During the real-estate-fueled boom of the mid-2000s, Las Vegas routinely made international headlines for its economic super-performance. The market here outpaced others year after year, with median home prices rising from $125,000 in 2000 to more than $300,000 in 2006, when more than 5,000 people moved here each month.
By the end of 2006, the suburbs were stretching to the horizons, the number of visitors to the Strip topped 32.4 million, and the MGM’s $9.2 billion CityCenter—an audacious blend of over-the-top architecture, gaming, hotel rooms, condominiums, celebrity-ordained restaurants and nightclubs, fine art and shopping—was under way. The word “Manhattanization” was on everybody’s lips as other high-rises were planned all over town, monuments to our unchecked swagger. It seemed there was no limit.
It was perhaps inevitable, then, that when the bust came Las Vegas fell harder and further than most. It’s been five years since the subprime mortgage market collapsed, pulling Las Vegas down with it.
This is the story of the rise and fall, as told by some of the builders, sellers and craftsmen who are still working their way through the ravages of the Great Recession.
JACK LEVINE: There had always been a connection between the size and shape and quality of housing and what [the homeowner’s] income was. The more money you make, the bigger and fancier your house was. And we’ve always done that—housing prices rose with the incomes, and buyer expectations rose in terms of: I make this much money in life, I ought to be able to have a pool, or five bedrooms instead of three.
But if you look at the graph of housing prices for 60 years, from 1945 to 2003, it was a nice steady, slow 1 to 3 percent increase in the value of prices, and wages and inflation went with it, and they all stayed in line.
It wasn’t until 2003 that we really needed to keep up with real value in terms of land, and scarcity of land and water, that things set off here in Vegas. The craziness bubbled up and became more and more obvious as we went. You see a 25 percent rise in one year , money poured in from around the world, and people poured in from around the world, and many of them came with money and said, OK, let’s buy a $100,000 house in ‘03, and then it’ll go up 25 percent again, and I make a quick profit. But it didn’t stop. In ‘04-’05 it went up 50 percent from there.
My market here, mid-century modern houses downtown, was the last to go up because the 2003 boom started in new homes in the suburbs, and the first 2003-2004 escalation in prices was [because] we weren’t building fast enough for the inflow of people. And because the population was growing so fast, we were building tons of new homes. Growth outpaced what we were able to build, and the land was getting scarce and the builders started raising their prices. There was a scarcity of buildable land and a scarcity of water rights. There was only so much water.
That added to the initial increase in prices, and it was normal and natural and probably proper that it took our housing stock and inventory and prices to a proper balance. That first year should’ve taken us to the real balance of where we should’ve been in 2003 and 2004. But instead it set off the gold rush of speculation.
Coincidentally, at that time, the federal government had the policy of increasing home ownership, and there was an easing of lending practices at the same time. The bundling of those loans into the derivatives and the whole Wall Street fiasco that really brought it down came later, but right then, it was easing lending practices. [In Las Vegas] we always had loans for self-employed people and tip-income people and poor-credit people, and they came with higher interest rates. But in the past you had to have two out of three things to get a loan: credit, down payment or a source of steady income.
In 2003-04, we started seeing the “liar loans.” The can-you-breathe-here’s-some-money loans. You could borrow half a million dollars without a job, with bad credit and no down payment. If you could breathe, it was, “Here’s a half-million dollars, go buy a house, we know it’s going to be worth $600,000 next year, so don’t worry, we’ll refinance you out of this. Don’t worry, you’ll sell it to the next sucker along the line, we’ll get paid off, everybody will be happy.”
JEFF ADLER: I moved out here from Los Angeles in 2003 because of a job offer. I was in the kitchen cabinet-design industry for my entire career; I’d been in the industry about 20 years, and I sold my condo so I was able to come to town with some money in my pocket, looking for a house. I had a very well-paying job as a general manager in a kitchen showroom and was being paid the most I’d been paid in my whole career.
Like most of [these kinds of businesses], they were mom-and-pops. But this one was thriving in a city where, because of the housing boom and how many people were moving here, you could throw a stick in any direction and it would hit new construction in a residential market. So there were never enough kitchen experts or cabinet experts in town. Places like where I worked were popping up all over the place to keep up with all that growth. My industry was happy as a clam.
By 2005 I changed jobs and was working in sales for Kiss Cabinets. It was a combined job—in order for me to design and draft, I had to sell. It was the first time I was selling. Back then, almost everybody was offering a base salary and a commission on top of that.
By 2006, which was the peak, I was wiping the floor within my job. I mean, I was winning awards, I was breaking records. I sold $1.3 million of cabinets that year. I was in the top 10 of the entire nation in one of the products we sold.
It was the salad days. It was unbelievable. I bought this house [a five-bedroom, four-bath, two-story in the suburbs of south Las Vegas] for $600,000. I was not one of those folks who required a subprime mortgage to get his house. I was making $140,000 in 2006. It was stupid money. And I’m thinking, even if I make two-thirds of this for the next number of years, I’m made in the shade. My wife was working on and off at the time as a fast-food restaurant manager, but the combined income was really serving us and our three kids well.
JENNIFER LEWIS: The Southern Nevada Homebuilders Association used to have an event called Housing Day, and they’d have all these amazing speakers come in. One year, maybe 2005, we had I think a thousand people attend. The issue we were discussing was how to keep housing affordable for teachers, firemen, police officers and different people in the economy because they were starting to get priced out. We were having discussions about inclusionary zoning, where you’d have to keep one house cheaper in your subdivisions for teachers to buy.
If you look back, the median new-home price in 2006 was $330,000. We were at 4.2 percent unemployment, but the median income was still only $57,000, so you can kind of see it was becoming more and more impossible. It didn’t make sense. The core people in Las Vegas couldn’t afford it.
But soon, the lenders stopped checking to see if people could afford them, and I mean, that’s sort of when it happened. People with no discernible employment could tie up a couple of units in a high-rise, and it was sort of, This can’t end well. Suddenly everyone was buying houses to flip—and it was a rocket to the moon.
We knew it was probably unsustainable. Well, we knew we had people lined up trying to buy houses, offering more and more, and you could raise the prices, but nobody really backed up to see that the incomes aren’t going up. Maybe we thought people from California were moving here, which was obviously true … and some of these people had sold houses and had a bunch of money, so I think we thought that for a while.
But then you started realizing these little groups of [investors] were buying tons of housing. It was confusing—who was really going to live in all of them?
Everybody was working on the next master-plan [subdivision] and all these amazing projects. People started looking at new urbanism and all these different things, but nobody really asked, if the incomes aren’t going up, how does this possibly work? It doesn’t seem sustainable. It’s a disconnect from the homebuilders to the lenders, like how do these people get credit?
RICHARD WORTHINGTON: The early 2000s was a massively competitive time in Las Vegas. We were going through this amazing growth. The locomotive was moving a hundred miles an hour. Our core business then was retail. We had built millions of feet of neighborhood, community and regional shopping centers, what we call power centers—Best Buy, Bed Bath & Beyond, what we call category killers … and so we had done a lot of those and a lot of apartments.
I’d go out to the marketplace and try to buy land. If I thought land should be 10 bucks a foot for a neighborhood shopping center, I wouldn’t pay 11 or 12 just because I wanted to have a deal with you … [But then] I kept losing deals. I’d say, “Here’s 10 bucks a foot for your dirt,” and the guy would say “I just got three other bids and this last guy’s at 14,” and he’d say “What are you going to do for me?” and I’d say, “I’m going to respectfully pass.”
RICHARD LEE: When property values went to a million dollars an acre, I had many discussions with people in which we said, “It’s too much. The market’s gotten too hot, it’s too much, it’s got to stop, it’s got to stop somewhere along the line. This kind of price for land, which then moves into the cost of housing, is unsustainable.” That was probably the last part of 2006.
But we said, “It’s not going to happen tomorrow, so let’s rock and roll.” It was that kind of attitude; irrational exuberance: “I’m going to get my share before this thing stops.”
We’d sit there with these clients, major developers and investors and friends and brokers and real estate people, and we’d say, “This can’t be sustainable, it’s not sustainable.” But we had gotten so into the belief that land and Las Vegas real estate would always be strong and healthy that we thought we’d be able to weather any kind of adjustment.
At the height of the market in spring 2006, more than 100 high-rise condo developments were in the works. Some managed to get built—Juhl, Allure, Soho Lofts, The Streamline, Panorama, One Queensridge Place, Trump Las Vegas, Vdara City Center, Newport Lofts—but the vast majority of the projects sank before construction even started. For some in the building and real estate business, the high-rise craze typified the irrational mindset of the market, and when those projects started to fail, it served as an early, if largely unheeded, warning.
FRANK MARTIN: I guess if I really wanted to examine it, my guess is that [the turning point for us was] in mid-2006 when Corus Bank started tightening up equity requirements on ongoing properties—for example Streamline Towers downtown, which is now the Ogden. Our owner had to put up almost another $6 million in equity to get Corus Bank to fund the next pay request. And that was happening before Echelon shut down.
LEE: The high-rise condo was about as much of a bellwether as there was. It was irrational exuberance; we were overbuilding it, and we were trying to convince ourselves that people would pay $1,000-per-square foot for a home to live in a high-rise condo when they can buy a beautiful house on a golf course with a beautiful lawn for $300 or $400 a foot.
The high-rise business was very sexy. They put on lavish parties, and it was more about lifestyle than anything: Can’t you picture yourself hitting the elevator and living like they do in New York and you’ve got this beautiful view of the most famous city in the world?
Remember, these were under construction, so you’d put a deposit down when they were under construction. So let’s say you put down 20 percent—it could’ve been Trump Tower or Allure or Panorama or all the different projects—and while they were building the project, the market changed. There were very few that got completed before the mortgage companies stopped financing condos.
LEWIS: We used to look at the maps with all the high-rises, and there were like 40 high-rise projects, it was kind of confusing where the demand for that was. I think there was a demand for some, the better ones, but not all.
And the thing is, they weren’t all located in the same place. And there are certain places where it makes more sense than in other places, where you have density and an urban lifestyle, so there’s a certain number that made sense downtown, but in other markets on the periphery, not so much.
They were all over: Summerlin, Henderson … There was never enough demand to warrant that many high-rises. There were just so many, and they were all competing with each other, but I don’t know how many people who were depositing money actually intended to close on them. I think there’s definitely a market for a certain number, but it wasn’t anything like the number that were proposed.
LEVINE: The high-rise thing was pure speculation. Pure. Those were all sold to speculators. Nobody was buying them because they wanted to live on Hoover Street, OK? Blocks and blocks away from the nearest 7-Eleven.
Juhl was ready to come online, and was mostly sold by summer of 2008, and then just when they were ready to start closing, nobody could get their loans. The Ogden, which was built as the Streamline tower, was exactly the same time frame. Only 6 or 12 units sold to cash buyers.
THE STORM CLOUDS
By the autumn of 2007, housing prices had been in steady decline since the June 2006 peak, creating problems that rippled through the entire economy. But still, after years of unbridled optimism, some relied on terms like “market correction” or “economic adjustment,” and moved forward with investments and projects, encountering different problems along the way. Signs that it would be more than an adjustment came in waves. For anyone who had missed the coming storm, the most ominous cloud came on Aug. 1, 2008, when Boyd Gaming stopped construction on Echelon, leaving the project’s abandoned skeleton on the Strip where the Stardust once stood.
WORTHINGTON: In 2007, we had just completed the Molasky Corporate Center, the largest privately owned LEED Gold Certified Class-A office building in the state, and we leased seven of the floors to the Southern Nevada Water Authority. SNWA had great credit and lots of money in the bank then. Lots of revenues coming in from meter hook-ups and all that kind of stuff. We had three other floors we were leasing to law firms and different agencies. The U.S. Secret Service took a floor. Really large and very old and storied law firms took space in our building.
So we have this building fully leased, no vacancy at all. We’ve gone from construction in August ’06 and completed it in January ’07; through 2007 we were stabilizing the building, getting tenants moved in, doing tenant improvements. All this time we’re on a construction loan, and then we have to convert to a permanent loan. Well we were fortunate enough to get a forward commitment from a lender—I believe it was JP Morgan in early 2006—because the construction lender gets very nervous about giving someone $100 million to build a building and then hopefully there’s a permanent lender to take them out. So we were lucky to secure our permanent loan commitment before a lot of those manifestations of the recession were coming alive and visible in Las Vegas.
But when we reached the end of our construction and this thing was 100 percent leased, the market starts to melt down and the recession was upon us.
Even though we had this commitment from JP Morgan, they were sort of stepping back from the table [and saying], “Here’s the terms and conditions of your new loan—take it or leave it,” and we found ourselves in a very precarious situation with a construction loan with a floating interest rate, which you didn’t know if rates were going to go to 10 percent or if they were going to zero at that time, because of what was going on in the financial markets.
The collateralized mortgage security market was melting down. They weren’t doing deals. So this was a collateralized mortgage deal, and we’re saying to ourselves, “Holy cow, we have this commitment that might not be worth the paper it’s printed on.” The ironic thing about it was it was a strong developer—we had been in business at that time for 55 years. It was a strong building with strong tenants. And yet people were saying to us, “We don’t want your business.” That to us was a real clear sign that something was really wrong in the financial system, [and] it was going to be a very uncertain future for anybody who depended on functional capital markets.
ADLER: I saw the first changes in my industry in 2007. Sales dropped precipitously for me and most of my colleagues. I went from $1.3 million to $800,000 in sales. I could’ve sold $800,000 for many years ongoing and been just fine. We didn’t know that the next year it would drop the same amount again and again and again.
That was when we first understood something had changed, but we didn’t know what. Maybe it was a small downturn. But by about the fall of 2007, the housing problem, the market problem, the Wall Street problem all came simultaneously crashing down on all of our heads, and so that’s when it became obvious that this was not just a glitch.
LEE: I had a lot of holdings in land, and we knew that we needed to sell as quickly as we could. In fact, we did sell a couple of our projects of raw land. But the problem was, we were so anxious to sell that we didn’t take a big deposit down and we carried the note, and so when [the economy] went down we were left holding the bag. …
I first got scared in one of our investments when the guy backed off. That was probably 2007. He just couldn’t get the money to build. His financing disappeared. He had investors from Mexico, from California, and all the investors got scared. They started getting scared in 2007, even in 2006, and the money supply started to shorten up.
LEWIS: Everybody in homebuilding tends to know each other, and I remember one summer I started getting these e-mails from our friends: ”They just laid off 20 of us, or 30 of us,” or “Do you know anyone who wants to sublease a ton of space?” You just started getting these e-mails, and it was your friends, and maybe some of the first ones would be able to find somewhere to go, but as it started moving along, they couldn’t.
There’s a ton of other [related] jobs, insurance, title, engineers, law firms to some extent—you just could see the ripple run through it. People tried to hold on as long as they could. Some of the smaller builders couldn’t really stay afloat, and some of the national ones started re-evaluating: Should they stay or should they go? It just started rippling through.
Big casinos would start laying off people, and it would really affect the tenants in our apartment buildings, because they work in those casinos. You’d start seeing the husband and wife get laid off in one week. You’d see it very fast. Once a month you’re collecting your rent, and you’d see it.
The other thing is we were big into watching the Clark County Commission and Planning Commission agendas. They used to have these agendas with 65 items, most of it builder-specific—they’re adding 50 units here and 20 units there. Then the agendas started plummeting down to like 10 items, with more just neighborly things, like people adding a casita to their house, or an extra porch, more of that ilk.
LEE: I had all the toys. I had a $100,000 Mercedes, I had a Toyota pick-up that was jacked up with big tires, I had a ’57 Thunderbird. And I had the lifestyle. I had eight credit cards with a combined credit limit of $250,000. I was thinking I was the cock of the walk. And then it stopped.
It hit me when I was sitting at my desk getting ready to pay my bills. I make salary plus commission, so the more business there is out there, that’s where I afforded all of these luxury toys. Well I sat at my desk—I’ll never forget this—and I’m filling out my bills, and my commission check just came in, and it was 70 percent less than what it was a year ago.
I looked at what I owed, and I said, I cannot make those payments. I cannot pay those credit cards. I do not have the money. I can’t borrow it. So the decision process at that time was, There’s not enough money, and there’s probably not going to be enough money for a long time because we could see it collapsing all over, and I said, OK, which credit card am I not going to pay?
ADLER: The company I was working for had enough cash in hand to ride it for a while. But in 2009 I had to leave, because I wasn’t getting paid. They were very slow in responding to the economy, a bit Pollyannaish—Oh, it’ll turn around. They couldn’t get themselves to say, Game over. They racked up debt to vendors and were incapable of paying commissions to salespeople, and they were paying the oldest bills and the squeaky wheels. They were late in shutting the doors, just would not file bankruptcy, so what happened is they started losing us, one by one, starting in the spring of 2009. We were taking the checks to their bank and cashing them that day to make sure we got the money. If we sent it through our own bank, by the time it got there it might not have been good anymore. I left in August.
LEVINE: In August 2008, suddenly nobody could get a loan. I never believed at that point that after 20 years in the business, I could have four solid months without a closing, but I did. That wiped out a couple of my credit cards. But I couldn’t believe it could happen three more times, either. From August ’08 to August ’10. For two years, I had three different gaps of three and four months without a house closing. I’m a busy one-man real estate guy. I’m very good at what I do. I was used to closing four or five [home sales] a month, always.
But suddenly no one could get a loan. It went from anybody could get a loan to nobody could get a loan.
MARTIN: My office is on Highland Drive, and I walk out the back door and I look at the Echelon being built by Boyd. The day they shut that down after spending almost a billion dollars seemed to be the tipping point.
LEWIS: You could go out to a different couple of places in town and see where they literally pulled people off the job in one day. The windows were hung, or there might’ve still been a ladder—they literally quit in the middle of a [construction] phase. You started seeing the layoffs, and the building permits stopped. It was horrible.
ADLER: Even a year before [I lost my job], we were seriously reducing our expenditures here at home. At one point we were spending—with the normal bills and improvements to house and maintenance to the house and the children and vacations—about $10,000-$11,000 a month. It was easy for us because of how much money were making. Within a year we had cut it by two-thirds and cut even further since then. There’s repairs that need to be done to the house, and they’re starting to pile up.
I started looking for a job on CareerBuilder.com in summer 2009, and I was one of the lucky ones at the time—I found another job before leaving the old one. It wasn’t in my industry, per se—a company that manufactured gaming tables, cards, dice, chips, all that kind of stuff. That job lasted two-and-a-half years till they laid me off in January of this year. Suddenly I was out of work. For the first time in my whole life, since I was 17, I was out of work.
LEE: A lot of people said we were overbuilt, but it was not so much that we were overbuilt—we were over-financed. The money supply was so great, it was like people started selling mortgages and forgetting that they were selling houses. [Federal Reserve Chairman Alan] Greenspan had lowered the interest rate to  percent [in 2002] … How much money would you borrow at that rate? All you could. That’s what Wall Street said. [One] percent? Bar the door, Katy, here we go. …
I thought [the downturn] would be a minor adjustment. Nobody predicted that this thing would fall off the cliff, that housing would be 60 to 70 percent less, that raw land would be 80 to 90 percent less. Nobody expected that.
LEWIS: I think the challenge, too, was that you saw that your competitor was selling houses, and he’s marking up the sales every week. And to be competitive, you have to do the same thing or you’re going to get left behind.
It was always shocking how many brokers, land brokers, there were around at that time. They’ve definitely thinned out. The people who are left are more tied to the community and believe in Vegas. Those ones have stayed, which is probably how it should be. Everybody was a broker, everybody was a Realtor. Maybe you’d work in a hotel and your side job was being a Realtor, because you’d just have to walk people through a house and have them sign stuff and buy a house, and so it makes sense—why wouldn’t you do that?
WORTHINGTON: Luckily for us, we were focused on government and government public-private partnership and building things for government. We picked up a really huge book of business and ended up thriving through those really tough years.
We weren’t dealing with OPM—other people’s money—we were dealing with our own money. We were dealing with our own reputation, most of the time building for our own account, which meant most of the time, building things for us to own and hold for long-term appreciation. And so we had to find another business segment where there was more sanity, and we determined that was government work.
This is a small town in a lot of ways and a tight-knit industry, and I think there were a lot of people looking at us and saying, “Hey, there’s not a lot of money in government work.” We were looking at these things from [a position of] long-term ownership, debt amortization, very minor cash flow, but unbelievable stability in the credit and payability on the part of our clients. There are a lot of really significant development firms in town that have lost a lot of money and a lot of wealth and a lot of equity because their tenants are evaporating. We were sort of the tortoise and the hare. We did these deals that weren’t that sexy, didn’t pay big dollars, but you knew the government was going to wire your check every month from the U.S. Treasury.
MARTIN: I look at it with a sense of sadness for what’s happened to the industry. What’s happened with my company—I look at that with a sense of sadness as well. And with some sense of disbelief. I’ve been in business for 35 years now, and until the last four years we were pretty much infallible. In the Las Vegas market if you delivered a great product in the 30 years previous to that you pretty much were going to be a success. There were more contractors that failed because they had too much work than those who did because they had too little, and right now they’re failing because there’s too little work. Everybody over the past four years has taken some major hits.
ADLER: I’ve been with Closet World since February. It’s a part-time, on-call job. I would much rather be making a salary, a 9-5er if that’s what it would take to feed my family, than this on-again, off-again, maybe I’ll sell something, maybe I won’t, 100 percent commission job. There’s the rub. There might be a job out there in the kitchen industry, I don’t know, but every one of them has converted to 100 percent commission. A friend of mine who was a great salesman in that field made $15,000 last year.
At one point we were thinking of moving to Phoenix. The problem is we’re so upside down in this house that we would be carrying with us a burden we could not handle. There’s also no guarantee I will find work down there. I did a little searching in my field, and I didn’t see a single job. I know you have to be flexible. That’s fine, I’m flexible.
The very well-to-do, who have all sources of income, and well-deserved, God bless them, they can still buy the high-end kitchen now and then and keep some of these places’ doors open. But the vast majority of work out there is dog-eat-dog in the cabinet industry. Companies will low-ball the heck out of you in order to just get a job, get some cash, keep their doors open another week.
I’m not a great saver, but I did start an IRA back in 1999. And it continues to be the only thing that keeps us alive and afloat and able to pay our bills when they get overdue, because even though the value of the IRA plummeted in 2007 and ’08, it came back for the most part. I’ve drawn out of it—it’s not a huge thing, don’t get me wrong—on occasion, and we take the penalty at tax time. But it keeps us up to date with our bills when we do fall behind.
Every year we think we’re going to have a break, something else happens where an emergency occurs where we have to spend more than we expected, so we dip in. We’re still paycheck to paycheck.
MARTIN: Now we are finding opportunities locally. First quarter, we procured around $38 million in new work, about 60 percent was local and the rest was out in New Mexico, Northern Nevada and Texas. For the first time that number started coming back. It’s the first quarter that we procured more work in Las Vegas than we did outside of Las Vegas.
We really have been blessed, but unfortunately there are a number of companies that after surviving the last four years or more are now finding they have to close down. Three general contractors have closed their doors this year so far. I think they’re making a business decision: “Do I keep feeding this animal?”
WORTHINGTON: We’re not in the locomotive doing 100 miles per hour anymore—there’s a lot of prospective development and economic activity that is not occurring that used to occur. In other words, if you were a CVS drugstore development executive in the early 2000s, you were looking at sites out in Aliante before a casino and homes were ever built because growth was so quick if you didn’t lock up your sites and spend that money, you were left out of the market. So there was a lot of hop-scotching in terms of getting ahead of that growth curve. That just doesn’t happen today.
LEVINE: I’m an optimist, I’m a progressive, I never believed that it would go as deep as it went, and that the turnaround would take as long, but I never believed it wouldn’t happen and that the new Vegas that arose from the ashes wouldn’t be bigger and better, and I’m of exactly that belief today. And so is all the money that’s pouring into Vegas today.
But they have to come with money. If you want to speculate in Vegas now, you have to do it with your own hardcore money in the bank; you can’t do it with borrowed money right now, and that’s a very good thing. That’s a very good thing, because it’s real investment money, it’s not bubble investment money.
LEWIS: Really, all you need to do is look down on the Strip and say, Are they building something? Is it tall? Will it have a lot of people working there? Right now, if they started a couple more of those casinos, that’d be greatly helpful.