Condo projects continue to crumble

Jan 10, 2006 3:08 AM

Boyd Gaming’s $4 billion mixed-use development on the site of the Stardust Hotel is conspicuously lacking a condo or residential component.

Maybe Boyd has caught on to something.

Lately, several developers of high-rise condo projects have pulled the plug, citing higher construction costs or lackluster sales.

The latest to crumble was the 500-unit Icon twin towers development earmarked for Convention Center Drive. The developer, The Related Companies, said escalating construction and labor costs forced them to terminate the project.

A spokesman for The Related Cos. said the developer intends to go forward with Las Ramblas, a $3 billion hotel, casino and condo project planned for Harmon Avenue.

A nationally-known real estate development company, The Related Cos. was also involved in trying to develop the city’s 61 acres behind the Plaza, but could not reach an agreement with city officials.

The demise of the Icon project follows closely on the heels of the scrapping of other high-profile condo developments.

A few weeks ago, Australian developer Victor Altomare put up for sale his planned 80-story Ivana condo tower on Las Vegas Blvd. near the Stratosphere, as well as his Liberty Tower, which has been renamed the Monument by its new owners, the Constellation Property Group.

Also getting the ax was the Michael Jordan project planned for Koval Lane and Flamingo Road; and George Clooney’s plans to build a casino where you’d probably need a tuxedo to get in have, gratefully, found the scrap heap.

Another project currently on life support is the condo tower planned on the old La Concha Motel site next to the Riviera.

Six months ago, there were more than 100 condominium or condo hotel projects proposed for the Las Vegas area, totaling 60,000 condo and 20,000 condo-hotel units.

Experts predict that, at best, one-fourth of the units will actually be built over the next five years.

The problem lies in a number of areas. Developers are quick to cite higher building costs, but real estate and mortgage financing experts say the problem goes much deeper.

The inexperience of the developer is a major concern, according to a Las Vegas-based real estate consulting group.

Often times, land speculators with a "gold rush mentality" tie up a parcel of land in hopes of capitalizing on the area’s strong market.

But they typically are unfamiliar with the process of setting up sales offices, taking non-refundable deposits, arranging long-term financing and factoring in inflation.

Developers are often under capitalized from the project’s outset. New projects require financing necessary to underwrite start-up costs such as getting planning and zoning approval and drafting architectural and engineering plans.

Even good planning can be undermined by unforeseen escalating costs. During the past year, for instance, prices for building materials such as concrete, steel and gypsum climbed 10 percent to 15 percent, according to the Associated General Contractors of America. And this year, material prices are expected to increase another 10 percent.

As far as which projects around the Las Vegas Strip will actually be built, there is widespread disagreement.

But, this year about four or five developments will definitely be completed. The include the Panorama Towers, Sky Las Vegas, Allure, Turnberry Place’s fourth tower and Metropolis.

Experts believe another three or four condo projects may break ground in 2006, but still leaves dozens still on the drawing board.