The Truth About Luxury High Rise Condominium Living in Las Vegas

This article is an attempt to dispel two misconceptions about high rise condominium (condo) living: first, that high rise condos can easily be compared to investing and living in other formats, most notably single family homes (e.g., how do you compare a high rise loaded with on-site amenities with a single family home with none?); and second, comparisons can be easily drawn between high rise management and managing other residential formats (e.g., how do you compare managing complicated high rises containing common area amenities and resident shared building systems (e.g., AC and plumbing) with stand alone single family communities with few shared facilities?). The first point addresses recent owner tendencies to second guess the wisdom of their condo purchases by comparing them with other residential formats, an acknowledgment that the Las Vegas high rise condo market has softened considerably during the past five years. The second point is particularly noteworthy as it has become apparent, at least in Las Vegas, that competent high rise management is becoming increasingly difficult to find, hire and retain.

The investment community always viewed residential high rise condos as second class investments relative to single family homes, but it’s not until you live there that you truly understand why. It was no surprise to me that most condo owners don’t fully appreciate the investment or the daily living differences, but I was shocked to recently discover that many professional HOA managers, at least in Las Vegas, either don’t understand or are unwilling to admit that there are many and profound challenges posed by managing high rises that just don’t exist elsewhere. Professional HOA managers who are skeptical of those differences should consult with mortgage lenders and other investors who routinely view high rise condos as more complicated, riskier and consequently worthy of scrutiny, conservative appraisals and, as a result, more restrictive underwriting.

High rise living is easy but not for everyone.

Don’t misunderstand me, high rise condo living is ecologically friendly, requires minimal effort on the part of condo owners to maintain (other than their own condos) and can provide very cost effective living, especially if owners and tenants take full advantage of amenities and common areas typically provided, such as pools, gyms, business centers, game and theater rooms, not to mention TV/internet service and 24 hour security and concierge services. However, living here means forfeiting some freedom and some privacy and as investments they are riskier than other residential formats.

High rise condos are typically managed by homeowner associations (HOAs) that govern according to a set of community rules and regulations called CC&Rs (which stand for covenants, conditions and restrictions) as well as statewide and local laws. HOAs are typically managed by a Board of Directors who are owners that have been elected to serve as fiduciaries for their communities. The Board in the best cases are honest, well-intentioned individuals with common business sense that stand ready to monitor their managers and guide the strategic vision of their communities. In Las Vegas, high rise HOAs typically contract with professional HOA/Property Managers who are experts able to handle routine daily operations and to navigate the many issues that inevitably arise in high rises where owners share many common elements with their neighbors. Owners are to some extent restricted in their use of their condos by those two governing bodies and that set of laws, rules and regulations. Single family homes, even as part of an HOA, have far fewer restrictions on their use.

High rises can be complicated investments

When you buy a high rise condo you become living and financial partners with all the owners in your community. You don’t know those other owners and ownership will change over time with sellers departing and new buyers coming into the mix. In addition to agreeing to comply with your high rise’s CC&Rs, you agree to pay a monthly HOA assessment that usually increases annually, and agree to pay into a reserve fund to make future disbursements to replace physical elements that will depreciate and wear out over time. Reserve funds in single family HOAs are much less significant and complicated.

Unlike single family homes where mortgage lenders inspect your home and assess your (the borrower’s) financial condition, mortgage lenders to prospective high rise condo buyers are compelled to consider you and your entire community. Lenders need to become comfortable with several factors related to your high rise’s physical and ownership attributes that they believe will affect their ability to get paid back at mortgage maturity, including your HOA’s budget and reserve fund, community-wide insurance premiums, pending owner litigation, delinquencies and bankruptcies. Lenders will also want to know the ratio of owner-occupants to renters, and may be concerned if there are too many renters.

All of those factors will bear on whether Federal government lending agencies like Fannie Mae and Freddie Mac will back those mortgages, thereby making them willing to buy those mortgages from your lender. This is important to your lender who will then be able to redeploy that capital from the sale of those loans to make other loans. All of those factors will affect the value of your condo (i.e., the lender’s collateral for your loan). All of that means your high rise mortgage is likely to take longer to secure, require a larger down payment by you (20-30% of the purchase price as compared to 5-10% for single family homes) and incur a higher mortgage rate (at least 0.75 to 1.5% higher), all of which will weigh heavily against the value of your condo.

High rise management must be constant and tenacious

Modern high rises are complicated physical structures with mechanical systems that are shared by residents and common areas, including common plumbing, air conditioning, and shared parking structures, all of which have implications for fire and safety issues and security. Given that level of complexity and knowing how important the physical integrity of your high rise is to not only your living conditions but to your mortgage lender, you should expect your professional manager to be hands on and proactive in anticipating challenges that may arise.

General managers need to be hands on and proactive

High rise HOA general managers need to be visible in the community, make regular on-site inspections and engage with owners and residents on a regular basis. In other words exceed the passive activities of monitoring and administering necessary paperwork. They need to be experienced managers of inter-owner issues, which can be numerous and confrontational due to the close proximity of neighbors in high rises. At the same time, these managers need to supervise cleaning staff, security personnel, landscaping contractors on a daily basis as well as elevator and other contractors as needed. Lastly, general managers need to seek ways to improve operational efficiency by using new technologies and to address the constantly evolving and encroaching regulatory environment. On that last point, high rises need to have emergency plans in place in the event of a fire or some other building-wide disaster, situations which obviously don’t exist in single family communities.

All of these tasks need to be done while managers watch the bottom line. Current HOA assessments in Las Vegas high rises have increased sharply during the past five years, approaching $1.00 per square foot annually on average spurred by malfunctioning supply chains that followed the Covid 19 epidemic and hastened by an increasing general inflation rate; huge increases in insurance premiums and electricity costs have led those increases in many cases.

High rise engineers need to be expert and vigilant

High rise building engineers need to be experienced with today’s sophisticated building systems (e.g., HVAC, plumbing, sprinklers and elevators) and should monitor building operations daily and stand ready to undertake small, minor repairs. They also must be advocates for their building when negotiating with third party contractors to ensure the hiring of the best and most cost effective contractors to undertake larger more complicated projects. Along with the general manager, building engineers need to focus on strategies to keep those cost increases in the future to a minimum.

Moreover, building engineers should periodically review reserve study requirements to make sure they accurately reflect the current needs of the property. Since the collapse of a residential high rise near Miami, Florida five years ago and the fact that dozens more high rises built there within the last two decades appear to be sinking, it should be a no-brainer that top quality engineers should be part of the management staff. (Sinking is probably less of an issue in Las Vegas, but earthquakes, which have increased in frequency here lately, should make engineering vigilance a top priority.)

The high rise management industry needs to improve

In conclusion, the high rise HOA professional management community needs to address the apparent dearth of management talent that exists in Las Vegas and nationally and needs to become proactive in retaining and training qualified personnel to serve that market. Future high rise condo buyers need to weigh the challenges, shortcomings and risks as well as the advantages of buying into this otherwise attractive lifestyle.