Thunder rolled across Las Vegas in a sudden downpour Monday, a literal representation of the perfect storm that has rocked Sin City.
It turns out Las Vegas isn’t recession proof. High gas prices affecting critical tourism from California, airlines cutting back flights, a housing boom burst like a Cirque de Soleil show gone bad, and the seizing up of the credit markets have combined to create what Mayor Oscar Goodman describes as riding out an earthquake in a very secure building: “You know you’re going to be safe, you just don’t know when the rolling’s going to stop.”
There are still plenty of people coming to Las Vegas, but they are staying for shorter periods of time and spending less money. Statewide gaming revenues were down about 1 percent for June, but on the Vegas Strip, they were down 3 percent, and some analysts say that number is too optimistic. Occupancy rates are off only a tad because room rates have been slashed as much as 28 percent, according to JP Morgan’s Joe Greff. He reports the average rate in town this week is $149 a night.
“Business is down a little bit, it’s nothing staggering,” said MGM Mirage Chairman and CEO Terry Lanni, who has watched his stock nearly “fold” this year.
He said the high end of the market — his Bellagio and Steve Wynn’s place, Wynn Las Vegas — are doing quite well, because “those people who are in a far better financial position are obviously better able to weather the storms that are out there.”
But he said their more modestly priced properties are suffering — down as much as 12 percent in some areas — and he doesn’t think that will start to turn around significantly until 2010.
“At my age, I’ve been through a lot of cycles, and I’ve honestly thought that Americans, when times are bad they think they’re never going to be good, and when times good they think they’re never going to be bad," Lanni said. "The issue is we do have cycles. Prepare for cycles and deal with them accordingly.”
Which is why MGM Mirage is deferring $383 million in planned capital expenditures. However, it is still moving full steam ahead with its massive CityCenter project, which dominates the Strip. Vegas developers up and down Las Vegas Boulevard had big plans just a year ago. But the cost of financing has stopped many projects. One, the Cosmopolitan, has gone into foreclosure, and another, Boyd Gaming’s $4.8 billion Echelon, is on permanent hold. But CityCenter continues apace, and it is a sight to behold.
The 66-acre development will eventually house 18 million square feet of hotels, condos, casinos and retail. (Lanni talks about CityCenter's Dubai connection in the video at left) More than half the residences already have signed sales contracts and deposits.
“So far, no one’s backed out of a contract," said Terry Lanni, "and we’ve raised the prices on two different occasions, we’ve never lowered the prices.”
Not bad in a town where the Trump Tower up the road is reportedly struggling. Trump, like others, built a “condo hotel,” a development which includes hotel rooms and also condos which could be rented out as hotel rooms. Many of these, including Trump’s, were announced as 100 percent sold before a shovel went into the ground. The problem is that many of the buyers were investors who couldn’t get financing when it came time to close the deals. Claims of 100 percent sold fell to more like 50 percent … or less.
On the positive side, a lot of the planned inventory was never built, and many luxury condos are being very aggressive in incentives and pricing. The Allure, at the north end of the Strip, is selling units for about $400 a square foot, compared to $1,500 a square foot a stone’s throw south. Allure’s Sarah Prinsloo said it’s not going to be long "before the opportunities and the pricing that we currently have is going to be gone.”
(Lanni discusses MGM Mirage's efforts to secure $3 billion in financing by the end of September in the video at left)
Las Vegas real estate sales are starting to improve dramatically, but the prices are still dropping. Off the strip, in the residential neighborhoods where the housing boom once burned hottest, realtors say the market is starting to reach equilibrium. That is, the number of homes going into foreclosure every month is almost matched by the number of homes being sold out of foreclosure.
Michael Antos of Prudential Americana Group just sold a home out of foreclosure for $350,000 that originally sold for $579,000. To sell the house, the bank not only slashed the price, but put in new carpet, hardwood floors and appliances.
“The market is absolutely great for buyers,” he said, adding that he has an investor in Denver who plans to buy one house a month here.
Jodi Snyder of Americor Realty said she has a buyer in Chicago who just paid cash for two homes in Vegas.
“I think we’ve bottomed out already,” she said.
Mayor Goodman, an admitted optimist, agrees, "even though some people may think the mayor is a little nuts.” He thinks Vegas will return to its previous glory and then some. (Watch more of his comments in the video at left)
"People are still smiling," Goodman said. "They’re coming into town smiling, they’re leaving town smiling. It doesn’t get any better than that."