January 31, 2006

The Icon Las Vegas (center) was cancelled Image courtesy Related Group

Las Vegas is known as a place where buildings are imploded before their time. Right now projects are getting imploded before they even out of the ground. Developers are canceling plans for high-rise residential towers near the Strip due to rising construction costs and slow sales. Southern Nevada leads the country in population growth, adding 7,000 new residents per month. Its rapid urbanization has caused a 99 percent increase in land pricing over the last 12 months, resulting in a vertical building boom.

“There are 60,000 condominium and 19,000 condo-hotel units currently proposed, planned or under construction in the Las Vegas Valley,” says John Restrepo, principal of Restrepo Consulting Group, a Las Vegas real estate research firm. “But we anticipate that less than 25 percent of those units will actually be built in the next five years.”

Related Las Vegas, for example, a joint venture between The Related Companies, New York, and The Related Group of Florida, called off its “Icon Las Vegas” project on January 6, due to escalating construction costs. The $325 million, 514-unit development along Convention Center Drive, just east of the Strip, consisted of two 48-story glass-and-concrete towers. Designed by Arquitectonica, Miami, with interiors from The Rockwell Group, New York, the 4.5 acre project was nearly sold out when Related pulled-the-plug. The company cites a six-month delay from a lawsuit filed by an adjacent rival project that complained of obstructed views and emergency vehicle easements. The case was later settled out-of-court.

“During the time it took to resolve the lawsuit, construction prices had increased so drastically that we were unable to build Icon based on it’s original pricing,” says Marty Burger, president of Related Las Vegas.

Busy contractors are quoting prices week-to-week due to rapid material and labor cost increases, which have climbed 10 percent to 30 percent over the last year, say local firms. Slow-selling projects, as a result, must budget enough money into the development for construction inflation.

Diversified Real Estate Concepts, Chicago, canceled its $600 million, 825-unit Aqua Blue condo-hotel off-Strip project in July due to high building costs. The Jeffrey Beers designed development had basketball-star Michael Jordan as an investor, with plans for a Jordan-branded steakhouse, café and athletic center.

Other projects, meanwhile, are being flipped for a quick buck to capitalize on the region’s escalating land values. Australian Developer Victor Altomare sold the 0.68-acre parcel for his planned 21-story, 236-unit Liberty Tower condo project along the Strip in early January for $5.5 million. The deal resulted in a 600-percent mark-up over its original $900,000 purchase price-tag in 2004, county records show.

“Only 13 of the valley’s 107 planned projects have broken ground thus far, and just 10 have gone vertical,” Restrepo reports. “Experience, financing, location and branding remain the key ingredients for a project’s successful transformation from a Web site into a vertical reality.”

Tony Illia

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