflation. Those three factors have been particularly challenging in some fashion since the COVID pandemic started.
“Americans are now experiencing the highest inflation in 40 years,” Molasky said. “This, coupled with high interest rates and rising housing prices and a housing shortage, especially for entry-level single-family homes, has created the perfect storm, making it extremely difficult to buy a home for many Americans. Would-be homebuyers are beginning to wonder if they will become forever renters.”
In Las Vegas, 47 percent of households are renter-occupied.
Molasky said there are some approaches that can be used to help encourage multifamily development in Nevada, including a streamlined entitlement process, greater government support for higher density zoning and greater access to government funding sources.
Migration continues to shift in Nevada
San Diego-based Sunrise Management launched CloudTen Residential late last year, focused strictly on multifamily management. CloudTen is focused on Reno and Las Vegas in Nevada, but is more established in Arizona, Oregon and Washington.
Melissa Deen, president at CloudTen, said they took over management at Redfield Ridge in Reno in April 2021 and witnessed an uptick of migration from the Sacramento area to Reno, driven in part by price, but also lifestyle with the northern Nevada city’s proximity to outdoor activities.
Now, Deen said Nevada is similar to Phoenix and has matured as a multifamily market.
“We see Las Vegas being less up and down than it had been previously, like we saw in Phoenix,” Deen said. “For a long time, it was very up and very down. Now it seems to be leveling out and we expect to see the same thing in Reno.”
Nevada, however, is in a strange position when it comes to U.S. states and inward and outward migration. Deen said the management at the apartment complexes gives a strong view of the overall migration situation in Nevada.
While people continue to move to Nevada from California, Washington and even east coast states like New York and New Jersey, existing residents are also moving out, heading to hot markets like Texas, Florida, the Carolinas and Georgia.
“While there are lot of people leaving, we have a lot coming, it’s this migration of people and what they’re searching for,” Deen said.
Like Molasky, Deen said they have seen a significant amount of residents who cannot quite afford homeownership with the past few years of the housing market. Even now, with prices dropping some new construction is still at the top of the price range.
National market slows
Freddie Mac released its multifamily market outlook in December 2022 and said rising inflation and interest rates and a cooling single-family home market is slowing multifamily development.
Freddie Mac said the market will continue to slow through 2023. While property values will likely decline, the organization does expect gross income to continue to be positive.
Last month, Freddie Mac adjusted its projection a bit, suggesting a healthy 2023 for multifamily will be buoyed by a stronger second half.
“Volatile capital markets and a rise in the 10-year Treasury rate have driven a contraction in multifamily lending in 2022 that will persist into 2023,” Freddie Mac Multifamily Vice President of Research and Modeling Steve Guggenmos said in a statement. “Economic uncertainty and rising prices have led to waning housing demand. This, paired with elevated construction levels, will drive rent growth to level off and eventually normalize. This environment is putting downward pressure on property values, which have grown at a heightened pace in recent years.”
Molasky said the rising interest rates are having a significant impact on multifamily development.
“With current rising interest rates, high construction costs and reduced housing values that impact return on investment, developers are questioning their ability to make a multifamily housing development pencil,” he said. “That means there is likely a big shortage of apartment housing coming, despite increasing demand.”
Freddie Mac does expect multifamily construction levels to remain high, particularly in small southwestern markets and Florida.
The outlook also dropped Phoenix and Las Vegas out of the top 10 hot markets when combining projected rent and vacancy rate expectations.
Realtor.com’s rental report in January found Las Vegas rental prices dropped 4.9 percent year-over-year to a median rent of just under $1,500, the second largest drop behind Riverside, California.
That drops follows a three-year jump of 20 percent nationwide, according to Rentor.com, all while earnings increased just 10 percent.
Nevada, and other previously overheated states like Florida, Tennessee and Arizona, are likely due for some cooling this year, Red Oak Capital Holdings CEO Gary Bechtel told GlobeSt in January.
Rent stabilization and other options
With rental demand outpacing supply and high inflation helping push already surging rental prices, some advocates suggest rent stabilization efforts could help bolster housing stability. Rent stabilization creates control over housing pricing and is often described as an insurance for tenants against raising rent that outpace reasonable increases.
Rent stabilization efforts spread across the U.S. during the 2022 election season, including Portland, Maine; three cities in California, including Santa Monica; and Orange County, Florida.
Could rent stabilization be on the agenda the next time the state legislature meets this year? It’s possible as there is already some movement in local jurisdictions. The Culinary Workers Union worked to put rent stabilization on the ballot in North Las Vegas last year, but the city council rejected the bid.
Rent stabilization has its detractors, including landlords and developers. With rents effectively capped, there is little incentive to keep developing new projects. The National Multifamily Housing Council and National Apartment Association are not for stabilization, as the organizations suggest the rent control drives housing shortages and creates shortages in landlord funds.
Beyond rent stabilization, Nevada is working to help increase the affordable housing stock. As part of the Home Means Nevada initiative the state allocated $500 million to affordable housing development, including a 126-unit Carson City development, a 195-unit Reno development and a 306-unit Henderson project.
Overall, the money will help develop 2,800 units and rehabilitate more than 1,000 units in the state.
While there could be a push for action on rent stabilization, CloudTen’s Deen said rent prices are already naturally stabilizing.
“It’s really leveling out,” she said. “There were huge increases for a while, we were seeing 15 to 20 percent, and that’s just not sustainable. Some owners were thrilled with that, but there is more of a rent correction now, we’re still getting maybe 5 percent on renewals, which is healthy and more sustainable. And, in both markets, we’re not going to see a huge drop as long as new construction doesn’t add too much supply.”
Projects coming in Nevada
In November, McCourt Partners and TRU Development Company announced a 244-unit apartment building in Henderson on a six-acre site at the master-planned community Inspirada.
“TRU Development is excited about the opportunity to partner with McCourt Partners in acquiring a dynamic site in Inspirada. The growing submarket in West Henderson provides a perfect setting for a new multifamily residential delivery,” TRU Development President and CEO Tim Deters, said in a statement announcing McCourt’s expansion into the southern Nevada market.
In Las Vegas, Matter Real Estate Group announced it is entering the residential real estate market with a multifamily piece to its 40-acre UnCommons community.
Matters Real Estate Group Partner Jim Stuart believes Vestra will provide Las Vegas with a unique rental property. The first phase of the $1 billion UnCommons development includes the new North America headquarters for DraftKings, CBRE and Morgan Stanley.
“While we have great admiration for the local developers, we felt the differentiated experience found at UnCommons needed a more intentional approach that places a heavy focus on human centered design principles,” Stuart said. “Our mandate at UnCommons is to create a comprehensive, communal experience that extends across the entire campus from how we work and socialize to where we find restorative sleep.”
The Vestra will include 352 units, made up of a mix of studio, one-bedroom/one-bath, two-bedroom/two-bath and three-bedroom/two bath layouts in three mid-rise towers with interiors by high-end design firm Jules Wilson Design Studio. Each unit will incorporate smart home technology, as well.
On site amenities at Vestra will rival those of casinos, including a pool house, resort-style pool with cabanas, fireplaces and barbecues, an indoor/outdoor fitness center, pet spa, coworking spaces and media rooms. There is a 100 percent controlled access parking garage with electric vehicle charging stations.
Managing properties
As for management, CloudTen is looking for more communities to manage as it sees the Nevada market as a vibrant and healthy market.
“We really like to work with clients that are improving, or want to improve, a property,” Deen said. “That’s where the opportunity is for owners. We except this migration to continue to Nevada. We’re seeing people move in sight unseen, often through a video tour.”
She added, “The state is in a good position to continue to attract people, so it needs to balance new construction and push good policies for business.”
