With the gaming industry posting record profits, record visitors and record construction it looks like there is no end to the possibilities and opportunities for this world class city.  For 2007 will go down in history as the year that Las Vegas hit the 2 million residents mark, the year that saw the implosions of the famous Stardust and New Frontier Casinos.  It was also the year that a record number of historic business and land deals took place that will forever impact and change this city in the future. 

Private equity firms

Several public gaming companies were bought out by private equity Companies this year including Harrah’s and Stations Casinos.  This allows these companies to ditch the need to report profits on a quarterly basis to their stock holders in favor of larger investments in the properties with short term losses in favor of much larger and longer term profits in the long term.  This will result in a better long term investment decisions in these properties resulting ultimately in more business and better income over the long haul.  This is good for Las Vegas and its future.

The “Sky Crane” has become the Las Vegas bird of choice recently.  At one point this year there were 45 cranes planted in the Las Vegas Tera fir-ma.  These cranes are mostly concentrate along the “Strip” and are flying construction materials to an estimated $33 billion dollars of improvements on the Las Vegas Strip.  If you added up every dollar EVER spent on construction on the Las Vegas Strip it would not add up to  the $33 billion dollars in construction that is currently transforming this playground. Las Vegas is being transformed from cheap hotels, trough buffets and tacky shows to the culinary capital of the world, one of the worlds best shopping stops, the new Broadway and center of world class entertainment, a world luxury getaway including posh hotel rooms, spas and retreats.  From the worlds finest night spots, its outstanding outdoor recreational opportunities Las Vegas is DOING what most cities only dream and talk about Las Vegas is transforming itself into the city of the future. The massive expansion on the Las Vegas Strip has caused some projects in the Valley to be placed on hold because of the lack of available commercial contractors and their work force.  Some areas of the valley are in desperate need of better shopping and professional business space but these will have to wait until possibly as late as 2010 while some of these massive Strip properties are completed. But their are approximately 5 more properties to start construction and others still to announce their development plans an the Strip.

If you haven’t been to Las Vegas in the past 5 years you might have trouble recognizing it and it will continue to change even more dramatically over the next 5 years.  There are currently 2 majors sports (20,000 to 22,000 seats) arena in the works for Las Vegas, the last major development project to expand the airport is underway which includes plans to extend the monorail to the terminals.  A new international airport to the south will have all approvals by that time and will start construction.  New water resources have been acquired under the Colorado River water pact and further resources are in the works to bring the needed water into the valley to support the needed growth.  Downtown their is a new gaslight district taking shape and of course the worlds biggest furniture mart construction continues. Right next door the Lou Rowe Brain Institute is under construction and this year will see a new Symphony and Preform Arts Center and the start of construction of the World Diamond Center. The first High Speed mag-lev train is under its EPA environmental study currently and will whisk passengers initially from Victor-ville California to Las Vegas at speed around 125 miles per hour.  A new high-speed transportation system will take residents from the far reaches of the valley to its core.  Close in desirable locations will continue to be redeveloped into high density medium and high rise communities with shopping and community amenities making them desirable places for local residents as well as second home owners to live, work and play.

The GREEN Las Vegas

Most of the world views Las Vegas as a city of excess and hardly the model city for conservation.  If you think this perhaps your right but consider the following.  Las Vegas this year opened the worlds 2 biggest electric solar generation facilities.  The State of Nevada has dictated that 5% of its total energy generation must come from solar in the next 5 years. It also saw the opening of the largest manufacturing facility for commercial thermal electric generation equipment in the United States. 

The Las Vegas Valley used less water last year than it did in 2000 even though it increased the total number of homes by more than 20% in the same period.  All those fountains and lakes down on the Strip use recycled and filtered water from their respective hotels.  And Las Vegas continues to forge ahead with smaller lot sizes for single family homes and a building requirement for no front yard grass on new homes as well as water saving plumbing fixtures to continue to conserve fresh water. The water district has the most successful “Cash for grass” programs in the country which pays residents to remove their grass and replace it with water tolerant plants.  Las Vegas is also zoning higher density projects which optimizes water use with less landscaping per residential unit further cutting water usage.

Project City Center under construction right now will be the largest “Certified Green Building Complex” in the world.  This project must not only be Green when completed but must use Green construction practices with recycling and material specifications. This project has required an investment by MGM-Mirage with local contractors to create Green contractor services and suppliers that previously did not exist in Las Vegas.

Getting guests out of their cars and on public transportation is a major effort to help the visitor enjoy themselves here in Las Vegas and to that end both the monorail and the new double deck-er buses have been operation on the Strip.  This means a fun novel ride with views and a clean safe faster experience for these riders.  The local transit authority has plans to expand the monorail on both sides of Las Vegas Blvd. and extend it from the Airport to Downtown Fremont Street.  Also in the works is a new ground based transit corridor system which is essentially a private road for a hybrid city bus/train (Max) system. This would allow the Max units to travel at speeds up to 60 miles per hour in gridlocked areas and pull up to platforms where passengers have already purchased their tickets allowing for much shorter stops and faster transit times.  This Max system is under planning development all over the Las Vegas Valley including the Strip and Downtown.

The Bad Stuff, or is it?

The Las Vegas Valley is running out of land.  I know it looks like the desert goes on for ever but this valley is surrounded by federally protected wild life preserves, Indian reservations, military and nuclear ranges, national monuments and parks.  The experts vary in their time tables from 7 to 12 years but they all agree that Las Vegas is going to run out of land and when it does any new development will require at least a 45 minute commute by car into the Valley.  For this reason land in Las Vegas has gone for premium prices over the last 5 years and the pressure will continue to build on this limited precious asset.  This is also the reason that the better locations in the valley will continue to tear out their older sections and redevelop into much more desirable areas. 

Las Vegas was the foreclosure capital of the U.S. this last year and will probably be again in 2008. In an investigative report delivered to the Senate Banking Committee it is estimated that more Sub-prime loans will reset in 2008 than reset in 2007 resulting in a higher number of foreclosures if the mortgage industry does nothing to curb the trend.  Since the announcement of the “HOPE NOW” program, a voluntary program by the mortgage industry it has reported that it has resulted in a resolution of 1% of the total number of applications it has received.  Further more with the tightening of lending requirements and the drop in property values here in the Valley (approx. 15%) it does not look like many of the people who need to refinance are going to be able too.  Add to this the passing of the Mortgage Relief Act which would absolve borrowers of any tax consequences of allowing their home to be repossessed. All this may result in even more foreclosures in this market.  We all need to keep in mind that much of the repossessed real estate available in the Las Vegas market today is a direct result of real estate speculation.  This speculation was fueled by a short term FLIP,  not a buy and hold investment strategy.  These speculators were not prepared for a market reversal that could have been foreseen in what was happening with the mortgage industry and watching the job growth projections for Las Vegas.  These what I call SHEEP flippers, because they follow the masses, and got fleeced (pun intended). They now owe more than their property is worth and have loans resetting that are raising their payments by as much as 60%.  Therefore we will continue to see allot of property being foreclosed and then sold at the new lower prices.

In 2007 employment growth here in Las Vegas was slightly lower than the national average.  Because of the loss in residential construction and closing of so many old casino properties unemployment was slightly higher than the national average.  In 2008 things will only change slightly, look for most everything on the employment front to only change slightly as the Palazzo Casino opens along with several other smaller properties and expansions. But hold on because in 2009 and 2010 things will really heat up in the employment growth sector as many new major properties open their doors.  It is estimated that conservatively this will require over 100,000 new employees to support these new facilities once again drying up available housing stocks and causing appreciation in the market place.

Right now we have approximately 28,000 homes for sale on the MLS (down from a 30,000 unit high). In a normal balanced market we should have approximately 15,000 units. On average over the  last 20 years Las Vegas real estate has averaged a 5% increase year over year.  If residential property drops in value a total of 18% from its high in 2006 it would normally take it 42 months to regain that value from the lowest value point.  If 2008 ends up being the lowest value (trough) and 2009 and 2010 bring the market back because of the huge need for housing (employment growth) we could easily see a 9% per year valuation gain for holding the property (leasing it out) for 24 months.  And this is just what the government requires as a minimum time period for long term capital gains or 1031 exchange.

This is a Soft Sellers Market

When the residential real estate market goes soft, people get interesting. Even though there is an abundance of opportunity most people won’t take action. Because by nature, most people follow the ‘herd’ mentality. They believe that for almost anything to be the ‘right’ thing to do, a great many people need to be doing it. This reasoning could not be further from the truth.   The secret that Savvy investors don’t want you to know is, when the markets are soft the playing field is being ‘reset.’ Short-term opportunities are removed for people such as the Flippers and an great opportunity gets created for the seasoned investors who know how things really work.

In my last article I urged my readers to start buying while the market was still favorable to the Buyer.  If you look in the right places you will find the deal NOW that you thought you would have to wait for.

This last week I received an email from one of my readers that I would like to share with you.  We will call him T.S. to respect his privacy.

“Max, You are right on.

We moved to Las Vegas at the end of 2006 and decided to rent and wait to see what the market would do.   We are currently in escrow on a 3,400 sf home the was originally purchased for $720,000 in 2006, foreclosed in June 2007 for $590,000.  Our Price is $420,000.  So your right, if you look around, deals are out there.  We have been looking for 12 months for the right home and the right price, I think we found it.”

The problem with waiting for the ‘herd.’

If you are the only Buyer making an offer, do you think you can negotiate a better price than if their are others making an offer on the same property?  Do you think you are the only person waiting for the Las Vegas market to bottom out?  What do you think will occur when the Greater Las Vegas Board of Realtors start reporting that sales are starting to jump way up? Do you think that all the other Buyers waiting in the wings will stay their waiting for you to find your perfect home or investment?  If you think that the Sellers attitudes will not immediately change then you are being naive.  Sellers want every dime they can get from the sale of their property and if they see the market is changing their attitudes will change just as fast.

The Bottom Line

Buy before the third quarter of this year or before the press starts announcing the heavy demand for employees at the new resorts and their opening dates.  This employment growth will make national news as it is projected at as high as 14% growth in job creation which is VERY unusual. If you haven’t secured your investment or home by then, your going to be paying more than you could have.

According to Mayor Oscar Goodman: “This will be an important part of Union Park, along with the Lou Ruvo Brain Institute, the Smith Center for the Performing Arts, the Charlie Palmer Hotel, and the Access Medical-Kimpton Hotel projects, that together will create an exciting experience for everyone who visits or does business there…”

This project will create thousands of new jobs outside the gaming industry thereby further diversifying the Las Vegas economy. 

This massive 50 story, million square foot tower will include public retail space, class A office condominiums and ultra-luxury residential condominiums will top the structure.

Other projects in the area include the massive World Market Center which is expanding rapidly since its ultra-successful opening 3 years ago.  The Luxury Outlet Mall which is the most successful facility of its type in the United States. 

The Union Park area (aka “the 61 acres”) is located directly west of Fremont Street and is being developed into a high density planned city of the future and cultural center for Las Vegas.  This development is augmented by other rapid development currently taking place in the City and along the Las Vegas “Strip.”

The New Frontier was imploded a few months ago making way for a new class of Mega resort.  This project will be the most opulent yet.  The developers are designing this to cater to the wealthy client, not your average Joe.

The 15 million square foot facility will include: 348,000 square feet of shopping, 134,500 square feet of restaurants, 175,900 square feet of casino space, 4,100 hotel rooms, 2,100 condos in its 7 towers on the 34 acre site.

It has an estimated opening in 2012. This could add as an additional 24,000 jobs to the local economy in 2012.

Fashioned after the famous Plaza Hotel in New York the architecture should bring a new twist to the Las Vegas “Strip” with its French Renaissance influence.

The combination of the Wynn Projects, the Echelon project, the Venetian projects surrounding this site will make this area of the strip a major draw for tourists.

The north Strip is up for more development both currently with the Fontainebleau under construction and two more in on the drawing board.  There are a few properties still up for grabs such as the Riviera and next door the La Concha property.  Their is also the Maxim site just north of Circus Circus and some empty land still owned by MGM-Mirage on the southwest corner of Shara and Las Vegas Blvd.  Look for these to announce development very shortly.

Please wait while I set my soap box down. I am about to give my opinion on this disgusting turn of events by our government.

The Fed lending rate cut, for the most part,  bails out the Banks.

The short term Fed rate is the rate Banks can barrow from the Fed resulting in them making more money.  As a general rule they do not reduce the rate they are charging the consumer resulting in more interest spread or profit.  If their money costs less they make more money.  If the bond market becomes nervous about inflation mortgage interest rates on loans could actually increase as a result of the Fed cutting rates. The cutting of short term Fed rate helps save Banks from their bad investments.  The Fed isn’t really interested in helping ”the average guy on the street.” They are interested in helping the Bankers club and all the upper crust of the investment society.

You will see results on your credit card bills , ARM’s and HELOC’s that are tied to the Fed. bank rate.  This will not help people with teaser rates that can not afford the new rate adjustments.  These home owners and investors will still loose their homes.  This is still a major problem that will not be mitigated by interest rates as poorly written loans cannot be fixed from the borrowers side. These properties will have to be taken back and resold.

If the government wanted to help the average man and the economy. They would give a one time tax credit to go out and buy real estate in 2008.  Maybe offer a one time tax write off of up to 5% of the total purchase price of the property as a direct tax write off.  Example: you buy a house for $200,000 you get a tax credit for $10,000. That means if you are in a 33% federal tax bracket you could earn $30,000 and pay no tax on that money.

This plan would motivate the average guy who is currently sitting on the sidelines to go out and buy a house!

This would help fix the foreclosure rate by stopping this downward spiral of foreclosures with no Buyers.  This would mitigate the losses to the mortgage industry, slow or stop falling real estate prices, stimulate the building industry and the U.S. economy in general.

The Fed and the Government in general is to busy trying to protect the Bankers and Wall Street Investors, they aren’t looking at the larger problem of how to fix the hole housing industry which would change the economic conditions here in the United States and thereby the whole world.

It is the same problem we have had in U.S. for the past 50 years, protect the corporate contributors to elected officials and send the little guy down the river. If we were ever able to eliminate election contributions perhaps our citizens could start looking at the candidates and the issues rather than slanted advertising reducing our elections to a popularity contest.

This has never been more transparent than in the present Executive Branch of our Government with Vice President Halliburton (Cheney).

The Bush plan of sticking $500 in taxpayers pockets is not going to induce people to go out and spend. What will they buy with $500 dollars? More Chinese products at Wal-mart.  How will that help our economy?  We have to benefit those people willing to help our economy not the foreign deficit.

 Reward those that will go spend in industries that will get the basic economy going and fix the problem areas.  The rest of the economy will follow.  By focusing on tax incentives for real estate we will be fixing the problem. 

It’s time for our elected official to turn into leaders, not bickering bureaucrats.  Leadership is something that has been sorely absent in American politics for a long time on both sides of the isle.  Congress and the White House needs to take a look at who they are and gather the courage to help OUR Country, not our Corporations, not our Foreign Investors, not their own interest or campaign contributors.  

Our political leaders VERY QUICKLY need to gather the patriotic courage of our forefathers and do what is right for the people and our Country. If we do not put our own house in order how can we help anyone else.

 If they fail in this task, we may very well see ourselves in  the worst situation since the Great Depression.