It appears the the Pinnacle will never peak.  The dual tower condo project 1 mile west of the Strip on Tropicana has been called off.  Look for this zoned high-rise ground to be looked at by casino developers.  It is located across from the Orleans and is just down the street from the Wild Wild West which is slated for Major redevelopment by Stations Group.  Once Stations starts its new facility this real estate will catch the eye of other gaming developers.

Vantage Lofts in Henderson, an upscale mid-rise project with wonderful views of the valley has temporarily suspended construction while the deal with their uncooperative mezzanine lender.  This project is in various phases of development but will definitely finish as the first phase of its 3 phases is 90% completed now.

The Cosmopolitan has found it cash infusion with needed new partners.  This project located between the MGM’s giant City Center and Bellagio never missed a beat in its construction schedule but found itself in a financial crisis as have many high-rise builders in Las Vegas with softer markets and tougher financing.

Speaking of financing and high rises.  It appears that it may be a lot tougher to get that condo you put your money on 2 years ago closed if you need to in the next 6 months or so as many major lenders have instigated much more stringent financing guide lines to invest in Las Vegas high rises.  A few have quit lending on this product altogether.  Get started early if your contract will require you to close soon.

I tend to spend a great deal of time looking at development on the Strip.  The reason for this is that this area provides such huge employment growth opportunity.  Employment growth is what drives residential real estate development and pricing.  With great positive employment growth of 4 to 5% you find an active appreciating residential real estate market.  With all the development going on down on the Strip this translates into many new jobs and people looking for housing.

This mourning I found out that the 6 billion dollar Plaza Project scheduled for the site that the New Frontier once stood has been rumored to be postponed.  This means that owners and guests at the Trump Hotel will be looking at a dirt lot with an unobstructed view of the Wynn property, a Trump luxury competitor. Trumps units have begun to close with its owners.

But on the same day Las Vegas County Commission gave final approval to the Plaza project. It may be true that construction could be postponed but give Elad Groups deep pockets it would be purly their decision to postpone and not due to commercial financing.

The number of Las Vegas visitors are off 10% in the last few months compared to the previous year.  With all the sky cranes hovering above the strip the possibility of the postponement of the the Plaza sends a clear message to many of us in Las Vegas. 

The Strip maybe over building in an economic downturn (recession) period in the U.S.  We all know that the dollars that flow into our city are discretionary.  The Las Vegas Visitors Bureau moved up an $11 million dollar advertising campaign to help boost visitor attendance.  The target audience is less on U.S. visitor but more on the international market because of the weak dollar and better economies of many foreign countries.

It is also notable that Bruce Eichner developer of the massive Cosmopolitan project has been unable to finalize his bailout deal with Hyatt.  Although Hyatt and another investor already have large capital investments in the project cost over runs may almost double its total from $2 billion to nearly $4 billion.

  In the mean time Deutsche Bank has continued to guarantee payment to the contractor on the project to insure no work stoppages.  Deutsche has also notified all involved that it is proceeding with foreclosure on the project. 

 This foreclosure notice is definitely a move to put pressure on all development Investors to decide if they will continue or loose their investment. 

In the mean time approximately 80% of the first tower condo units have been sold with a non-refundable 20% deposit.  If Deutsche repossess the project do they also take possession of the deposits? Are they required to honor the existing contracts with the condo Buyers? Can they keep the deposits and reset the sales price of the units to the Buyers?   All this is yet to be revealed, but it is clear to me that the project will be finished.  It is to far into the development to stop it even if it becomes an expensive white elephant.  If Deutsche does foreclose it is clear who the most likely Buyer would be as MGM surrounds it with the Belagio and Project City Center.  MGM will not overpay for the project and Deutsche will be picking up the difference.

In other happenings Goldman-Sachs finalized its purchase of the Stratospher, I would not be surprised if its plans may be a little slow in coming as its location will be affected more by slower tourism.  It may very well hunker down and wait out this recession before announcing expansion plans.

The Sahara has gained approval for a new tower and remodeling plans from the Clark County Commission.  Now it must find financing!

Fountainblue is well underway with erecting its steel and seems to be on schedule.

Echelon is quietly proceeding with construction of its $4 billion dollar complex on the old site of the Stardust.

Encore at the Wynn has topped of its project and its new sign is hung. It is scheduled to open in 2009.

Just west of the strip Palms recently opened its new Condo/Tel tower.

Planet Hollywood is under construction of its twin timeshare towers.

Caesars Palace is building an additional room tower on its project.

The newly opened Pallazo is building a condo/hotel tower on its site currently.

Further South on the strip the South Point Casino is building a new expansion on its resort.

The “M” at the extreme south end of the Strip is erecting steel for its new resort.

Also just off the Strip “Hard Rock” has begun its major expansion and remodel.

In other areas The Cannery East is finishing its steel erection on South Boulder Hwy.

The latest Stations Casino at Aliante is proceeding with its interior finishes.

On Fremont Street the Gold Nugget continues with its tower expansion.

The Moulin Rouge has gained approval from the City of Las Vegas for its new tower and casino on the old historic site. But now they must find financing!

It looks like for the most part if the project is not currently under construction it may be delayed until visitor numbers rise and financing becomes available.  This could mean that many projects may be looking at start dates of 3 to 5 years beyond what they had planned.  Some players in this mega game will not be able to hold the land that long while others will be eager to land bank anything that comes up especially at discounted prices.

All this translates into a more reasonable increase in new rooms on the Strip and a slowing of expansion for now.

So what does this mean for the guy buying a house in Las Vegas?

First off it means that job growth will not hit the unreasonable stratospheric heights of 6.5% or higher that some have predicted.  Slower job growth translates into slower absorption of residential inventory.  So if you are a Seller it could take longer to get to a point to sell your home.

In the past I have said that everything should turn around by 2010 and I still believe that to be true.  But I believe job growth in 2010 will be 4 to 5% which is still a large increase.  I still believe that prices will stabilize in late 2008 or early 2009 and start rising in late 2009.  I have never been in favor of short term investments in real estate but I feel for those willing to buy and hold we are in an excellent market to make that deal.  If your interested in buying a home here I have many tools that can help you determine if you are making the proper decision for your needs.  Just give me a call.

Well the GLVAR came out with their February figures and it looks like there is a POSSIBILITY (rumor) that the market is showing signs of bottoming out.  Inventory levels are down (fact), numbers of homes under contract are up slightly (fact) and home sales are up slightly(fact).

However Standard & Poor’s/Case Shiller report still show prices falling in Las Vegas (rumor).  Why is this rumor rather than fact? Because approximately 40% of the current housing sales are REO bank auction properties.  These properties are sold as is, generally in need of major repairs and are substandard homes that will have to have renovation and redecorating done to them in order to bring them back to a standard in which they can be resold on the open market.  According to Case Shiller we are off 19% in price from January 2007 to January 2008 and this includes REO auction sales. So by the time these properties are renovated and put back on the market they may sell for 10 to 15% more than they sold at auction for.  Without knowing this the average Buyer thinks they can come along and buy a pristine home at 20% below a year ago which generally is not true.

The recovery in the Las Vegas real estate market will come in conjunction with the completion of $39 Billion dollars worth of improvements on the Las Vegas Strip (truth).  This will ad approximately 46,000 new hotel rooms (false) to the strip and create 276,000 new jobs (false) in Las Vegas.  The number of rooms to be completed between now and 2010 is more likely to be in the realm of 20,000 units creating 4 jobs per room or 80,000 new jobs (rumor).  These jobs are based on not only hotel workers but casino, convention, entertainment, right down to the added grocery bagers that will be needed to service all the new workers on the Strip. Approximately 50% (truth) of these workers will end up buying their home with 2 income workers per home this would mean approximately 20,000 will be absorbed which should be enough to dry up any excess inventories.  It is not enough to drive the huge building boom during the speculation era of just a few years ago.

Many future projects on the Strip may be put on hold or canceled (rumor and truth).  Because of tight financing it looks like old water park site has once again been put up for sale (fact).  This site was once proposed for the  tallest building in the western hemisphere.  The land is owned by Ausie James Packer. Mean while the old site of the New Frontier with recently Clark County project approval to built a expanded version of the New York Plaza Hotel (rumor) may postpone construction until the commercial financing markets settle down. Look for other projects to take longer to move forward as a more measured expansion of the Strip. 

The international tourism will be up over the next few years as foreign currencies buy more U.S. dollars (fact) and this should make Las Vegas a major world stop.  The Las Vegas Convention and Visitors Bureau has just launched a multi million dollar advertising campaign to attract these target travelers (truth). As the numbers on international travel start to show in the market reports and the financial markets settle look for development to once again resume on the Strip (rumor) this will be in about 2010.

Foreclosure on the major projects on the Strip will stop construction and leave empty partially completed mega Casino/hotels (false).  The financiers of these projects understand that if the project is not completed they may not have an asset to sell.  An unfinished project can result in much higher costs to restart and yield them a much lower selling price. A current example of this is the Cosmopolitan whose financier is Deutsch Bank (truth).  The Bank is currently foreclosing on the project but has guaranteed payment to the contractor to continue construction.  If the Bank takes it back, construction will still be completed. Failing to complete a project of this size is not a possibility.

Projects like City Center, Echelon, Fountainbleau, Aliante Station, Canery East, Encore and ”M” will all be brought to completion (truth).

All current under construction expansion to existing properties will also be completed including Ceasars, Palazzo, Planet Hollywood, South Point, and Hard Rock (truth).

As soon as the commercial financing is available the postponed projects will resume development (false).  Las Vegas has always been a city of “If we build it they will come.”  But with all the new rooms coming on line in the next few years there is a little nervousness on the street as to weather they can be filled and generate the needed revenue.  The industry wants a 90% or higher occupancy rate and if that is not reached you will see new development slow (rumor).  Some still appear to be moving forward such as FX’s project across the street from City Center with a planned Elvis themed property.

The Las Vegas housing market will boom in 2010 and prices will return to their 2005 levels (false).  Look for inventories to return to normal levels and prices to rise approximately 10% from their 2008 levels (rumor).  It will take until 2012 for prices to return to their 2005 levels (rumor).

If we have or are about to reach or residential real estate bottom in Las Vegas then it may be a good time to buy.  I bought a home last weekend to rent out.  I guess that lets you know where I stand.

If your interested in talking or have questions please give me a call. Max Schmidt 702-334-2200