Las Vegas: collapsing house of cards
Quite a surreal experience trick or treating with my 8-year old daughter last night - where the recessionary impacts could be seen everywhere. Nearly 1/2 of the homes in our gated, upper-end community sat dark and unoccupied as a result of previous or ongoing foreclosure, and most of those occupied - unlike years past - were not even moderately decorated for the occasion. Additionally, a vastly reduced number of kids roamed the streets searching for homes with a light on... We even ran across a few occupied homes where the families weren't participating at all. When the doorbell was rung, internal lights would be turned off - Suggesting: "Please go away, we're not playing this year".
I can only imagine how bad Christmas will be in 2008.
Below are a few recent Vegas articles - indicative of our extremely poor economic condition
Travel: Las Vegas the worst of US Economy’s Five Biggest Losers
About 500,000 fewer people flew to Las Vegas last month, with flights to Sin City dropping 13.2 percent in September. Conventions and tradeshows, which account for $6 billion in annual revenue, were down 22 percent in August and 3.4 percent for the year. Thanks to tight credit, many projects are on hold or may never be realized, said Nevada State Treasurer Kate Marshall. Las Vegas leads the nation in foreclosures, and the resulting construction and ancillary jobs lost have made this a tough time for residents and businesses alike. Worse, now its rooms and restaurants are so discounted that Las Vegas is being touted as the bargain bin of travel destinations. Perhaps the Las Vegas Review-Journal captured the atmosphere best: The “woes of the airline industry, dire economic news and an emerging recession are battering a Southern Nevada economy that blossomed with cheap oil, easy consumer credit and the boom in home and property values
Nevada turns 144, but what’s to celebrate?
Happy birthday, Nevada.
Today marks 144 years since Nevada became a state, on Oct. 31, 1864.
Yet residents could be forgiven if they’re not in the mood for celebrating this Nevada Day. These are dark times for the Silver State.
Our state’s economy is, by one analysis, the worst in the nation. We lead the country in foreclosures. We have the fifth-highest unemployment rate. Our signature industry, which some claimed was recession resistant, is in the tank. And our governor, in his latest embarrassing headline, is again defending himself against allegations he tried to rape a future constituent during his campaign.
Nevada is in a funk, bordering on depression.
How about a side of Prozac with that birthday cake?
Richard Bryan, who was governor from 1983 to 1989, then a U.S. senator until 2001, acknowledged these are tough times for Nevada.
“This is an experience which Nevadans have not known before,” he said. “In previous economic downturns, since World War II at least, we were the last impacted and the first to recover.”
MGM Mirage earnings dive 67% as Vegas begs for tourists
It’s crunch time for Las Vegas’ casino giants, as the stumbling economy slashes tourist traffic: MGM Mirage today said third-quarter net income dived 67% as room vacancy rates rose and gambling revenue sank.
The owner of the Strip's Bellagio, Luxor and Circus Circus resorts said revenue per available room, a measure of rates and occupancy, slipped 10% on the Strip as occupancy dropped to 95% from 97% a year ago, and the company charged on average $12 a night less for rooms ($135 versus $147 a year ago).
- Gambling revenue fell 8% across all of MGM's properties
- Food and beverage sales dropped 3%
- Entertainment revenue decreased 4%
- McCarran airport passenger traffic slid 13% in September
Struggling companies rethink worker bonuses, incentives
What's a company to do when its employee incentive plans fail to deliver?
This question struck close to home when MGM Mirage announced it has canceled its year-end bonuses and nonequity incentive compensation for this year as reported by the Las Vegas Sun, sister publication of In Business Las Vegas.
Undoubtedly, other local companies will be making similar decisions when evaluating their performance.
A recent national study shows employee compensation plans are taking a hit in the current financial climate.
"Decreased earnings and a falling stock price will destroy the value in most companies' annual incentive and long-term incentive plans," the study said.
With the unemployment rate on a steady climb - the most recent national rate for September was 6.1 percent, Las Vegas' was 7.4 percent - retention isn't a major factor in whether an employer decides to change the incentive plan, the study said.
Boyd's Echelon project: Going nowhere fast
Boyd Gaming Corp. will take most of 2009 to evaluate alternatives for the halted $4.8 billion Echelon, although the company's CEO on Tuesday ruled out selling the project.
Chief Executive Officer Keith Smith said the company's options range from reducing the scope of the Strip development to bringing in new joint venture partners. He said a sale of the 87-acre site was not in the plans.
"It's not a blank sheet of paper anymore, but we need to look at alternatives,"
During Las Vegas based-Boyd Gaming's third-quarter earnings conference call with analysts, Smith said construction of Echelon, a 5,000-room multiple hotel development, would not resume in 2009. The company stopped the project Aug. 1, saying it hoped to resume construction in nine to 12 months.
"Our long-term strategic direction for the company is to have a significant presence on the Strip," Smith said in an interview following the conference call. "That is still our current view."
One joint venture partner, Morgans Hotel Group Co., is all but out of Echelon, even though its agreement was amended. The agreement with another partner, mall developer General Growth Properties Inc., was dissolved earlier this month. General Growth is in serious financial trouble and put several of its Las Vegas retail sites up for sale on Monday.
Smith believes the company made the correct decision to stop Echelon, which now has three steel-framed hotel towers sitting at nine stories each. The project was not so far along that the company couldn't reconfigure the site. He said Boyd will spend about $150 million over the next few quarters to finish some of the site's steel fabrication.
Deutsche Bank gaming analyst Andrew Zarnett said the company needed to do something to boost its Las Vegas locals business following a 25.5 percent decline in adjusted cash flows during the quarter.
"This is quite illustrative of the erosion taking place amongst local Las Vegas operations," Zarnett said in a note to investors. "We expect this data point to continue to grind down as we go deeper into this recession. The current slump in the locals market is likely to persist through 2009 as unemployment, job layoffs, stoppage in construction projects, decline in discretionary consumer spending and more home foreclosures continue to add pressure on the locals economy."
As Las Vegas Slumps, Wynn Doubles Down
Casino companies have been slashing costs, delaying projects or looking for fresh capital as they grapple with the worst drop in consumer spending in years.
And then there is Steve Wynn. His company, Wynn Resorts Ltd., is installing Italian tile and crystal chandeliers as it prepares for the December opening of Encore, a $2.3 billion resort expected to hit new heights of glitz even by this city's standards.
Mr. Wynn's decision to continue to spend lavishly during one of the worst crises to hit Las Vegas in years may seem foolhardy. But so far, investors have rewarded him ...
(My thoughts: As the local economy dives deeper into a funk - and fails to rebound quickly - he'll very likely regret this risky move. In this economic environment it will be difficult to convince people to pay $300 a night for a room when one can be had for $135 at MGM right down the street.)
Nevada Has Highest Percentage of 'Under Water' Households - 48% are upside Down
Nevada leads the U.S. in the proportion of households whose mortgage debt exceeds the current estimated value of their homes, a condition known as being "under water," according to a new study.
First American CoreLogic, a real-estate data firm based in Santa Ana, Calif., estimated that 48% of owners of single-family homes with mortgages in Nevada are under water. That compares with 18% nationwide.
First American said it based its estimates on data for 42 million properties, accounting for more than 80% of U.S. home mortgages.
Many Americans are under water because they bought homes at or near the peak of the housing boom and put little or no money down. Home values in the Las Vegas metro area have fallen 36% since peaking in early 2006, estimates Zillow.com, another real-estate data provider.
Las Vegas Is Flush With Empty Houses
LAS VEGAS There are 6 million empty homes in the United States. Or 6.2 million, to be slightly more precise. Empty houses are normal to some extent -- part of the usual friction of building, selling, renting. But ask the people who study the numbers, and who understand the "overhang" in housing inventory, and they'll tell you: This country has about a million homes too many.
Thousands of them are right here. From an airplane, this valley appears to have been flooded in a biblical deluge of subdivisions. Las Vegas, a dusty rail stop a century ago, has been the fastest-growing urban area in the nation for two decades and is now a desert metropolis of 2 million people. The vast majority live in developments that sprawl to the edge of the mountains.
The overabundance of houses in Las Vegas and elsewhere played a major role in creating the nation's financial crisis -- and, via toxic securities, the global financial crisis. The road to recovery also goes through the housing market. What's taking place here is something of a war of attrition, empty house by empty house.
It'll take a couple of years to burn through the excess inventory, estimates Jeremy Aguero, principal analyst with the Las Vegas research firm Applied Analysis. "We're probably looking at an overhang of about 28,000 homes," he said.
The solution, local executives say, will come not from Washington policymakers but from the market itself. When there are too many houses, builders stop building them. That has already happened, and many Vegas home builders have gone out of business. Construction workers, meanwhile, suddenly find themselves dealing blackjack.
Steven Lu is shopping for a house. It's a lot like scavenging, for there are thousands of foreclosed "bank-owned" properties. Banks sell them at steep discounts, eager to get them off the books. A savvy buyer will have the keen vision of a buzzard.
Lu eventually made an offer on a four-bedroom foreclosed property on Soda Canyon Street in the southwest part of town, said his real estate broker, Coco Wang. When built at the peak of the housing boom in 2005, the house sold for $354,000. But like so many people, the owner watched the value plummet. The owner defaulted, and the bank put the house back on the market for a song -- just $149,000. Speculators swarmed.
Lowball appraisals are obstacle for new—home purchases
At a time the new-home market remains weak, lowball appraisals are giving homebuilders another stumbling block in any sales rebound, according to the Southern Nevada Home Builders Association.
Even buyers who are able to line up mortgages are finding that lenders are making them come up with a bigger down payment because appraisals are coming in lower than the home is selling for, says Monica Caruso, the association's spokeswoman. Sales are falling through because of it, she says.
Even homes with upgraded amenities and features such as granite countertops are being unfairly downgraded, Caruso says.
"You have people who are working and struggling and saved 20 percent on a down payment on prices they thought were reasonable, but it is not enough, based on the appraisals," Caruso says.
The building industry has talked with appraisers about the comparison of new homes to existing homes, a problem that surfaced in late September, Caruso says. Hopefully, appraisers will make changes in their process, she says.
It's another obstacle for builders to overcome in a market that has seen some companies shut their doors or close their sales office.
"For some of the homebuilders, this is a final nail in the coffin," Caruso says.
(My thoughts: "low ball appraisals" are driven by the falling price structure created by a massive foreclosure market. What one needs to understand is: The foreclosure market IS THE MARKET and these homes ARE moving - volume of sales is good. Bottom line: Price new homes lower and they too will move. Don't blame your problems on "low ball appraisals".)
So, how low will prices go for the Vegas Housing market?:
Las Vegas homes for $60 a Square Foot?
Even Condo Buyers are feeling the pain:
Upset condo buyers want cash returned - Delayed opening irks Cosmopolitan customers
A few Cosmopolitan condominium buyers who signed contracts as long as 3 1/2 years ago have been asking representatives of the Strip development to return their deposits after learning the project won't be completed until the second quarter of 2010.
No estimated closing date was ever given, however, on a series of signed purchase and sale agreements. Also, the agreements say the seller is "not liable for delays" and any "delays will not permit buyer to cancel, amend or diminish any of the buyer's obligations."
Bill Lackey, a former real estate agent from California, said he began asking for his money back a few months ago when it became apparent the project would not be completed for a couple of years.
He points to an April 14, 2005, property report that reads, "The delivery of the deed is estimated to be on or before January 2009."
"By the time they're projecting that they're even going to attempt to complete it, in pretty vague terms, the money will have been sitting (in escrow) for five years," said Lackey, who put in nearly $140,000 in deposit money in May 2005. "I thought now that the developer has put into writing that the project wouldn't be ready until 2010, he's admitting he's in default."
Another buyer, who declined to let his name be used but provided a copy of his contract, put down nearly $180,000 for an upper floor condo in April 2005 when the project was being built by New York-based real estate developer Bruce Eichner.
Eichner lost control earlier this year when a syndicate of banks led by Deutsche Bank took over the project after Eichner defaulted on a $760 million in construction loans.
The buyer said he wants out of the project because he is unsure about when it will be completed and who will own it in the end.
Lackey and the other buyer expressed concern that Eichner used the money held in escrow, estimated to exceed $25 million, to pay for construction.
Lawyers for the Cosmopolitan declined to comment on the contracts. A call to the listed real estate agent on the contract was not returned.
It's going to get worse before it gets better
It's an ugly situation. We live in the foreclosure capital of the country. Once again we're No. 1, but in this case it's nothing to be proud of.
In Las Vegas the economy is a highly visceral experience. When things are good in America, they are really good here. When things are bad nationally, they are really bad here.
We all know about the woes of Wall Street, the auto industry and the newspaper industry. We feel those waves here. But in Las Vegas, the waves have the force of a hurricane.
The collapse of the Las Vegas real estate market is kid stuff compared with what appears to be unfolding in the tourism industry. Tourism is such a big deal in Las Vegas that reporters file monthly stories on the numbers: gambling revenue, visitor volume, hotel occupancy, airport activity. We follow these numbers almost as closely as the presidential polls.
The numbers have not been good lately. McCarran International Airport reported last week that its September traffic was down 13.2 percent from the same month a year ago.
From the macro to the micro: We also follow the quarterly reports of our casino companies. These haven't been good lately, either.
For decades, Las Vegas politicians have talked about "diversifying the economy." We all know that tourism built this city and can be extremely lucrative, but it also carries the risk of a big downturn caused by events beyond the industry's control.
Gaming actually fared pretty well in the past couple of recessions, and it powered past the 9/11 tragedy with impressive alacrity. But this time it's different. This is something the industry hasn't seen in more than 20 years.
Of course, that rhetoric about diversification has never gone anywhere, leaving Las Vegas as vulnerable as ever.
Las Vegas will rise again -- I firmly believe that -- but it's in a world of hurt right now. And things seem destined to get a lot worse before the tide turns.
GAMING VIDEO - Look How Bad:
Here's a little (bad quality) video clip that I found (Curtfletcher.com) illustrating how slow business is at some of the Major casinos. This one was taken at the Monte Carlo Hotel last Sunday.
NOTE: The Rumor Mill is BUZZING - Some of the Bees believe the Monte Carlo may shut down soon. From what I understand, several supervisors have been receiving notices that it may be prudent to start looking for other employment. Guess only time will tell.
For those of you interested in reading more about the LV economy, see recent links below. Note: many more links can be located on the right side of my blog - scroll down until you reach the header "** Las Vegas Downturn**"
Las Vegas Economic Roundup - 28 Oct
Weakening Pulse of Las Vegas's Economy - 19 Oct
Las Vegas' Losing Streak - 4 Oct
Las Vegas: Take our rooms please! - 30 Aug
Las Vegas Economic Recession is here - 31 July
Las Vegas: Gaming Revenue down > 16% - 13 July