Las Vegas' Summerlin submarket just landed the lowest single-tenant office cap rate in the market. Moonwater Capital sold the former Hines-owned office building at a 5.69% cap rate and a sales price of $19.9 million to a California-based buyer. The sale generated interest from more than 100 investors, and the brokers on the deal say that other office properties in the market could capture similar pricing.
“We received tremendous interest in the project from foreign capital; direct investors; private capital,” Tivon Moffitt, SVP at JLL, tells GlobeSt.com. “There is significant interest in the Summerlin market because there is zero income tax, great growth and a lot of deployment. We received a very aggressive cap rate with the project.” Moffitt represented Moonwater in the deal along with JLL SVP Peter Bauman and EVP Bret Davis.
The brokerage team expected strong pricing, but the final tag exceeded even their expectations. “This was on the emotional pricing side of where we were in our valuation,” Bauman tells GlobeSt.com. “It actually outperformed where we thought it would be, and that was driven by a significant amount of interest. We see that other assets could trade in this aggressive pricing range.”
The 5.69% cap rate set a significant record for the market. Most cap rates for single-tenant office product fall in the 6.5% range, according to Moffitt. If other properties follow suit, this could be the beginning of cap rate compression in Las Vegas. “We haven't seen this cap rate compression in the Las Vegas market,” he says. “We set the market with a very aggressive cap rate. This was the pricing that we discussed with ownership, and we new it would be on the emotional side. There were other buyers at this price point, and it is the price that we guided other buyers to. Ultimately, it performed at that price.”
Summerlin is a growing office market with competitive rental rates that are attracting corporate users. “The Summerlin market is a low-cost alternative to corporate users,” says Bauman. “You see a lot of spillover of corporate users relocating out of tier-one markets where rents are significantly higher. This is a lower cost alternative with a great quality of life, educated workforce, low-cost of living and Nevada as a state also provides other corporate incentives. It is a perfect storm for activity.”
Part of that perfect storm is 1031 exchange capital looking for single-tenant triple-net opportunities. That has helped to fuel capital interest in the market as well and produced higher-quality product for prospective corporate users. “With private capital driven through 1031 exchange requirements are coming out of West Coast states, and we aren't going to see any slow down of that in all product types,” says Bauman.
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Kelsi Maree Borland
