Introduction
Real estate investment requires an effective understanding of some market fundamentals. It is basically driven by a top-down approach in which an investor should first comprehend macro-level conditions and then proceed to micro-level factors. The approach is based on the notion that without understanding these factors, then the investment is most likely to fail. In fact, effective real estate development must account for location and non-location elements. That is, like any other investment, real estate development also faces some risks.
This essay focuses on both macro-level and micro-level analyses to explore Summerlin developed by The Howard Hughes Corporation in Las Vegas, NV.
Summerlin Macro-level Analyses
Under this section, Summerlin real estate is analyzed from two perspectives, including (1) urban economics, and (2) market segmentation.
Urban Economics
Location
Summerlin is located at the foothills and ridges on the western parts of the Las Vegas Valley, NV (The Howard Hughes Corporation 1). It is situated next to the globally popular Red Rock Canyon National Conservation Area. Summerlin occupies about 22,500 acres for its master-planned community. The community provides open spaces, a gleaming view of the Strips of Las Vegas, as well as a wide range of housing collections and options in the Southern part of the state (The Howard Hughes Corporation 1).
It is next to the federally protected playground with global recognition. In addition, the adjacent beautiful desert and mountain landscape now has over 2,000 climbing paths. In fact, the Red Rock is now classified among the top five climbing places in the US. In addition, hikers can choose from more than ten trails to match their climbing abilities. Easy hikes and adventurous opportunities, for instance, are available with greater mileage and elevation. There is a 13-mile paved path for residents and visitors who love running and cycling. While adventurous individuals travel from all over the world to experience these opportunities, Summerlin offers them to residents in their backyard.
Further, Summerlin offers sunshine almost throughout the year. It also boasts of nine of the best golf courses in Las Vegas.
Summerlin location is therefore the greatest appealing factor, which drives demands in housing.
Linkages
It is observed that the value of real estate development is greatly influenced by social amenities and other commercial facilities. Offices, schools, public parks, and shopping centers among others are necessary for valuation.
Summerlin has more than 24 schools. In fact, it has 10 nationally-recognized private schools and 12 other public schools. Most of these public schools in Summerlin have attained a five-star ranking between the years 2012 and 2013. The Clark County School District awarded this status. In addition, the community has many colleges and other specialized institutions of higher learning. Thus, Summerlin can provide learning opportunities for its residents of all age groups. Most of these educational institutions have favorable performances, athletic accomplishments, and cultural appreciation.
Further, residents of Summerlin are also exposed to several lifestyle opportunities found in Las Vegas. Summerlin development consists of multiple community parks and 150 neighborhoods. These amenities have unique facilities, including tot lots, swimming pools, basketball courts, and baseball fields among others. These parks and other community amenities offer a wide range of recreational and social activities. In fact, most of these recreational activities, including classes, special events, camps, seasonal celebrations, athletic programs and many more, are exclusively organized for residents of Summerlin (Robinson 1).
The travel cost method (TCM) in real estate development focuses on payments that individuals make to seek pleasure or other benefits (Barzilay, Schnell and Portnov 22-23). The TCM is based on the costs of gaining access to non-trade services, such as mountain climbing, using a public park, or enjoying the fresh air. In this case, the method is based on the assumption that costs incurred to access such facilities would be equal to costs of accommodation close to them. The method is widely applied in economics to quantify the unified use of different facilities, such as parks, forests, resorts, fields, and even beaches among others. When all costs (travel costs, admission fees, parking fees and others) associated with gaining access to recreational and leisure facilities are considered, then it can justify living next to locations with such facilities. The strategy adopted can therefore quantify the related costs for residents or visitors, which enjoy facilities and other natural settings of the location (Barzilay, Schnell and Portnov 23).
Summerlin is currently growing at high rates in terms of population and real estate development. In fact, several housing units are now being constructed in Summerlin to cater to emerging demands. In addition, there are complementary learning institutions, offices, shopping facilities, and other social amenities.
Summerlin Micro-level analyses
Micro-level analyses focus on factors related to the property. They are not location factors, but rather land use density, size of apartments, housing style, design, and financing, as well as public utilities. In addition, the quality of the work and available public facilities should be attractive to the target clients. Micro-level analyses also account for the tenancy mix, including residential, institution, and commercial facilities.
As previously observed, Summerlin consists of parks, golf courses, community centers, trails, and shopping malls among others. As a residential address for the affluent, Summerlin offers a vibrant exciting address that ensures the concept of life, work, and play is realized among residents.
It consists of multi-family residential developments for upscale urban living. The architectural design is urban-chic to reflect contemporary living. They consist of modern fitness centers, floor plans that range from 950 s/f for one-bedroom to over 2000 s/f for large families. The spa is activated with tanning services, on-call masseuse, resort-style pool with an outdoor BBQ area and cabanas among others.
In addition, Summerlin now has a LEED-certified structure developed for executive offices. Occupants enjoy the convenience of 125 shops, entertainment venues, restaurants, and any other relevant service the address has to offer. In this case, the developer went beyond creating an ideal place to live. Rather, Summerlin reflects mixed-use development perfect for business.
There are multiple retail spaces, business parks, and additional empty spaces for future development. Hence, commercial facilities are widely available to support 100,000 residents who live, work, and play in Summerlin. Thus, it is ever-growing and offers endless opportunities for residents and businesses.
From the location, residents take 12 minutes to reach Las Vegas while it is only 20 minutes from Las Vegas Strip. Upon completion, the developer expects Summerlin to provide homes to more than 200,000 residents.
Today, Summerlin is among the top bestselling master-planned communities in the US. In fact, residents can gain quick access to Bank of America Call Center, AT&T Call Center, Red Rock Casino Resort & Spa, and Life Time Athletic among others.
Above all, Summerlin is recognized for sustainable land use, water conservation, and low water costs while protecting native vegetation.
In this mastered-planned community, Summerlin presented the right product design for the targeted residents and business community.
Summerlin Market Segmentation
Market segmentation assists real estate developers to comprehend the needs or preferences of a given market subgroup. Developers generally target a given target market. In this regard, when developers construct luxury, high-end apartments, then other segments of the affordable housing market are not simply the target and thus irrelevant. These differences in market subgroups present various implications for developers. Hence, market research must first determine the best market segment for a given development. It is however observed that most real estate data tend to be irrelevant for any specific property because the market is highly fragmented. Hence, any relevant data for a specific market segment may not be easy to obtain.
Real estate developers must understand that it might be difficult to describe market segmentation before conducting a study first to understand vital statistics and facts that cause variations based on factors related to location and type of development available. There might not be any single, simple universal approach for understanding market segmentation. Real estate generally operates in a highly fragmented market, making it inefficient. While the law of supply and demand may be applied, it often does not provide the perfect outcome. In fact, when one assesses the real estate market not as one pile of housing, but rather a wide variety of smaller market segments defined by tastes, income levels, demographics and other related elements, then it becomes more intricate and obscure to determine actual elements of market segmentation. Nevertheless, the following factors are considered for Summerlin.
Demographic
Some demographic variables that have influenced Summerlin’s target market segmentation include the following.
Income and employment
Residents of Summerlin are affluent in the community, mainly employed or retirees (Cannon, Miller and Pandher 519). In fact, many observers have generally decried the relative lack of affordable housing units in Summerlin (Robinson 1). When developers were selling some homes in Summerlin at an average price of $129,000, other homes went for a median price of $113,950. In 2014, Summerlin introduced new homes with a median price of $475,000 against the general market average price of $291,662. In addition, other units located in Panorama Pointe go for over $300,000 while similar single-family units in other locations attract a resale price of nearly $205,000.
Summerlin also offers some resale condominiums for about $84,000 located in the northern end. However, once the master-planned development is completed, these new developments will set new market prices and trends.
Family size
Summerlin offers homes for single and large families. Further, homes are also designed for individuals who stay alone. Various facilities available at Summerlin can support the needs of these families.
Known as the place to live, work, and play, Summerlin offers an exceptional luxury active adult lifestyle with different amenities, including walking trails, indoor lap pools, clubhouses, and ball courts among others.
Religion
Summerlin has a sufficient supply of churches and a few temples. Notably, there are no mosques in Summerlin.
Race, ethnicity, nationality, and gender
These factors do not restrict homeownership at Summerlin.
Occupation
Irrespective of occupational status, Summerlin accommodates affluent individuals who can afford homes. Nevertheless, professionals mainly occupy the place.
Generation
Summerlin accommodates millennials, baby boomers, gen-x, and gen-y.
At the same time, Summerlin now focuses on active lifestyles for adults and senior living assisted facilities. It refers residents to established-age qualified neighborhoods, which are independently owned and managed. Summerlin encourages its residents to seek direct assistance from these neighborhood facilities.
Summerlin currently offers accommodation to more than 100,000 residents, and it is expected to accommodate 200,000 residents once completed. These residents span across all generations from single families to retired individuals.
The Fair Housing Act protects most of these demographic factors. In this regard, Summerlin cannot discriminate against any potential residents who can afford its luxurious homes. Nevertheless, market segmentation should not exclude target groups as required under the Act.
It is also observed that the population of Summerlin would continue to grow steadily. In fact, Summerlin experienced the “second-largest population growth rate of any sizable community in Nevada – second only to the city of North Las Vegas” (Jaffe 1).
Geographic
The geographic target market for Summerlin shares specific common attributes.
Neighborhood
Summerlin is a posh neighborhood with various amenities for residents. It has multiple, well-performing public schools, private schools, and other institutions of higher learning. It offers the ultimate upscale urban living next to the Red Rock Canyon. Besides, as a mixed-use community, most residents work within Summerlin in expansive office complexes.
Downtown Summerlin is considered as Nevada’s first true “edge city,” a dense cluster of upscale offices, shopping centers and entertainment districts outside central business districts on the Strip and downtown” (Robinson 1).
Summerlin is an accomplished neighborhood. Its physical location, public amenities, and other related facilities have increased its value.
Psychographic
Summerlin’s target markets consist of individuals with various lifestyles. As such, different amenities and housing units are available to appeal to these needs. For instance, most of the units offer entire lifestyle experiences created by a full complement of amenities, such as parks, golf courses, trails, community centers, shopping and dining, wellness, and cultures, as well as a wide range of events, including art festivals, fashion, and other locally organized events.
Given the above-mentioned factors, clearly, segmentation in the real estate sector is extremely complicated. In the case of Summerlin, the appraisal may not extend beyond Las Vegas to determine if an appraiser wishes to gather some market data. In fact, Summerlin has a sufficient population that can provide the required data. Nevertheless, it is imperative to gather data for market segmentation from other master-planned communities across the country and compare it with Summerlin.
Some researchers have noted that housing submarket models have generally concentrated on various hedonic prices across different cities (Goodman and Thibodeau 122). Today, however, it has become obvious that a more careful assessment of housing submarkets has to concentrate both on various quantities and/or elements of housing and on their diverse hedonic prices.
Housing market segmentation is usually linked to spatial variations in “structural characteristics, neighborhood amenities, or some combination of both” (Goodman and Thibodeau 22). For instance, Summerlin has presented different houses with different vintages across the desert. These are unique features, which cannot be easily changed or copied. Besides, such landscape in Summerlin is unique to that specific place. It shows how its houses in one community are different from the others in terms of floor plans, square feet, story, and various amenities available.
In fact, Summerlin clearly demonstrates it’s various social, public, events, other qualifying factors. To many home buyers who seek housing at Summerlin, the above-mentioned features cannot be substituted by other locations. In addition, the cost of transforming a landscape or a building to have distinctly unique features could be substantial. One must also be recognized that neighborhood amenities, such as golf courses, basketball courts, fields, open spaces, and other types of amenities found at Summerlin might not be easily transformed or duplicated in other locations. While Summerlin, like other master-planned communities, exists within the neighborhood of Las Vegas with its public schools, churches, within municipalities, and within urban locations, Summerlin has managed to create a signature lifestyle not found in other locations within Las Vegas and other states. In this case, potential homebuyers may not view other various areas as possible substitutes to Summerlin. Further, one must recognize that even if it were possible to develop or reproduce similar neighborhood amenities, the costs of doing so would be prohibitive. Besides, one cannot simply copy and reproduce Red Rock Canyon.
Conclusion
This essay has focused on Summerlin by looking at two perspectives, namely urban economics and market segmentation. These factors are important for the identification and assessment of the real estate market. It is understood that real market developers must choose specific locations that can appeal to demanders. In fact, location defines the possible success or failure of a real estate development project. Poorly selected locations can result in a failed project. Summerlin, on the other hand, is well located to appeal to various homebuyers. Besides, it offers various linkages to support homeowners and families of all ages.
While the real estate sector is an inefficient market, market segmentation can still generate some useful information to guide developers. Summerlin has generally appealed to affluent members of society.
Works Cited
Barzilay, Boaz, Izhak Schnell and Boris A. Portnov. Estimating the Effect of Location Externalities on Real Estate Values Using the Delphi Method. (n.d). Web.
Cannon, Susanne, Norm G Miller and Gurupdesh S. Pandher. “Risk and Return in the U.S. Housing Market: A Cross-Sectional Asset-Pricing Approach.” Real Estate Economics 34.4 (2006): 519-552. Print.
Goodman, Allen C. and Thomas G. Thibodeau. “Housing Market Segmentation.” Journal of Housing Economics 7.HE980229 (1998): 121–143. Print.
Jaffe, Herb. “Summerlin continues to grow despite the economic decline.” Las Vegas Review-Journal. 2012. Web.
Robinson, Jennifer. “How Summerlin helped shape modern Las Vegas.” Las Vegas Review-Journal. 2015. Web.
The Howard Hughes Corporation. Summerlin. 2016. Web.