Shells of our Former Selves

As the city struggles to absorb its glut of empty space, the commercial real estate bomb is ticking

The Vantage Lofts website still proudly claims to have sold out the first release of its modern, cube-shaped lofts. There are even “special buyer incentives for a limited time” on upcoming releases. But a drive out to the site, perched atop a hill at the corner of Gibson Road and Paseo Verde Parkway in Henderson, reveals quite a different story. The sales center is boarded up. The fenced-off project has exposed rebar, and some wood framing is soaked from a recent rainstorm. Construction on the project officially stopped in March 2008, and a bankruptcy filing came by that summer. Despite claims by owner Slade Development—which has a 30-year track record of custom home building here—that it plans to complete the project, Vantage Lofts is dead for now.

A few miles away lies a different type of casualty. The Stephanie Street Power Center, between Sunset and Warm Springs roads, was a bustling suburban shopping complex in a booming part of town for more than a decade. A few chain stores in the half-mile-long strip are still doing their part, including Old Navy, PetSmart and Barnes & Noble, while Tony Roma’s and Macaroni Grill still do a good business in the evening. But it’s jarring to see the encroaching emptiness. The glazed red tile that once glistened around the entryway of Circuit City has lost its luster since the business went bankrupt. And other once solid medium-box businesses, including Wild Oats, Longs Drugs, Shoe Pavilion and Copeland Sports, are now nothing but huge empty shells. Even Starbucks, America’s leading symbol of retail success, is long gone.

Both developments are testaments to the great boom cycle of the decade past, when business expansions, fueled by easy credit and false equity, lured both seasoned and novice investors into the real estate game. With all the hype came demand that couldn’t be sustained. In a shadowy reversal of The Mirage, which kicked off a building boom that lasted years, Las Vegas now has to contend with the long-term impact of the bust. In other words, what happened here lingers here.

We have become a city of empty spaces. In addition to our most notorious voids—foreclosed homes—office vacancy rates are at an all-time high of 23 percent; retail vacancy, usually in the low single digits, has climbed to 10 percent; and industrial space wallows at 13.7. These figures are from Applied Analysis, an economic research firm focused on Southern Nevada that also notes all three are more than double their 10-year averages. In total, there is about 200 million square feet of commercial and industrial space across the Valley, and more than 30 million of it now sits empty.

Empty space is a phenomenon for which there seems to be no end in sight. And for some of us, it leaves an empty feeling, a sort of psychological sense of regret that betting on Las Vegas really wasn’t such a great idea this time; that, unlike in our city’s first century, you just can’t build it and they will come.

Some may find opportunities in this emptiness. Some will pack up and return to the burgs from which they came from. Others may simply appreciate the uncongested silences that now pervade in what a 2009 Forbes article called the “most abandoned city.” What’s certain is that the consequences of the bust—our glut of empty spaces—will haunt the city for years, and in a variety of ways.

Luckily, we didn’t follow through with our condo obsession. More than 100,000 luxury units were expected to come online during the boom. We ended up with only 11,250 units, of which developers still own nearly 4,000. A mere 215 units sold in 2009, according to At that rate, it would take nearly 20 years to absorb the developer-owned inventory.

Along with vacancies, valuation—or the lack of it—has partnered in Las Vegas’ precipitous economic decline. That $300,000 Green Valley starter home in 2005 likely has a price tag in the low $100,000s today. Vacant land that fetched upward of a half-million dollars an acre in 2008, and even more in the boom years, now runs in the mid-$200,000s, according to Applied Analysis. Not a trace of commercial or residential space—empty or occupied—has been untouched by this real estate correction. And there is concern that investor money will wait on the sidelines until there is a clearer indication of a real estate bottom. “This is something that’s going to take time,” says Brian Gordon, Applied Analysis principal, “and it may result in further contraction.”

But residential real estate is showing signs of stabilization. Larry Davis, developer of downtown Las Vegas’ Urban Lofts, was able to renegotiate his loans on the property so he could sell at a lower price point—nearly half of what he initially planned on selling the units for. Davis says there is more and more interest in downtown, and he sold three units in December, a typically slow month.

But problems remain. Jim Amorin, past president for the Appraisal Institute, a national trade organization based in Chicago, warns of a coming commercial real estate crisis that could further drag down every economic category. On a national level, $1.5 trillion in commercial development loans are coming due this year, he says, many of which are likely for developments that are no longer viable. And banks, he adds, are putting their heads in the sand with regards to shrinking valuations on the collateral they hold.

Observers are wondering how these commercial problems will play out in Las Vegas. Already, empty land, empty strip malls and other empty spaces (built or partially built) are gradually being taken over by reluctant lenders. Downtown’s Streamline Towers, Newport Lofts and Juhl—virtually empty high-rises these days—shared the same lender, the failed Chicago-based Corus Bank. An investment group led by Starwood Capital Group eventually picked up the properties for a fraction of their construction costs.

“I do believe there is a ticking time bomb in the commercial real estate space,” Amorin says. “If it explodes, you will see a major impact on business and employment, and that can bring down residential real estate as well.” Almost finishing a development project is worse than barely starting it. Both kinds of buildings languish on the Strip across the street from each other: the empty shell of Echelon, which Boyd Gaming put the brakes on in 2008, after its steel structure had barely come out of the ground; and the towering $2 billion Fontainebleau, which is 70 percent complete and was recently snatched up for $156 million by Carl Icahn.

The rumor that the billionaire developer will keep Fontainebleau on hold continues to circulate, but you have to wonder about his patience for absorbing the upkeep costs.

One day earlier this month, a cement truck entered the Fontainebleau’s construction entrance in order to “fill holes,” according to a security guard. A few minutes later, a plumbing and mechanical truck zoomed off the site, its job evidently done. Trucks coming and going at the stalled Carlos Zapata-designed project seem to be the norm in order to preserve what’s in place. Aztech Inspections was recently called out to survey damage to rooms whose windows had been left open to accommodate supports that keep the site’s two cranes in place.

The company’s director of operations, Dennis Derrick, is mum on details about what is involved in order to keep the site “buttoned up,” but Penn National Gaming, through a Wall Street Journal article, estimates the cost to be up to $2 million a month.

Fontainebleau also receives regular visits from county inspectors, says Ron Lynn, director of the Clark County Development Services division. Where Echelon may only need inspection every six weeks—because exposed structural steel and concrete is not much of a concern—a project like Fontainebleau may require one every two weeks.

All stalled projects go through a “decommissioning process,” in which the county tells the owner what security and preservation requirements need to be in place. How a half-built resort looks, however, takes a back seat. “We’re not concerned with aesthetics,” Lynn says. “We’re looking for anything that proposes an imminent risk.”

Appearances should be more of a priority, especially on the Strip, says Richard Worthington, president of Molasky Group of Companies, a longtime local developer. “The way we package these projects right now is important,” he says. “Tourists need to feel Vegas is vibrant and there are winners here.” While the city banks on tourism to get Las Vegas through the hard times, entrepreneurial stories have provided little bursts of hope. Betty Wish, a longtime stay-at-home mom and former nurse, wanted to start her own tattoo removal business. “I hadn’t worked in quite a while,” she says. “I wanted to do something.”

In October, Wish leased a 660-square-foot space at Park Place Center on Eastern Avenue, near Interstate 215, and opened Star Laser Tattoo Removal. Finding reasonably priced space was easy, and she was able to sign a one-year lease to “see how it goes.” Such a short-term deal would have been impossible a few years ago.

“There’s a really nice marble reception desk,” she says of her new space. “It’s a beautiful class-A building.”

Wish’s business may be a small endeavor, but it’s still an example of what often happens during recessions. “Most economic recoveries are driven by small business’s generation of jobs and new business start-ups,” Worthington says. “People get displaced, unemployed, and entrepreneurialism kicks in. There are always people with great ideas.” John Stater, head of Las Vegas research for Colliers International Stater, concurs that mom-and-pop start-ups are increasing. But, at the same time, this growth sector doesn’t help sites such Stephanie Street Power Center, which relies on the “junior anchor” type retailer. The power center concept boomed a decade ago, Stater says, but it remains to be seen if these sites can ever recapture those tenants. “Even then we were kind of asking, ‘How many different electronics stores do we need that are all selling essentially the same thing at pretty much the same price?’ Now it’s … Who’s going to fill these centers we built 10 years ago?”

Vantage Lofts is in a similar predicament. “With something like that, I guess you [as an investor] would have to ask yourself, ‘Was the concept sound?’” Stater says. With units originally starting at $400,000 and topping $2 million, the pricing on the $72 million project is no longer sustainable. And with land prices dropping, Stater sees buyers looking at discounted improved vacant land they could build on quickly once a recovery takes foot, but they aren’t touching lots with partially built structures that need remediation.

“Who really needs that particular parcel of land with that baggage attached?” he says. “As we recover, those sites will probably take longer than others.”

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