If interest rates increase, rents likely will have to increase for operators to maintain the same cash-on-cash return. "Even if an interest rate is locked in now, valuations could be hurt due to the fact that other comparable properties would be suffering from an expensive borrowing market," states the report. "In the long term, the Las Vegas apartment operations market is securely positioned to benefit in the predictable future."

The recent trend in the Las Vegas multifamily market has been the rise and fall of the condo conversion activity. Since 2003, 81 apartment properties accounting for over 21,000 units have been taken off the market, causing a steady drop in vacancy rates. In response, over the past five quarters permits have been issued for more than 10,000 multifamily housing units. Deliveries during the same period have totaled just 2,000 units while Vegas' well-known population growth continued, causing rents to rise.

The rapid growth in Vegas is winding down, however, according to the publicly traded apartment REITs. As reported last week in GlobeSt.com sister publication Multi-Housing Forum, the heads of three of the biggest apartment REITs expressed optimism that the industry will continue to grow through 2006 and into 2007 at a recent CEO roundtable in New York City, but they didn't expect Vegas to outperform.

David Neithercut, president and CEO of Equity Residential in Chicago, Ric Campo, Houston-based Camden Properties Trust's chairperson and chief executive officer, and Tom Toomey, president and CEO of United Dominion Realty Trust Inc. of Richmond, VA, agreed that while they won't likely see double-digit growth in net operating income in some areas, growth in the high single digits should be the norm, at least through next spring. In Vegas, however, they said things have slowed significantly. They anticipate future growth there to be in the mid-single digits, according to Multi-Housing Forum.

Despite the muted forecast, apartment buildings continue to trade hands in Vegas. In September, Universe Holdings Development Co. paid $40 million for the 344-unit Broadstone Sunrise Mountain Apartment Homes located four miles east of Downtown Las Vegas. It was the first Vegas investment for the Beverly Hills, CA-based company, which owns 3,000-units in Southern California. The seller was a joint venture led by Blackrock Realty Advisors, a publicly held investment management firm.

Universal Holdings CEO Henry Manoucheri told GlobeSt.com at the time of the acquisition that his company would like to work its way up to 2,000 units in Vegas over the next year or so. "We've been studying the market for nine or 10 months now and just now jumped in," he says.

Broadstone Sunrise Mountain Apartment Homes is 96% leased and 94% occupied at an average rent of $0.92 per sf. Built six years ago, the property consists of 22 two-story buildings that are mapped for conversion to condominiums. It will not be converted anytime soon. "We bought it because it made sense as an apartment investment," Manoucheri said. "Right now the condo market is not too hot [in Las Vegas]."

The in-place cap rate for Broadstone Sunrise is in the low 5% range but Manoucheri hopes to have it up to 6% within a year. He expects to be able to push rents by 6% a year in the coming years. "It's in a growing and improving section of northeast Las Vegas," Manoucheri said. "There's been some concern about the shadow rental of unsold condos, but there's none of that near us and there's good job growth."

In July, local developer Ken Templeton sold a 2,219-unit senior living apartment portfolio here for about $239 million, or approximately $154 per sf (net rentable), making it one of the largest multifamily transactions in Nevada. The units are spread among nine properties located throughout Clark County. The Carefree Senior Living portfolio, as it's known, is 95% leased. The new owner is a partnership of Orion Residential and a fund of Starwood Capital Group.

"This portfolio represents the vast majority of this type of housing in Clark County," Orion principal Scott Knauer, the company's chief investment officer, told GlobeSt.com at the time of the acquisition. "We would like to expand [the portfolio with additional properties] in Las Vegas and other markets that are enjoying some fairly significant retirement in-migration."