Las Vegas is facing one of the deepest slumps in its history and it's being felt across the board - from the worst real estate market in the country, to falling gaming revenue, weak retail sectors, construction shutdowns, slumping tax base, budget deficits, high unemployment, etc.
For many of Economicrot's regular followers, this news is not new, as we've been documenting the LV downturn since 2006 (see "Las Vegas Downturn links" - scroll down right sidebar to locate).
Anyway, it's been a while since this Blog has covered anything related to Vegas, so allow me a few minutes to bring you up to date - a snapshot in time if you will.
Big Business Woes:
Yahoo News - Oct 2nd :
In Las Vegas these days, even billionaires are getting their credit checked. On Sept. 30 Las Vegas Sands founder Sheldon Adelson announced that he would ante up $475 million from his personal fortune to buy preferred stock in the company, which will pay 6.5% interest over five years. Adelson's notes will convert at $49.65 per share, a considerable climb from the $31 at which they currently trade. The move shored up Las Vegas Sands' balance sheet. Without the extra cash, the owner of the marble-lined Venetian resort, with its Canyon Ranch spa and indoor gondola rides, would have found itself in violation of its bank loan agreements.
It's like that all over Sin City right now, as the casino industry there faces the steepest slump in its history. In July, casino revenues on the city's famed Strip fell 15%, to $820 million. They are down 7% citywide so far this year. Shares of many top casino operators have sagged 70% from their peak last year. Las Vegas Sands' stock dropped 13% on Oct. 1, after Standard & Poor's said that despite the cash injection, the company remains under review for a possible downgrade because of weak business conditions and a potential slowdown from Sands' Macau operations.
Next door to the Venetian, mogul Stephen Wynn has been busy negotiating with his bankers. With profits at his flagship Las Vegas resort down 28% in the second quarter and a new $2.3 billion casino hotel due to open in December, Wynn paid $4 million in fees and persuaded his grumbling bankers to change the covenants on his loans in mid-September. The moves allow Wynn Resorts to maintain a higher debt-to-cash-flow ratio without having to pay higher interest rates to lenders. "We wanted to make sure the banks didn't have too high an expectation for us," Wynn explains, "just in case things get worse."
Wynn's old company, MGM Mirage, is busy trying to raise the additional $500 million it needs to complete a $3 billion bank financing for its giant CityCenter project on the Strip. The $9.2 billion resort, due to open in December 2009, is the largest private construction project in the country. MGM and its joint venture partner, the investment firm Dubai World, may end up kicking more of their own money into the project. But the partners may face more hurdles next year if they can't sell all the condominiums they hope to at the site. UBS casino analyst Robin Farley figures CityCenter will still have as many as one-third of its 2,600 condominiums unsold by opening day, meaning the cost to MGM and its partner will rise by another $600 million.
The tough financing environment has prompted some operators to delay projects. In August, Boyd Gaming shelved its $4.8 billion Echelon resort after encountering difficulties financing a mall and two hotels with joint venture partners. Nine floors of the main tower had already been built.
Casino operators are trying to lure gamblers with discounts and other promotions. Anthony Curtis, who runs Las Vegas Advisor, a magazine and Web site for bargain-hungry Las Vegas visitors, says the discounting is most evident in room rates, some of which are down as much as 30% from last year. Casinos are throwing in other perks as well.
Reached on Sept. 29, shortly after the House of Representatives voted down the proposed $700 billion bailout package, Wynn was furious -- but not because Congress failed to pass the proposal. "I am totally disgusted as an American by the leadership shown by both parties," he said. Wynn thinks Washington should force bankers to renegotiate loans to troubled homeowners, much as they have for the big Las Vegas operators. "Those assets should stay where they were created," Wynn screamed. "Bankers will say tomorrow, 'O.K., let people stay in those homes.' (Home prices) will go back to $250,000. The people that live in them will pay what they can afford." And then, just maybe, they'll plan Las Vegas vacations again.
Wall Street woes hit on, off Strip - Oct 3rd
Wall Street financial woes have played havoc with the Las Vegas real estate and development community, but even with a congressional bailout package, the future remains dicey for some projects.
The national credit crisis has hit all sectors of the development community from housing to office to retail.
The postponement in August of Boyd Gaming's Echelon, which was under construction when it was halted, reflects the tough conditions in securing financing.
The current environment is going to create challenges for all sectors of the economy, especially the development community that needs capital, said Brian Gordon, a principal with Applied Analysis. Not only have there been delays in projects on the Strip, but projects valleywide could be pushed back because of limited access to capital, he said.
"There are a number of planned office, retail and industrial projects throughout the valley that are not only competing with existing product on the market today, but also with financial markets for limited capital," Gordon said. "That will likely cause a shift of timing or cancel plans altogether."
Las Vegas has been at a greater risk than the rest of the country because its housing meltdown was greater than the rest of the country's with homeowners losing more value. The city is also at risk because it relies on tourism and any economic slowdown cuts into travel.
Many homebuilders have had their lines of credit called back from the banks even when they are in full compliance with their loans, Sullivan said. Without that access to capital, they have to cut back their operations and halt projects. It has been a challenge for six months and gotten progressively worse, he said.
Monica Caruso, spokeswoman for the Southern Nevada Home Builders Association, said in addition to all the challenges homebuilders face when it comes to lenders, the current crisis makes it tough to sell a home when someone with a credit score exceeding 700 can't get a mortgage.
Las Vegas Job Market Woes:
Harrah's Entertainment plans to lay off more workers - Oct 4th
Harrah's Entertainment confirmed it is preparing another round of layoffs and hourly reductions at its Las Vegas properties.
Company officials late Thursday declined to say how many workers will be let go.
"The country is experiencing a historically difficult economic period," said Jan Jones, senior vice president of communications and government relations for Harrah's. "The gaming industry, as nearly all consumer business in the country, has been negatively impacted by the difficult circumstances of the economy."
The casino operator, which owns and operates Paris Las Vegas, Bally's, Bill's, Flamingo, Imperial Palace, Harrah's, Caesars Palace and Rio locally, has already cut nearly 1,500 Las Vegas jobs this year, according to an article published last month by Reuters.
The decision comes as revenue and visitor volume to the Strip continue to drop.
Harrah's is not alone in continuing to cut jobs and adjust employees' hours as businesses across the valley continue to adjust to the economic downturn.
Bill Lerner, a Las Vegas-based gaming analyst for Deutsche Bank, said some properties have been closing off gaming table pits for extended hours, cutting restaurant hours and even closing rooms in hotel towers.
"All of those carry employment," Lerner said. "Over the last two to three weeks, the behavior of visitors to Las Vegas has changed noticeably. They're spending very differently, and less, than they were prior to that. It's 100 percent related to the things people are watching on CNN and CNBC with the economy and the credit environment."
MGM Mirage, which owns 10 properties on the Strip, has cut nearly 1,500 jobs this year locally, according to the Reuters article.
Station Casinos conducted another round of layoffs in early September, saying the number of employees who were affected represented "a very small percentage" of the workers at its 17 properties.
Las Vegas' unemployment rate hit 7.1 percent in August, the highest rate since July 1993 when the rate was 7.2 percent, according to the Department of Employment, Training and Rehabilitation.
Jacob Oberman, director of gaming research for CB Richard Ellis, said the housing market will need to rebound before consumer spending returns and the job cuts slow.
Nevada's jobless rate will increase - Oct 3rd
Economic forum told state is in a recession - CARSON CITY -- Unemployment in Nevada will jump to an average monthly rate of 8.6 percent next year and remain at that rate in 2010, state economists told the Employment Security Council on Thursday.
"This is sobering news," Employment Security Division Administrator Cindy Jones said after economists on her staff made the prediction.
If Nevada's unemployment reaches 8.6 percent in 2009, it would be the highest rate since 9.7 percent in 1983. The state's jobless rate in August was 7.1 percent, the highest in 23 years.
Anderson and economist David Schmidt said the state economy has been sputtering because of the crash of the real estate market, the decline in home values and the reluctance of residents to spend what money they have.
Anderson said that in the past, employment jumped dramatically after the opening of each megaresort in Las Vegas, but this isn't happening anymore. The City Center project on the Strip is expected to employ 12,700 people when it opens in November 2009, but the state's jobless rate will increase even with this project, he said.
Poor Economy Translates Into More Las Vegas Layoffs - Oct 3rd
Las Vegas' tourist driven economy is feeling the impact of tighter budgets as local businesses are forced to layoff workers.
Westgate Resorts books time shares for Planet Hollywood but today the nation's largest timeshare company shed hundreds of workers. They've been saying it for years, "Build it and they will come." However, the financial crisis has put the construction of some new Las Vegas resorts on hold.
Kahndijah Carter and Ashley Simms were laid off. "We are all laid off. I have been at this job almost a year so it's really hard," said Carter. "No one is safe right now. I never though this would happen," Simms said.
Simms and Carter both worked in the call center, selling timeshares and vacation packages. But Westgate officials say the occupancy numbers just weren't looking good in Las Vegas and the economy is to blame.
"A lot of people aren't going to be able to travel in and you don't need to make as many reservations," Froehlich. He couldn't say how many people were laid off. Simms says it was at least 200.
Layoffs Hit Sunrise Hospital - Oct 2nd
Sunrise Hospital laid off 57 people Thursday, citing money as the reason. They came from all over the hospital, from medical to administration, and this may not be the end. The cuts equate a two-percent reduction of the overall workforce.
The two big reasons were more uninsured patients needing treatment and fewer insured patients electing to have procedures done. The State of Nevada also announced last month it was cutting Medicaid and more than half of the patients in the children's hospital here are on Medicaid.
Las Vegas Housing Market
Metro U.S. Home Prices Fall on Higher Foreclosures - Oct 2nd
Home prices dropped in 24 of 25 U.S. metropolitan areas in July, led by declines in Las Vegas and the coastal cities of California, as foreclosures depressed prices and accounted for a fifth of all sales.
Las Vegas had the biggest drop on a per-square foot basis, falling 33 percent in July from a year earlier, New York-based real estate data company Radar Logic Inc. said in a report today. Los Angeles, Phoenix, Sacramento and San Francisco each dropped about 28 percent. Three of the five worst-performing markets were in California.
``Buyers are increasingly reluctant,'' Radar Logic Chief Executive Officer Michael Feder said in an interview. ``There has been an awful lot of talk about the declining of the housing markets.''
Foreclosures/Homelessness
Addressing the Las Vegas foreclosure crisis - Oct 2nd
One of the unfortunate outcomes of the housing slump in the Las Vegas Valley is the effect the record number of foreclosures is having on neighborhoods. Entire city blocks resemble checkerboards of properties for sale or in foreclosure mixed with homes that aren’t on the market.
Sadly, many of the foreclosed homes have yards that have not been kept up. Multiply that by several homes on a block and you have a neighborhood many prospective buyers may want to avoid.
New face of Valley homeless - 3 times the number of homeless vs same time last year
The struggling economy continues to hit Main Street hard. More and more families are losing their homes, forcing some to live on the streets.
Catholic Charities says they've noticed that within the last several months, the face of the homeless has changed. It isn't just the single male sleeping on the streets anymore. Now, it's the family who was once living on easy street.
"Mary" is a mother of three. She and her husband both have jobs, a large mortgage, and a car payment. And, like many valley residents, they are just trying to make ends meet.
"Bills were due - we just needed a little help for today," says "Mary." "It's costing us more because we have a $1,295 mortgage, car note, kids expenses, diapers..."
Phillip Hollon with Catholic Charities says their role of helping only those people without shelter has drastically changed over the last year.
"Last year at this time, we were serving about 50 families on any given day. Now we're serving about 150 families on any given day," explains Hollon. "‘It's a very different clientele than we've seen in the past. Many years ago, people were on the street walking to us. Now they're driving to us."
Because of the housing crash, high gas prices, and inflation, more and more families are asking for help. And some are even ending up on the streets.
"The types of individuals we're seeing are struggling to make ends meet," says Hollon. "They're forced into making decisions - whether they can pay their rent, or their car payment, or putting food on the table."
Within the last few months, Catholic Charities has seen the number of hot meals they serve dramatically increase from around 600 to over 800 every day.
"We've been struggling ourselves to try and help the community," says Hollon. "With all the needs that are out there, it has tripled in the past year."
Linda Lera-Randle El runs "Straight from the Streets." She says the increase is so great, that the state needs to step in and help out because things are bound to only get worse.
"Poverty is usually last on the list," explains Lera-Randle El. "It's the hardest hit and it's going to cost the most. It's just like a natural disaster almost - only it's with us always."
Regards
Randy
8 comments:
My friend. Great update on the latest in Vegas and neat Vegas sign. As a local, I keep getting flooded with more and more free room offers. I can't wait to get a free suite at the Wynn or Caesars. So there is an upside. The unemployment and homeless rates are most troubling. But, on another upnote, the church I attend(Central Christian) has both grown and had an increase in giving this year. And I'm not talking about subtle growth, but 2 new campuses and thousands of new members. As for the stocks you mention, I'm thrilled I sold my Sands stock at $131. That was my best stock decision of the year. I never imagined the stock landscape would look as bleak as it does today. I'm better off at the craps table than I am investing in any stock. That is really scary when you understand the odds. But it is absolutely true. Thanks for the Vegas post--time to go for a walk and count the foreclosures along the street. Barry228@aol.com :)
So Randy, I'm confused. Are you saying Las Vegas is recession-proof? I think you might want to reconsider that stance.
Barry, certainly is good to hear from you. Agree with the Church observation - at least twice a month at our church, serious discussion about problems w/local charities not being able to keep up with the tremendous increase in demand.
Regarding foreclosures: Even the high-end has not been spared... In the exclusive, gated, Toll Brothers community where I rent for pennies on the dollar, foreclosures are picking up steam... I now have foreclosures to the immediate right & left of me and they are beginning to dot the entire street.
Example: My daughters friend up the street, who's father owns a (once lucrative) construction business is having to move this weekend - they received a 3-day eviction notice late last week. Seems dad's business hit the wall during this downturn and their close to $10K mortgage (after reset) could no longer be made.
Homes here, which were going for > $1M during the peak, are now fetching ~ $450-$500K through the bank foreclosure process.
Side note: Still way too much - I expect we'll see the high $200K or low $300K range in this neighborhood before the downturn is over.
FoFoa - Where did you get that idea?
I've been predicting all along that this LV downturn will be the WORST EVER experienced and my viewpoint has not changed.
Example: some of my thoughts from 2007 below:
Las Vegas’s economy has been completely dependent on the discretionary spending of vacationers (Airlines, Hotels, Restaurants, Shows, Gambling, Drinking, Strip Clubs, etc) and the city lacks any real or substantial diversification. When tourism & discretionary spending finally start to decline (due to National negative savings rates, rising inflation and falling home values), gaming revenues will drop, hotel occupancy rates will fall, and thousands of layoffs will follow.
Those locals who find themselves unemployed will quickly find that they have very limited options, as the entire hotel & gaming industry will be feeling the same economic pains. The lack of industry diversification in the city will be a killer!
Currently, with housing values falling, the wealth effect is under strain and many people are having difficulty understanding what has happened to the housing market, while most are still holding on to the false hope it will recover somewhat quickly.
In the meantime, these folks have a mortgage that must get paid, all while coping with higher gas, food prices, tuition, insurance, energy bills, etc. Many are already strained to the max and the black hole of upcoming teaser rate mortgage resets will finally set them over the edge. (Note: refinancing will not be an option for those who have purchased within the last 3 years because they are already underwater; additionally many who have owned for decades used the cheap rates and housing boom to extract available equity--to live beyond their means; so they too cannot refinance).
This same issue is beginning to impact millions from across the nation!!!
Additionally, the home ATM machine that people used to draw money out of regularly has finally dried up, so they have ended up resorting back to the credit cards (the same ones they paid off with that home equity line of credit last year) just to make daily ends meet.
This is going to end horribly!
BOTTOM LINE: When tourism starts to wane, due to people running out of discretionary cash, gaming/hotel industry layoffs will follow, cascading the impacts of the already doomed Valley housing market, as more locals will be unable to meet their monthly mortgage obligations.
Reduced spending levels, increasing layoffs, magnified home foreclosures and tightening credit conditions will cause a doubly painful domino effect on the Commercial real estate market and in due time, the impacts will be extremely painful to the entire economy. .. State Tax revenues will fall, budget cuts will follow and the increasing number of government layoffs will only exacerbate/compound the situation.
I think one of my readers summarized the situation best: “ Las Vegas lives off the margin. Good times, fat margins; lean times, no margin. LV has no plan B, there's nothing to take up the slack from a decrease in visitor volume. Even dollar rich foreigners aren't going to hold up employment that is based on a volume service industry and housing construction.”
Closing:
Thus far, those 2007 words have proved to be pretty accurate.
No, my position has not changed: This town is massively overleveraged and is completely dependent on consumer discretionary spending (tourism/gaming) which is coming to an end.
Analogy: The Party is winding down and the drunks are staggering over to their cars... It certainly was a great time and the party kicked ass, but the cops are waiting with a DUI checkpoint around the corner. Tomorrow, many will wake up in a tiny little cell with a massive hangover and only then will they start to realize that their life has forever changed.
Yes my friends, Vegas held a once in a lifetime party from 1995-2006 and 2007-2008 can be equated to the drunken attempt to drive home - yet we're still in too much of a stupor to realize what's taking place.
When we wake up tomorrow (2009), life will be far more difficult and reality will begin to sink in.
Was it worth it?
Bottom Line:
No Fofoa, my position has NOT changed. LV is ALREADY in a recession and the economic situation will get far worse in the coming months/years.
Regards
Randy
If you are job hunting in vegas or wnywhere I guess, About.com added 3 new sites to their top 10 job site list if anyone is looking for work.
www.linkedin.com (networking)
www.indeed.com (aggregated listings)
www.realmatch.com (matches you to jobs)
good luck to those searching jobs.
Randy,
I apologize for my dry sarcasm on a serious subject. I thought it was obvious. But don't worry, your position is clear and always has been. Indeed, your words from then are even more true now. The drunk partygoer analogy is very apt. Not only do most people not know what lies ahead, but they are also impaired by past ways of thinking which will make it that much harder to get through tough times. To remove debt and live with only what you can actually afford today is a foreign concept to a lot of people.
FOFOA
Fofoa,
No apology required. I assumed as much but couldn't be sure and as a benefit of those who may have just stumbled upon this post, clarity was required.
Note: This blog has ~ 400-500 daily regulars (return readers) who are aware of my position on LV, but many hundreds more stumble in and/or are refered (for the first time) and don't know it.
So the comment was as much for them as it was for the unlikely case that your question was serious.
I appreciate the followup reply though - and completely agree.
Randy
Hi Randy,
Just checking in. I wasn't there in '83 but the town was still feeling the effects of that recession in 1985 when I moved there and was looking for a house. No builder would start a house at that time until he had a contract. And back then one could make a case that LV had a somewhat diversified economy with Nellis, NTS and other government work. But gaming exploded and retirees from everywhere created a building boom that has dominated since. I moved out during the recession of 1991, but I had sold my house a year earlier for about what I had bought it and was renting by the time I had to move.
The reason I check in at your site is that my mom was one of those retirees moving to LV. I wonder if it is safe for her to live there anymore. When I visit her LV is unrecognizable to me.
The problem isn't that the economy here needs to be more diversified. The problem is two-fold:
1. The economy got TOO diversified. way too many people living here who enjoy the lack of income taxes, but do nothing to contribute to the huge gaming/tourism machine that has always done a pretty good job of forming our tax base.
The infrastructure and education demands of the hundreds of thousands of new, "non-contributing" residents played a big part in the state budget crisis. In the case of Las Vegas, growth does not pay for growth.
2. Too many upscale resorts and condos were built. Las Vegas' core for the past few decades has been an affordable (some might even say cheap) vacation as compared to what a vacation to another city would cost.
This is why Las Vegas was considered recession-proof. While some people simply wouldn't come to Las Vegas in tough times, they were replaced by people who were picking Las Vegas as a "less expensive" alternative to their usual vacation plans (Hawaii, Europe, and similar).
I feel for those hurting financially and losing their homes here, but this "flushing of the toilet" has been needed for quite some time. This was never a great town to raise a family and far too many California expatriates didn't realize that with our lower housing costs come lower wages.
Those moving here the past few years during unusual boom times actually thought that kind of economy was the norm. Anyone could open a store in a strip mall and make a good living.
No longer. Commercial property is vacant all over the place. Growth has come to a stand-still.
For the long term health of Las Vegas, this is a good thing.
Ted Newkirk
Managing Editor
Access Vegas Insider Vibe
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