|
QUITTING TIME
Pinnacle high-rise project canceled
March 03, 2008 - Pinnacle Las Vegas has called it quits.
The proposed $740 million condominium-hotel project at Tropicana Avenue and
Cameron Street, across from The Orleans, has pulled the plug after three years.
The development entity, Pinnacle Las Vegas LLC, confirmed last week that 396
homebuyer deposits are being returned with interest from Nevada Title Co.
Deposits were 10 percent of the unit purchases with prices ranging from the
$300,000s to more than $1 million.
"The market conditions have changed dramatically from when we first started the
project," said Norman Fornella, a Pinnacle Las Vegas development partner. "It no
longer makes sense to build in the current climate."
Pinnacle Las Vegas was first announced in 2005. Plans called for two 36-story,
faceted gold glass towers connected by three sky bridges. The twin skyscrapers
would have had 1,100 condo-hotel units that allowed buyers to rent out
residences as guest rooms when not in use. The project also was to feature
resortlike amenities, such as a 3-acre wet-deck, restaurants, boutiques, a
fitness center and a spa.
But the project changed contractors three times in three years. Dick Pacific
Construction, a unit of Pittsburgh-based Dick Corp., replaced Marnell Corrao
Associates as builder in mid-2007. Both builders were preceded by Turner
Construction Co., the New York-based firm now working on the Juhl mixed-use
project in downtown Las Vegas.
Dick Pacific, who came aboard last summer, was also a project partner. Turner
and Marnell, by contrast, were independent contractors. Dick Pacific declined to
elaborate on its project investment and ownership share, but notes that "it has
lost money" as a result of the cancellation.
"The market has taken a very drastic turn," Fornella said. "It's made it
financially difficult to attain sufficient sales to obtain the construction
financing necessary."
Developers must presell up to 80 percent of the project to secure a construction
loan; they must be well-capitalized to reach that. Startup costs entail drafting
architecture plans and launching a marketing campaign, which can require a
opening a sales center, hiring staff, buying advertising, and commissioning
models and realtors.
Construction costs, meanwhile, can rise during a long sales period. Building
material prices for concrete, steel, and gypsum climbed between 12 percent and
15 percent in the past two years, reports Ken Simonson, chief economist of the
Associated General Contractors of America, a national industry trade group.
Materials prices are expected to increase another 10 percent in 2008.
When projects finally complete their sales cycle, reaching the required loan
amount, the construction budget can sometimes surpass the sales income, making
the development financially infeasible. Savvy builders will plan for inflation,
factoring it into the final cost; others will simply flip the land for the
property appreciation.
Pinnacle Las Vegas LLC has since hired CB Richard Ellis' John Knott to market
the 12-acre property. The land served as an automotive sales site until October
2004. The Falconi Group, the project's principal developer, is known locally for
operating Acura and Honda car dealerships throughout the valley.
"A longer presale phase generally makes it more challenging to generate
sufficient sales to move forward in a declining market," said Brian Gordon, a
principal with Applied Analysis, a Las Vegas economic research firm. "The luxury
condominium market is facing challenges with a slowdown in demand and number of
projects in the pipeline."
In all, 3,793 condo units were planned or preselling during January, while
another 5,050 have been suspended and 15,607 canceled, Applied Analysis reports.
The number of suspended and canceled projects has increased skepticism among
lenders and buyers. Last month, Green Cable LLC sued Pinnacle Las Vegas for the
return of its deposits due to a lack of progress. The project was scheduled to
break ground in the fall of 2006, but today stands bare.
|
