Las Vegas' Losing Streak - Unemployment highest since 1993 - Homelessness growing

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

Las Vegas homes for $60 a Square Foot?

Since the beginning of the Las Vegas housing downturn back in 2006, I've told folks to expect Las Vegas home prices to revert back to 1999-2000 levels - an average of ~ $60-$65 a square foot. Early on, many laughed and thought it impossible. These days however, though we're not quite there yet, many are alarmed at how quickly my outlook is panning out to be future economic reality.


Allow me to share with you a few examples of what I'm talking about:


The first property I'd like to show you is:

Realtor.com listing Detail 9565 GONDOLIER ST, LAS VEGAS, NV 89178

Located in Mountains Edge, a Master-Planned Subdivision on the South side of town, this home offers a new buyer 5 Beds, 3 baths and 4,449 Sf of luxury for $379,900 - approx $85 a square foot.

Note: This home is currently bank owned - they swallowed $763,636 in unpaid debt on 7/15/2008. Thus, you can get this home for 51% off what the bank actually owes

The second property is:

Realtor.com listing Detail 6224 FOXHUNT ST, Las Vegas, NV 89130

Located in the "New-North" side of town (off No. I-215 and I95), this home offers 5 beds, 3 baths, and 4331 Sq Foot on .52 acres of land for $335,900- approx $77.5 a square foot.

Note: This home is also bank owned and they assumed $695,628 in unpaid debt on 1/28/2008. So, this home is being offered for 52% off what the bank assumed

The third property is:

Realtor.com listing Detail 9022 GREEK PALACE AV, LAS VEGAS, NV 89178

Once again located on the south side of town - in the Mountains Edge, Master Planned Community - this 5 bed 3 bath home of 4,264 Square Foot is being offered at $325K - $76 a Square foot

Note: This home is privately owned - the individual paid $640,717 to Ryland Homes back in March 2007. So, this home is actually being offered at a 49% discount from the 2007 purchase price.

The last property is:

Realtor.com listing Detail 9308 HARROW ROCK ST, LAS VEGAS, NV 89143

Located in the far North West side of the Valley, this home offers 9 Bedrooms, 4 baths and 6,087 Square foot of living space, situated on .21 acres - for $388,550 - $63 a Square Foot

Note: Once again, this home is bank owned and they assumed $641,860 of unpaid debt on 3/20/2008. Current price is 40% off what the bank assumed.





Closing:

Though the examples above are the exception and not the rule (yet), prices here are falling fast and I don't think it will be long before my ultimate price outlook comes to fruition.

Note: For personal integrity sake, and ease of sorting through thousands of listings, I chose newer, larger homes in desirable locations for my examples and could have showed better overall deals per SF, but due to bad locations and/or home conditions, that would not have honestly served my readers.

Feel free to look for yourself: Link to homes in Las Vegas > 4,000 SF (If you look at the link, note the first listing comes to $58 a SF, but it's in a crappy area; listing #3 is a great deal, but the home was built in 1984, etc)

Currently, there are over 28,000 for sale in the Valley and the median price is down > 30% YoY(thus far).

With foreclosures increasing by the day (I have them on both sides of my beautiful Toll Brothers rental property w/pool - and there are many more throughout this gated neighborhood) - I figure we're around 50-60% of the way to the ultimate bottom for Las Vegas house prices.

Bottom Line: $60-$65 SF median prices are nearly here...


BTW:

If/when any of my readers are interested in buying here in the Valley, I would highly recommend a fantastic realtor friend - a hard working man of integrity, who has more than gone out of his way in the past to help out my family when faced with a difficult housing predicament. I've used many realtors throughout the years and can unequivocally state "he's the best"

Give him a call - you won't be disappointed.

Gary Wittman
Realty One Group and a member of Foreclosure Express
Office: 702-743-5172
E-mail: wittmangary@yahoo.com



Best regards

Randy

Economicrot.blogspot.com

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Las Vegas #1 Again!

Home prices plummet in a new record

National prices fell 15.4% in past 12 months. Las Vegas was the worst-hit city, while Denver and Boston saw the biggest price increases.

NEW YORK (CNNMoney.com) -- National U.S. home prices fell a record 15.4% in the second quarter compared with last year, according to a report released Tuesday.

The latest S&P/Case-Shiller national home price index is down 18.2% from its peak in the second quarter of 2006, and there are no signs that the pace of home-price declines is easing. The second-quarter loss was even larger than the record 14.2% drop posted in the first three months of 2008.

Both the Case-Shiller 10-city index (down 17%) and 20-city index (down 15.9%) also posted record year-over-year losses in the second quarter.

The worst performing city in the index was Las Vegas, where prices plunged 28.6% year-over-year, followed by Miami, down 28.3%, and Phoenix, down 27.9%.

A small piece of good news: In June the pace of monthly declines slowed ever so slightly compared with May. Prices for the 10-city index declined 16.9% year-over-year and the 20-city index was down 15.8%.

Too much inventory

"While there is no national turnaround in residential real estate prices, it is possible that we are seeing some regions struggling to come back, which has resulted in some moderation in price declines at the national level," said David Blitzer, chairman of the Index Committee at Standard & Poor's, in a statement.

Still, all 20 cities covered by Case-Shiller are in negative territory for the past 12 months, said Mike Larson, a real estate analyst with Weiss Research. "[The moderation] is not good news," he said. "It's just a little less bad."

And with mortgage loans difficult for many home buyers to obtain and foreclosure rates still rising, inventories of homes for sale continue to expand, depressing home prices. There is now an 11.2 month supply of existing homes on the market.

"The inventory problem has not been solved," said Larson.

Peter Schiff, president and chief global strategist at Euro Pacific Capital, said the market is only about halfway to its bottom. In 2005, he predicted the then-coming bust would cut 30% off national home prices.

Losses will continue because there has been no fundamental change in markets, he said. Despite abundant foreclosure sales, inventories are still growing and lending availability is still shrinking.

And, people are not inclined to buy in a falling market. They wait for it to hit bottom. "If prices fall another 20%, that's the time to buy," said Schiff.

Las Vegas Homeowners: 1/2 are upside down

A new report from Zillow says that half the people who have bought homes in the Valley within the last five years are now upside down.

Many more Zillow created Charts and Graphs found here



Las Vegas Sun: Vegas home prices at 2003 levels

Owners of more than half of all homes sold in the Las Vegas area in the past five years have negative equity in their homes, according to a new report.

The report from Zillow.com, which tracks real estate values across the country, indicates that home prices in the Las Vegas area have fallen to levels not seen since 2003, and homes sold for a loss in the second quarter of this year made up 69 percent of all home sales.

According to Zillow, the average home in the region -- including single-family homes and condos -- is valued at $205,500, which is down more than 27 percent from a year ago, and down more than 34 percent from the market's peak of $313,275 in the first quarter of 2006.

The report indicates that 99.4 percent of homes lost value in the past year.

Among the report's other findings:

- More than 48 percent of homes sold in the Las Vegas area in the second quarter of 2008 were foreclosures.

- About 70 percent of homeowners who purchased their homes in 2005, 2006 or 2007 have negative equity in their home. For example, about 73 percent of homes purchased in 2006 have negative equity, with homeowners having median equity of minus $52,444.



My Thoughts:

This negative equity situation was caused by excessive speculation and Subprime use - and was exacerbated by the current credit crisis.

The problem however is likely to get much worse: with a massive (>28,000 home) inventory overhang, Alt-A (Exploding ARMs/Liars loans, etc) starting to reset, significantly falling gaming revenue (Las Vegas: Gaming Revenue down > 16%) and an economy reeling from recession (Las Vegas Economic Recession is here) home prices have nowhere to go but down -- much further down.

From a report I read today: Liar Loans Stir More Defaults

~ 40 percent of loans made in California and Nevada in 2005 and 2006 were either interest-only or option ARMs -- "It was pretty evident that the only thing that was supporting these loans was higher home prices"

Closing:

So, will the headline this time next year be: Vegas home prices have fallen to 2000 levels and 60% of those who purchased in the last 8 years are upside down?

Guess only time will tell...

Regards

Randy

More bad news for Vegas

Echelon Place Complex, a $4.8 Billion Boyd Gaming Construction Project, initially scheduled to open in the third quarter of 2010, was put on a nine to 12-month delay this last Friday.

The new casino development was designed to include five hotels, including two built and operated under a joint venture with Morgans Hotel Group Co. It was also to have two theatres, a convention center and a retail ``high street,'' -- which is a joint venture with General Growth Properties Inc., the second- largest U.S. owner of shopping malls.

Las Vegas-based Boyd said it won't resume the project for three or four quarters while the U.S. economy slows and banks remain reluctant to lend.

``This is a very prudent, tough decision by management in light of the capital markets, the slowdown in Las Vegas and significant shareholder opposition,'' Joel Simkins, an analyst at Macquarie Securities USA Inc. in New York, said today.

``The delay of Echelon indicates the unprecedented downturn that Las Vegas is currently undergoing and the extreme difficulty in securing capital,'' Steven Kent, an analyst at Goldman Sachs Group Inc. in New York, said today in a note to clients.

Project shutdown leaves many workers worried

~ 800 ironworkers, carpenters, electricians, laborers and just about everyone else working on Boyd Gaming's partially finished resort left the job Friday, not knowing when or if they'd return.

Rapp, an ironworker, said he was hopeful there would be jobs at other projects. But he was also afraid the shutdown marked the end of a Las Vegas boom where jobs at decent wages were plentiful.

"It is kind of a scary thought, you know," Rapp said. "I don't think work will ever be as good as it was for the last 10 years, not for the middle class."

Rapp said he has a wife and five kids, three of whom are in college.

"They are going to have to start paying their own rent," he said.

My Note: In addition to the 800 jobs lost, Echelon was projected to add 10,000 new Las Vegas jobs when it opened in 2010 - Guess they will have to wait...

Though LV unemployment (currently at 6.5%) is already higher than the national average, If this trend continues (which I expect it will), we may have a 7.5% or better unemployment rate by the end of this year. Heck, we're already in a Recession: Las Vegas Economic Recession is here

Echelon Delay Could Have Major Economic Impact

The economic troubles could be a financial red flag at a time when other projects are facing financial woes. As Wall Street rethinks Las Vegas, jobs and housing could be hit hard.

That seems to be the perception on Wall Street. And when the projects do poorly, that means fewer jobs and houses that were expected to come online. Everything is tied together.

UNLV Professor Keith Schwer says when a project is delayed or cancelled suddenly, the impacts are felt beyond the Strip, "That's the nature of economics. It's like a cloth and each fiber is tied to the next."

Allow me to switch gears a bit -- LV Banking:

If you recall,, I warned you about SilverState Bank last weekend (excerpts below):

"Andrew McCain, son of Republican nominee John McCain, has resigned from Silver State Bank's board of directors this weekend. "

"Would a banking failure under son McCain's leadership look bad for dear old dad's election prospects? Hmmm... Well, I suggest you keep an eye on Silver State Bank -- word on the street is: they are not doing well."

"Take a look at the Bankrate and Safe and Sound ratings for Silver State Bank, Henderson Nevada: One Star (The Lowest Possible Rating) and 5G (Lowest Possible Rating)."

"I can only imagine the FDIC is working disaster/cleanup plans and decided it's probably time for Andrew to get out of the picture before the bomb goes off. "

Well, based on news reports today, it looks as if we're getting closer to the implosion:

Bank reports $62.7 million loss, replaces key officials

Silver State Bancorp, the $2 billion-asset holding company for the similarly named Henderson bank, lost $62.7 million in the second quarter and replaced its CEO as the number of bad loans grew huge.

Michael Thorell, 42, former president of an Arizona bank that Silver State acquired, was named acting CEO, replacing Corey Johnson, 50, who resigned.

The board named Phillip Peckman, 59, acting board chairman to replace Bryan Norby, 51, of Boise, Idaho.

Thorell declined to comment on Johnson's resignation. Attempts to reach Johnson were unsuccessful.

Silver State shares dropped 30 percent, or 38 cents, to 90 cents in heavy trading on Nasdaq following the announcements. Its shares hit a 52-week high of $24.10 last summer

Michael Threet, chief operating officer and chief financial officer, said the quarter's financial numbers stem from "the severe economic downturn in our nation, in our region and in the real estate values in the markets we serve."

Silver State's nonperforming assets, which include bad loans, were 83 percent larger than the total of reserves it set aside for problem loans plus its tangible equity or ownership interest in the company.

The company has been trying to raise $40 million in additional capital since June 5. It has been difficult to raise capital, because "all of the capital raised in the first quarter (for commercial and investment banks) is under water," Threet said. -- to increase deposits, the bank recently offered 4.25 percent on some certificates of deposit.

Moving on to LV Housing:

HousingTracker.net is reporting some rather awe inspiring numbers for Las Vegas today:

Inventory (28,581) continues to grow while Median prices plunged a dramatic - 30% YoY.

Additionally, RealtyTrac is showing that 36,161 homes are in some state of foreclosure for Clark County -- about 1/2 of the numbers are in preforeclosure, 1/4 in auction and another 1/4 Bank Owned.

LV Industrial Market:

Vegas Industrial Vacancy at 7.7%, Heading to 9%

LAS VEGAS-An industrial building boom than began in better economic times has been overwhelming the now tepid market over the past year or so, elevating vacancy to 7.7% from 4.5% one year ago, according to the latest report from Applied Analysis, a locally based business advisory that tracks the commercial market. Company principal Jeremy Aguero predicts the rate will rise to approximately 9% in coming quarters before demand rebounds and vacancy begins falling again.

The Las Vegas industrial market continues to be impacted by a declining economic climate, elevated fuel pricing for regional distributors, and increased caution on the part of business decision makers,” he says. “Company expansions and relocations are much more limited today than any point during the past five years.

Other LV News:

LVSands Corp. Trimming Las Vegas headcount by 1,500 --“through attrition, not layoffs”-- as part of a plan to find between $70 and $90-million in annual savings in the market. “It’s a challenging market that could continue for some time,” he said.

Businessman drops out of Tropicana bidding -- A New York developer whose group had offered $950 million to buy the Tropicana Casino and Resort says they're no longer interested. Joseph Palladino tells The Press of Atlantic City his group is looking at other casino properties in Atlantic City and Las Vegas, but no longer wants the Tropicana. The Tropicana has been for sale since last December

Airlines sound alarm for Vegas tourism -- Airlines serving McCarran International Airport have issued the bleakest economic forecast yet for Las Vegas, recommending that officials reconsider the need for a terminal that is under construction because there may not be sufficient tourism traffic to justify it. The airlines’ message to Las Vegas: The industry will not quickly recover from the tourism decline wrought by a combination of higher fuel prices and a sputtering economy.

McCarran Flier Count Dips 7 Percent in June -- Passenger counts at McCarran International Airport fell 7 percent in June, another indication that the nation's shaky economy is undermining the leisure travel industry. McCarran's top five carriers all posted declines in June, including Southwest, the No. 1 airline in Las Vegas and the only major domestic carrier making more money than it spends.

Casino bankruptcies making gaming sector a real gamble -- Already, casino owners such as Tropicana Entertainment LLC, Legends Gaming LLC and Greektown Holdings LLC have all gone bankrupt this year, but more are teetering on the brink, too... Herbst Gaming Inc. popped up on Bankruptcy Insider's Zombie Watch list three months ago... Even gaming giants Harrah's Entertainment Inc. and Station Casinos Inc. aren't immune. Moody's slashed the ratings for both on July 17 to B3, citing a deterioration in the Las Vegas gaming markets.

LAKE LAS VEGAS: Bankrupt project still alive -- tries to borrow $127 million. So what does one of the largest bankruptcies in Nevada history look like from street level?

On Monday, a Las Vegas bankruptcy judge will hold a hearing to determine whether Lake Las Vegas should be allowed to borrow $127 million from a Wall Street investment banking firm.

Company officials say they need the money to pay for repairs to the 2-mile-long man-made lake and maintain payroll, employee benefits and day-to-day operations. The company employs 260 workers, mostly for its golf courses.Rapoport said this bankruptcy "might well be" the largest Nevada has ever seen... Already it's large enough to prompt wild speculation about the city of Henderson getting dragged into bankruptcy, too. But city officials literally laugh that off.

It looked like business as usual Thursday morning at Lake Las Vegas. Golfers golfed. Mowers mowed. Waterfalls fell... But there wasn't much business.

At 10 a.m., a single player had the tables to himself at Casino MonteLago. The nine other people in the 40,000-square-foot casino confined themselves to the slots.

Outside, MonteLago Village was a ghost town of boutiques, coffee shops and high-end eateries...

Bottom line:

I feel the last few sentences above capture the Las Vegas condition/situation quite nicely, and believe we're much closer to the beginning of this unprecedented LV economic downturn than we are to the end.

You may want to hold on to your hat, because this wild downturn will likely get quite ugly in the not too distant future... As you'll see when the significant casino layoffs begin - and soon.

Again, going back to 1970, there has only been ONE OTHER time (since this recent economic downturn) where gambling revenues actually fell -- in the aftermath of the Sept. 11 terror attacks. During that timeframe (2001-2002) gaming revenue fell 1 percent. Today, LV gaming revenue is down ~ 6% for the year (16% just last month), but we've yet to see massive layoffs experienced after 9/11.

Are things different this time around? I wouldn't bet on it, as you 'd probably lose to the house - the layoffs are coming... and probably just in time for Christmas 2008.



With that, I hope you have a great weekend!

Randy

Nevada's fiscal woes among worst in Nation

The bad news just keeps pouring in for the once thriving, and once believed to be, "bullet-proof" Nevada economy.

Though I've been warning folks of the looming downturn since early 2006: Las Vegas—A House of Cards Bound to fall, many disregarded the info and/or considered me a nutcase.

Anyway, since that time, I've been trying to keep readers abreast of the unraveling situation as I see it.

A few of my situational awareness posts:

Las Vegas housing downturn is leading the Nation:

Nevada Tops in Foreclosures AND Price Declines!


Home to 15 of the top 20 zip codes hardest hit by the housing/foreclosure meltdown:

Las Vegas Tops Foreclosure List


Four years of housing gains lost in one:

We Ain't seen nothin Yet


Fewer flights mean less tourists and less gaming revenue:

Airlines: More problems for Las Vegas Strip


Las Vegas Gaming revenue is falling fast -- faster than post 9/11:

Las Vegas: Gaming Revenue down > 16%


Casino layoffs have just started:

The Las Vegas Economic Downturn Has Started


Vegas locals flat broke:

Las Vegas: All flash and no cash


High-end Auto Repo Business is booming:

Las Vegas Economic Downturn Increasing "High-line" Auto Repos.html">


Local Banks are having difficulty coping:

Local Banks Effected by Las Vegas Real Estate Crisis



Well, if the situation weren't dire enough already, it's now being reported that Nevada is among the top three in the nation for state revenue declines:

Nevada's fiscal woes among worst in nation


CARSON CITY -- As if you needed more bad news, Nevada's economic downturn now ranks as one of the worst among the 50 states.

A National Conference of State Legislatures report released Wednesday found that tax revenue in Nevada fell by 7 percent in the fiscal year that ended June 30 compared to the previous year.

Nevada ranked No. 3 among the 17 states that reported revenue declines, led by a 7.5 percent drop in Oregon and a 7.3 percent decline in Florida.

Twenty-eight states, including Nevada, expect further declines in the current fiscal year, according to the NCSL report. Nevada already has approved measures to reduce spending by $800 million in the current fiscal year.

"We are all going through the same problems," said Ben Kieckhefer, a spokesman for Gov. Jim Gibbons.

He said there is no magic tax that can snap Nevada and other states out of the economic doldrums. Gibbons remains committed in his opposition to any tax increase, Kieckhefer said.

"When the economy is struggling, it is not a good time to raise taxes," he added. "We need to cope with the revenue we have and weather the storm. If there were a recession-proof tax that didn't hurt people, then someone at MIT would have thought of it."

Kieckhefer said Nevada faces a special problem because of its tourist-based economy.
"It is not surprising that we are faced with economic problems when the national economy experiences a downturn," he said.

Since November, Nevada has cut spending in its two-year budget that ends next June 30 by $1.2 million. That is equivalent to 17.7 percent of its $6.8 billion two-year budget.


Bottom Line:

There's no end in sight to the bad news and (I believe) this bad dream will soon turn into a nightmare -- when the casino layoff's begin in earnest.

Note: I honestly get no joy out of seeing my local economy fall apart and watch neighbors/co-workers and friends lose their homes, jobs and previous way of life, but I do get a sense of "I-told-you-so".

What really bothers me though is: If a simple telecommunications manager and lay-economist (me) could plainly see this train wreck coming over two years ago, why couldn't the so-called "experts" see it -- and possibly do something to better prepare?

Randy

We Ain't seen nothin Yet

Since the end of the housing boom in 2005, I've been stating the housing correction in Las Vegas would be significant and we'd likely see a 50% haircut (peak to trough) in home prices. Thus far, odds are looking pretty good that I'll ultimately be correct (Maybe even too optimistic).



Four years of gains wiped out in just one.

Home prices across 20 major U.S. cities have dropped a record 15.3% in the past year and are now back to where they were in the summer of 2004, according to the Case-Shiller home price index released Tuesday by Standard & Poor's.

Las Vegas saw the biggest declines, with prices falling 26.8% in the past year.

With so many homes on the market and foreclosures rising, prices are likely to keep falling, said Patrick Newport, an economist with Global Insight

"We expect the 20-city Case-Shiller composite to fall another 15% to 20%, to a bottom at the end of 2009, translating to a peak-to-trough drop of 30% to 35%," wrote Michelle Meyer, an economist for Lehman Bros.

After accounting for 4.5% inflation over the past year, real home prices are down in every region in the nation.

Closing:

Thus far, the decline in bubble-region home prices has been quick, but I still feel we've got a long way to go. Significant banking/credit issues will soon to come to light again while unemployment numbers are due to increase significantly. Combine these issues with billions in Option Arm Resets, massive inflationary pressures and soon-to-be crucified equities markets and the result is a toxic Witch's Brew of economic misery that will continue to force massive downside price pressures across the nation.



Bottom Line: We ain't seen nothing yet!

Regards
Randy

Las Vegas's Economic Downturn Getting Worse

My thanks to Patrick and PDM for several of the tips/links:

Developers scrap $5 billion Las Vegas casino plan

A development group planning to build a 5,000-room hotel and skyscraper on the Las Vegas Strip has scrapped the project, owing to difficult credit- market conditions, according to one of the partners in the joint venture Wednesday.

Casino company Crown Ltd., (AU:CWN: news, chart, profile) headed by the Australian investor James Packer, said it and its partners, the private-equity firm York Capital Management and the property developer IDM, decided to pull out after conducting a strategic review.

"The recent upheaval in world credit markets has made it increasingly difficult for Crown and its partners to develop a commercially viable project," Crown Chief Executive Rowen Craigie said in a statement to the Australian Stock Exchange Wednesday.

Crown said it will write off its A$44 million (US$42.1 million) investment in the project. The development at the 27-acre site, which Reuters reported was valued at $5 billion, had included plans for the tallest tower in Las Vegas and an integrated hotel-and-casino complex


Recession Hits Las Vegas Shows

The halls of the JCK Las Vegas show this Saturday were clearly less crowded than last year, and almost all exhibitors noted a decrease of traffic into their booths. Walk-ins, visitors without prior appointments, were not only less present in lower numbers, but a number of exhibitors also noted they were less inclined to place orders.

A large Indian manufacturer commented that even the larger and much sought after 2 and 3 carat goods that they had on display were not being snatched off the shelves. While that comment may not have reflected sales of bigger goods at the show, it does reflect the mood. Stones of 3 carats and above have proved to be good sellers so far at the show.

Many booths were notably empty, with despondent business owners pacing back and forth waiting for someone to walk in.


Fliers in for pain as airlines pack it in

A USA TODAY analysis of fall airline schedules shows the nation's most popular vacation destinations will be among the biggest air-service losers. Many flights to Honolulu, Orlando, Las Vegas and other favorite vacation venues have vanished or will soon because cheap tickets bought by tourists don't cover the cost of getting there.


NOTE: I commented on this very same issue late last month:

Airlines: More problems for Las Vegas Strip

The nationwide economic downturn, combined with extremely high fuel prices and declining profit margins, has caused five airlines with services to/from Las Vegas to file for bankruptcy or cease operations since December. Additionally, US Airways recently announced it would reduce flights servicing the valley by some 20% come August, while American stated it would cut some flights after the peak season is over.

All this bad news leads to less airline competition and fewer available seats, that when combined with new fuel surcharges and luggage fees will soon put an end to cheap flights to and from Las Vegas -- reducing the number of tourists visiting and cutting into the discretionary budgets of those who decide to come anyway -- compounding the situation we're already starting to see:


Las Vegas Sands posts losses

Even Sin City is struggling throughout the US economic downturn as fewer tourists are visiting the world’s gambling capital. As a result, Las Vegas Sands, has gone into the red.

The hotel and casino company announced losses of $11.2m in the first quarter of the year, compared with a $90.9m profit a year earlier.

A weak US economy, competition in the Chinese gambling centre of Macau and rising construction costs are to blame for the losses.

William Weidner, Las Vegas Sands’ president and chief operating officer, said hotel occupancy was lower as fewer tourists came to Las Vegas and first-quarter operating results reflect both an intensely competitive operating environment in Macau as well as a weaker environment here in the US.


Moderation troubling for Vegas

LAS VEGAS — For decades, this gambling center seemed nearly immune to the nation's economic swings. But these days, the city built on excess is seeing a troubling sign: moderation.

Gambling revenue and hotel occupancy are down. Resorts are slashing room rates and offering coupons or free nights. Casino operators are firing hundreds of workers, and their stock prices have plummeted since October. Credit is drying up for hotel and condominium projects planned before the slowdown hit.


Room rates could plummet in Las Vegas as spending drops

With gaming revenues dipping in Las Vegas, the city could see room rates this summer that will be the lowest in six or seven years, one expert said. Tourists are still coming, and the rate of 9.6 million visitors in the first quarter wasn't lower than the same quarter in 2007, but visitors are spending less when they come.


Las Vegas gaming market fails to impress Wall Street

Wall Street investors do not expect a turnaround in the Las Vegas gaming market anytime soon. They also aren't impressed by the figures coming out of Macau.

"The overall economic climate remains soft, consumer confidence levels fell, gas prices continued to climb and concerns about demand for the sector persisted," Applied Analysis partner Brian Gordon said in the report.


Economic chill freezes Vegas budget

In the coming year, Las Vegans can expect it to take more time to obtain business licenses.

It’ll take longer for graffiti to be cleaned up and for city workers to replace damaged street signs. Hours at several city pools will be cut, local parks and trails won’t be as well maintained and expansion of the city jail will be delayed.

These are just a few of the ways the local economic downturn will affect residents as Las Vegas confronts a budget crunch — one that might not end anytime soon.

According to the city’s top finance official, fiscal 2009, which starts July 1, won’t be the worst of it. Although the budget slump will bottom out in fiscal 2010, further cuts could be needed through 2012, he said.

“I don’t see it bouncing back quickly,” said Mark Vincent, the city’s finance and business services director.

In the $1.5 billion 2009 budget approved by the city council May 20, expenses are expected to outpace revenues by about $20 million.

To cope with the shortfall, the city is freezing the equivalent of 186 positions, cutting travel and training programs, and reducing merit raises for nonunion workers.


Las Vegas called 'mortgage fraud ground zero'

In the shadow of Sunrise Mountain, where Rolling Hills Drive turns into Gold Mine Drive, a plain two-story home sits unoccupied, like thousands of other houses here in southern Nevada.

Some of these empty homes have "for sale" signs. Others bear signs saying "foreclosure." Authorities say hundreds of them, including this one on Rolling Hills Drive, should have a different sign out front, one that reads "fraud."

Prosecutors contend this house was sold last year to a straw buyer as part of a sprawling mortgage fraud perpetrated by a husband-and-wife team involving 277 properties in greater Las Vegas.

In recent years, there have been so many mortgage fraud cases, the bureau and local prosecutors have had to establish a special task force to combat the problem.

Scott Hunter, the FBI's supervisory special agent here, describes the region as "mortgage fraud ground zero."

The problem is so widespread that everyone seems to know someone affected by it. Even one of the FBI's Las Vegas agents has a connection: Special Agent Henry Schlumpf's wife was the real estate broker who sold the Rolling Hills Drive house last year to a straw buyer representing Mazzarella and Grimm.

"We've got people who walked into neighborhoods who paid $200,000 to $400,000 more than they ever should have paid," says the FBI's Hunter. "That story is going on all over Las Vegas. Everybody thought the market was hot, but a lot of that was being manipulated."

Many of those who overpaid are stuck with mortgages larger than what their homes are worth. Those who took out home-equity lines of credit based on inflated valuations of their homes are now caught in a financial squeeze. Las Vegas had one of the nation's highest foreclosure rates last year, with 4.2% of its homes being repossessed by banks, up 169% from 2006.

"There's a close correlation between states with foreclosure problems and states with mortgage fraud problems," says Sam Garcia of MortgageDaily.com. "There's a good portion of foreclosures that probably resulted from some form of mortgage fraud."


Closing:

The Las Vegas downturn has merely just begun. Stay tuned as we keep an eye on the unfolding (soon-to-be) economic crisis.

Randy

Local Banks Effected by Las Vegas Real Estate Crisis

LV bank shuts down - Nevada officials say voluntary closing a first for state

A Las Vegas bank voluntarily shut its doors in late April due to worsening economic conditions, a first for Southern Nevada's usually vibrant banking community. Fifth Street Bank had been operating for about a year before bank officers decided to notify depositors and state officials of the decision.Neither state regulators nor bank Chief Executive Officer Philip LaChapelle knew of any instance in which a bank had voluntarily closed, although bank regulators periodically take over and shut down failing banks.

The bank was finding it increasingly difficult to find borrowers with good credit.

Fifth Street used short-term, variable rate deposits to make long-term fixed-rate loans, according to two other bankers, who spoke anonymously.


Silver State Bancorp reports $14.4 million first-quarter loss

Silver State Bancorp of Henderson reported a $14.4 million first-quarter loss because of problem loans, which reversed net income of $5.6 million, or 39 cents per share, a year ago.

Silver State charged off $9.7 million in loans and counted $78 million in nonperforming loans. About two-thirds of Silver State’s loan portfolio is construction and land loans, and those loans account for approximately 82% of the company’s $78 million in nonaccrual. Nonperforming loans represented 4.8 percent of outstanding loans, compared with 0.01 percent a year ago. The company related the increase of bad loans to project delays on residential construction and land loans.

The other two publicly traded banking companies headquartered in Southern Nevada, Community Bancorp and Western Alliance Bancorporation, also are struggling with problem loans because of the local economic slump.

Silver State Bancorp Announces Resignation of Douglas E. French, Executive Vice President

Silver State Bancorp (Nasdaq: SSBX) today announced the resignation of Douglas E. French, Executive Vice President of Commercial Real Estate Lending, for personal reasons.


First National bank of Nevada posts $7.3 million loss

The real estate bust is hammering banks in the state, but First National Bank of Nevada, an affiliated bank in Arizona and their holding company are getting dinged more than most.

"A number of other financial institutions are facing the same issues, and we are doing the same things that other financial institutions are doing," said Joel Gottesman, executive vice president and chief administrative officer of the banks.

First National's banks are working to raise capital and reduce the size of the balance sheet, he said.

First National Bank Holding Co., a $4.6 billion-asset company based in Scottsdale, Ariz., reported a first-quarter loss of $140.4 million, compared with profit of $9.1 million last year, according to the Federal Deposit Insurance Corp.

Most of that stemmed from its $2.8 billion-asset First National Bank of Arizona, which reported $131.3 million in first-quarter losses compared with profit of $1.8 million in the first period last year.

Nonaccrual loans at the Arizona institution totaled $260 million, compared with $50 million a year ago.

Bankers classify loans as nonaccrual when the borrower has defaulted on interest or principal payments or is expected to default.

The $1.6 billion-asset Nevada bank employs 210 workers at 11 branches around the state. The Nevada institution reported a first-quarter loss of $7.3 million, compared with $6.8 million in profit in the same period last year.

Problem loans weighed on the Nevada bank's performance. It reported $62.1 million in nonaccrual loans, compared with $231,000 in nonaccrual loans at the end of the first quarter last year.

Looked at another way, nonperforming loans and loans more than 90 days past due equaled 4.28 percent of total assets at the Nevada bank, up from 0.61 percent at year-end and a miniscule 0.02 percent a year ago.

At the Arizona bank, nonperforming loans and loans 90 days past due totaled a 10.92 percent of assets, which bankers privately call staggering.


Closing Thoughts:

This housing/credit crunch ball-game has just started, so I expect to see several more Nevada banks fail within the next 12 months.

Randy

Las Vegas Unpaid Property Taxes Mount

I've previously reported on some negative Las Vegas economic indicators -- as related to the nationwide housing bust and economic downturn.

NEVADA:
- Real estate companies going bust
- Tops nation in preforeclosures AND foreclosures
- Near top of list for home price declines (> 22% YoY)
- Slowing construction industry
- Sales tax revenue down 9%
- Gaming revenue down4%
- Casino layoffs have begun

As if these issues weren't enough, Clark County Treasurer Laura Fitzpatrick states her statistics are starting to show big gains in the percentages of parcels with unpaid property taxes.

From the LVRJ:

The number of delinquent parcels advertised in a public notice in Wednesday's Las Vegas Review Journal rose 51.2% when compared with the number of lots published in the paper merely one year ago.


Fiscal year Delinquent parcels
2007-2008 32,626
2006-2007 21,581

What's more, 2.3 percent of the county's properties in Wednesday's notice were in arrears, compared with 1.4 percent a year earlier.

That's $51 million -- plus $7.7 million in penalties and interest -- Clark County property owners still owe for fiscal 2007-2008, which runs from July 1 to June 30.

That could mean less money for public schools and libraries, two of the functions financed through property taxes. But Fitzpatrick said the vast majority of landowners will likely pay up quickly, so the economic impact shouldn't be significant.

If they don't portend hardships for public services, the treasurer's figures do somewhat signal the state of the local economy.

Forty percent of property owners on Wednesday's list owned five or more delinquent parcels, a lot count that often indicates ownership by a builder, investor or bank. Just 15 percent of property owners listed a year ago owned five or more parcels. The change could come from troubles in the building and mortgage industries.

"Without going out and polling (late payers), I think the numbers are certainly reflective of the economic challenges that we've seen over the last several months," Fitzpatrick said. "Builders, developers and investors certainly have had a difficult time, as have some of the individuals experiencing challenges with (exotic) mortgages."

Astoria Homes claimed the single-biggest number of parcels on the list, with taxes due on about 1,300 pieces of property in the county.

Astoria President Tom McCormick noted it's the first time in the local builder's 13-year history that the company missed the deadline on property-tax payments.

"It's very embarrassing," he said.

But it's what happens in a credit crunch, when banks stop lending construction financing, McCormick said.

Astoria, which has eight actively selling neighborhoods in Las Vegas and five more under development, had secured agreements for construction funding from three lenders who have since decided they want out of residential real estate nationwide. Astoria officials met this week with prospective new lenders, and McCormick expects fresh funding within the next two months or so.

In the meantime, what cash flow the company has is going toward paying subcontractors "to keep everyone employed," McCormick said.

"We just got caught temporarily in a cash squeeze while the banks all sort things out," he added. "We're not worried about finding money, but the timing of it is embarrassing."

Avante Homes also owns a considerable share of properties on the treasurer's list. Avante owes levies on roughly 315 lots in its Denali subdivision at Mountain's Edge in southwest Las Vegas, as well as fees on 220 home sites in its Monticello community at Providence in northwest Las Vegas.

Avante officials didn't return a call seeking comment.

Other notables named on the past-due roster include Lennar Homes, Celebrate Homes and Vantage Lofts.

The banking sector is well-represented on the list as well. GMAC Mortgage, U.S. Bank National Association Trust, Wells Fargo and Wells Fargo National Association Trust, Citimortgage, Deutsche Bank National Trust Co. and even Freddie Mac and Fannie Mae, the federal mortgage guarantors that buy and sell home loans on the secondary market, all appeared on the delinquency register.

Many banks on the treasurer's list have no control over tax payments, two industry representatives said.

Teri Charest, a spokeswoman for U.S. Bank, said the delinquent parcels credited to the company fall under its trust entity, which bundles and resells home loans as securities. Trustees, though listed as owners per se, don't service the loans and thus aren't responsible for property-tax payments, Charest said.

Natalie Brown, a spokeswoman for Wells Fargo, said of the bank's corporate-trust services unit: "As trustee, Wells Fargo does not have authority over how an individual loan is originated, serviced or foreclosed upon, nor do we have the authority to resolve any delinquent tax issues on these properties."

So where a banking trust company is named on the treasurer's list, the servicer who's supposed to make the tax payments remains anonymous.

Property owners have until June 2 to pay their taxes. If they don't come up with the cash, the clock starts ticking on a redemption period that gives them two more years to make good on the debt, plus penalties. Owners who still can't deliver a payment in two years will lose their property to an auction.

Closing:

Expect Gvt layoffs to start within 6 months.

Randy

Economic Troubles Affect the Vegas Strip

This non-economist writer has been forecasting the looming Las Vegas economic downturn since early 2006: Las Vegas—A House of Cards Bound to fall -- if you read the comments/feedback section to that post, you'll realize that some felt I belonged in a loony bin...

Quote 1:

"You're certainty about the fragility of Vegas in the face of a national economic downturn belies a level of profound ignorance to it's past. Stated in terms more suited to you, betting against Vegas is a sucker bet. "

Quote 2:

"Randy, the level of certainty you work yourself into regarding things you know absolutely nothing about is fun to watch, in the same way one watches "Jack Ass". Whether or not that is at cross purposes to your own best interest will be for you to decide."

Ouch! Yes, pretty harsh indeed... But I was un-fazed, because I knew this national economic downturn would be bigger than any seen in many decades, and that the final outcome would be very difficult for our non-diversified Las Vegas economy...

Well, it now looks as if I may be vindicated, as the tide is beginning to turn...

Take my recent (April 08) piece which listed some downturning indicators; illustrating that all is not well in Las Vegas: The Las Vegas Economic Downturn Has Started


And just today the the New York Times released an article that backs me up: Economic Troubles Affect the Vegas Strip

For decades, this gambling center seemed nearly immune to the economic swings of the rest of the country. But these days, the city built on excess is seeing a troubling sign: moderation.

Gambling revenue and hotel occupancy are down. Resorts are slashing room rates and offering coupons or free nights. Casino operators are firing hundreds of workers, and their stock prices have plummeted since October. Credit is drying up for hotel and condominium projects planned before the slowdown arrived.

Even the people still coming to Las Vegas are spending less. Julia Lee, 27, of Los Angeles said she normally brings $10,000 on her trips here to play blackjack. As Ms. Lee picked up show tickets the other night, she said she had brought less than half that on this trip. “My parents are in real estate, and we’re worried,” she said.

So are this city’s hoteliers, retailers, wedding chapel operators and anyone else who depends on the extravagance of gamblers and tourists. The spending declines are relatively modest, a few percentage points here and there. But Las Vegas has a huge inventory of new casinos and hotels due for completion in the next few years, and a long national recession could send the city reeling.

The Las Vegas outlook would be far worse if not for foreign visitors. They are taking advantage of the low dollar to savor the fare of celebrity chefs like Alex Stratta and to snap up goods that might cost twice as much in Europe.

To manage the slowdown, Las Vegas is revving up an overseas marketing campaign, and in the United States, it is pitching spontaneous Vegas escapes. “Do it without thinking!” says one television spot.

But representing only 13 percent of visitors, foreigners can take up only so much slack. Deutsche Bank recently started foreclosure on a $760 million construction loan for the Cosmopolitan Resort and Casino, a partly built project in the heart of the Las Vegas Strip.

Crown Las Vegas, a bullet-shaped hotel and casino resort that was supposed to become the tallest building in the city, was scrapped a few weeks ago for lack of financing.

One of the most prominent Las Vegas casino operators, Tropicana Entertainment, said Monday it would seek bankruptcy protection. The company, beset by financial difficulties, made cutbacks at a casino in Atlantic City that prompted New Jersey regulators to strip it of its license there; that set off a cascade of fresh financial problems.

Other multibillion-dollar Las Vegas projects are facing delays or have been put up for sale because of tightening credit and changing Wall Street perceptions about the city. The city’s resort properties already have 130,000 rooms, and Wall Street — which financed much of the recent boom — is worried that Las Vegas cannot absorb the 40,000 more that are on the drawing board or under construction.

“In this market, it is not good business to be confident,” said Jan L. Jones, a senior vice president at Harrah’s Entertainment and a former Las Vegas mayor. “I’ve never seen an economy like this nationally. Nobody knows how deep what nobody wants to call a recession will go.”

Historically, Las Vegas has been resistant to recessions, entering them later and exiting them sooner than the country at large. Gamblers, particularly high rollers, tend to play no matter which way the economic winds are blowing.

But executives here worry this recession could be different from the last two — in 1990-1 and 2001 — when consumer spending was propped up by easy credit. Now credit is drying up. And high gas and food prices, declining home values and rising unemployment are keeping many Americans closer to home.

More important, over the last two decades Las Vegas has shifted from a destination dominated by gambling to one with more appeal to middle-class shoppers, diners, golfers and others who can afford brief splurges. Whereas gambling represented 58 percent of revenue for Las Vegas Strip resorts in 1990, it represented only 41 percent of revenue in 2007, according to a Deutsche Bank report.

As gambling was legalized in more parts of the country in recent years, Las Vegas was forced to expand its own offerings to keep growing. It worked, but it made the city more susceptible to recessionary declines in disposable income.

“Las Vegas is now as vulnerable as other communities,” said J. Terrence Lanni, chairman of the board of MGM Mirage.

Hotel occupancy was down for January and February, the most recent figures, by 1.5 percent, despite average daily room rates 3.8 percent below the year before. Gambling revenue in the Las Vegas metropolitan area for the same period was down about 4 percent.

“It’s accelerating to the downside,” said Bill Lerner, a senior gambling analyst at Deutsche Bank who lives in Las Vegas. “Las Vegas’s economy is more reflective of the general economy than ever.”

Las Vegas visitors said in recent interviews that they were spending less than in the past.

Rita Keene, a retired insurance risk manager from Collinsville, Ill., said she has been coming to Las Vegas several times a year since 1978 and had never set gambling limits. This year she is betting no more than $300 a day at the slot machines, and she is not going to shows.

“We have investments, and you know what the stock market has been doing,” she said while putting quarters in a slot machine at the Orleans casino. “My husband and I have even talked about this maybe being our last time.”


Closing:

Allow me to repeat my 2006 closing post (from: Las Vegas -- A House of Cards) below:

"Once the LV layoffs begin, more homes will go into foreclosure, as people won’t be able to make their mortgage payments. Then businesses outside of the casino industry (local restaurants, retail, home improvements, beauty, health care, etc) will also begin to feel the pain. Eventually, a chain reaction of dominoes will begin to fall, and ultimately the number of outbound U-hauls will vastly exceed those inbound..."

Well, Nevada is already leading the nation in both foreclosures and price declines ( Nevada Tops in Foreclosures AND Price Declines! ), so as tourism continues to fall and the layoffs increase, I expect we'll see a far worse economy down the road...

Bottom Line:

The Las Vegas downturn has just started and we're merely seeing the opening salvo today.

Better reserve that U-haul now!!!

Regards

Randy