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Mustang Ranch, Nevada's Brothel Teetering on 'Cliff'

Thursday, 29 Nov 2012 | 10:01 AM ET
Justin Solomon for CNBC

Nevada has been hit harder than any other state in the downturn. Last month, it had the highest unemployment rate and the second highest foreclosure rate in the country.

Las Vegas is slowly recovering.

Further north, there's still a fiscal Reno 911.

Nevada's second largest city calls itself "The Biggest Little City in the World." Situated near Lake Tahoe, the recession hit Reno almost has hard as it hit Las Vegas. The recovery has been even slower.

"It's been a very difficult go," said real estate developer Lance Gilman.

Gilman may have the most diverse resume in America. He's a former Harley-Davidson dealer and a veteran real estate developer. He and a partner have built the 30,000-acre Tahoe Reno Industrial Center, a major manufacturing and distribution hub for Wal-Mart, Toys R Us, PetSmart, and dozens of other companies.

"There's no debt on this park," he proudly claimed, "there's not even a credit line."

Gilman was recently elected to the Storey County Commission, home to Virginia City of "Bonanza" fame. But his most famous venture is the Mustang Ranch, Nevada's first licensed brothel. Gilman bought the business in 2003. "It's as normal a service business as there is on Earth today."

Even Mustang Ranch Isn't Recession Proof
Susan Austin, madam for Nevada's Mustang Ranch brothel, explains to CNBC's Jane Wells why her business is not recession proof. (3:09)

He sees the region as poised for growth, if only confidence would return. (Read More: Even Muni Bonds May Be Targeted in 'Fiscal Cliff' Talks)

"Money is standing on the sidelines," he said while standing in the middle of the vast industrial park he's built dotted with warehouses. "Investors don't really want to come in and put up one of these million square foot buildings."

Gilman said he's sold about a third of the available acreage here, and he thinks he would have sold more by now if not for uncertainty.

"Our world is tied to confidence, confidence in our leaders, confidence in Washington, confidence in taxes, confidence in trying to figure out what's going to happen with all the healthcare," he said. "The folks that I am familiar with in business, and you can see there's a broad array here, are concerned that the level of confidence is at an all-time low."

A lot of that confidence depends on Democratic Senator Harry Reid, the powerful majority leader who has represented Nevada in state and national politics since 1971.

"Harry and I both share a love and a vision for the state of Nevada," said Gilman, a Republican.

Even so, Gilman is concerned that Reid and other political leaders will come up with a solution to the "fiscal cliff" that will kill off northern Nevada's fledgling recovery.

The Reno area economy is expected to grow 1.2 percent this year, according to Applied Analysis. That's an improvement over the last few years, but it lags the rest of the country. Applied Analysis said growth in 2013 will only bring an estimated 1,900 jobs to an area that has lost 35,000 in the downturn.

Even the Mustang Ranch has felt the sting of the recession. (Read More: Recession Hits World's Oldest Profession.)

"I've had to learn to adjust, my ladies have had to learn to adjust," said Susan Austin, the madam who operates the ranch. Many of her clients lost jobs, and those with jobs have held back discretionary spending. Austin fears the fiscal cliff will only make that worse. "It's definitely going to hurt me in the end."

Not everyone in this part of Nevada may suffer if the cliff creates chaos. Uncertainty is good for one booming business: mining. There is more gold in the Silver State than anywhere else in America. "The gold industry, I think, celebrated the election," Gilman said.

Whatever solution Congress comes up with, Lance Gilman hopes it doesn't mean more rules on business. "We are absolutely crushed with regulation." (Read more: MLB Players Fear Fiscal Cliff, Too)

More than that, however, he wants Sen. Reid and others negotiating a so-called "grand bargain" to remember, "This is where the buck stops. All of the rules that are made back there, all the regulations that are made back there, all the financial decisions, they all flow right down here to where you and I are standing," he said, pointing to a one million-square-foot Wal-Mart distribution center built in the middle of the chaparral. "If companies aren't calling, and they aren't expanding, and we aren't growing, then we're going in the opposite direction." (Read More: Tax Uncertainty Puts Muni Bonds Back in Spotlight)

—By CNBC's Jane Wells; Follow her on Twitter: @janewells

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