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Financial leaders agree: LV recovery will take time
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LAS VEGAS REVIEW-JOURNAL
Updated: Apr. 10, 2012 | 9:41 a.m.
A bankruptcy lawyer, head accountant and hard-money lender who spoke to a business group on Friday agreed that the Las Vegas recession will run long and cut deep.
Unemployment will reach 15 percent after the holidays, up from 13.9 percent now, predicted Mike Shustek, founder of Vestin Group, a hard money lender who makes loans secured by real estate.
Marginal hotel-casinos that are loaded with debt will be cannibalized, said William Wells, managing partner for RSM McGladery, an accounting firm.
In fact, one reason commercial foreclosures are not worse is that banks don't want to take back collateral so they are continuing to negotiate with borrowers, said Greg Garman, managing partner for the law firm Gordon Silver.
The three executives spoke to about 75 attendees at the CEO-CFO Group at McCormick & Schmick's on Flamingo.
Garman estimated lenders provided $3 trillion to $4 trillion worth of debt to Southern Nevada borrowers over the last few years.
He said the Fontainebleau Las Vegas is an example of the problem hitting Southern Nevada now.
"You can't refinance it and can't sell it," Garman said of the bankrupt property which is now stalled and unfinished.
So far, $2 billion has been spent building the $3 billion Strip casino property, but it would take another $1.5 billion to complete it, he said. Then, it would only generate $100 million in yearly cash flow, he said.
Penn National Gaming is offering "less than $300 million" to buy it, according to news reports, but that wouldn't even cover the $400 million owed contractors and subcontractors with mechanics liens on the property.
As bad times continue, Garman predicted a flood of lawsuits among business partners and against lenders. Debtors will "swing for the fences, because you don't have a lot of options," he said.
"You are not going to see new construction in commercial (properties)," Shustek said.
Vestin's most recent loan was $18 million to a company that bought a performing pool of $40 million in loans from the Federal Deposit Insurance Corp., he said.
In the residential sector, Shustek predicted little new construction until the inventory of foreclosed properties is sold, because these homes are going for less than the cost of building a new home.
Developers have cut the price of high-rise condominiums by 30 percent to 40 percent, Shustek said.
While many low-end homes have gone through foreclosure, "you are going to see the big-end (homes) start to get it," Shustek said.
Wells expects a W-shaped recovery for housing, with prices climbing and then falling again.
"Where is the job growth going to be coming from?" the accounting executive asked.
The government will make a housing recovery even harder when it is forced to raise interest rates to fight inflation, Wells added.
"It's not going to be the fantastic numbers we had 2003 and 2006," Wells said. He said a slower economic pace will become the new normal.
Businesses are changing their strategies. "Just growing for growth's sake is not the way to go. People are learning how to run their businesses with fewer people," he said.
Contact reporter John G. Edwards at jedwards@reviewjournal.com or 702-383-0420.
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This current Debacle could be seen coming for years.And no one in a position of power or influence gave a damn !GREED GREED GREED ! ! ! That's what fueled all of this crap and eventually good people gave in and bought into the idea.The fact of the matter is that it will take not 2-5 years to fix all of this but it will take years and several Presidents.Homes prices need to come down.Look at the desparity in earnings versus what a average person or ciople can afford.The American dream is gone ! Aside from freedom.But what true good is in this if your always broke and struggling.That's the biggest reason for divorce in the U.S.A. Finances. Corporate America is taking advantage of this and getting this great country by the throat with a "Death Grip" Take care of yourselves but don't buy pricey items if you truly don't need it.Macy's and all the department stores have all their clothes and most finer textile goods made in the same locations that WAL-MART does ! ! ! Stop listening to all these so called wise people who are trying to get you to listen to their teeth rattle.Pastors included.Amen !
Nice euphemistic title. "Financial Leaders Agree: LV Recovery Will Take Time." Why not, "Unemployment Predicted to Rise to 15%"? Or "Highest Foreclosure Rate in the US"? How about "Housing Prices Continue to Plummet in 2010"? Or possibly "We Don't Have A Clue about What We Did Wrong, And We're Not Likely to Figure It Out"? FYI: Foreclosure. com lists 22,3503 pre-foreclosures, 16,992 foreclosures, 9,402 bankruptcies, 2,799 sheriff's sales, and 17,719 tax liens. This is not an advertisement for the website. It's a sign of the troubled times we have ahead of us in Las Vegas.
WOW! Phil posting below is an all seeing, all knowing, all telling prognosticating economist!
Knows all, sees all, tells all!
Please, seer, sage, soothsayer, impart more of your wisdom.
You are so much smarter than the rest of us.
What else is there to follow up on, it's pretty cut and dry. the government CANNOT CREATE enough sustainable jobs to pull us out of this mess, it will have to be the private sector which is going to take years. This country is double the population it was in the 1930's so any New Deal ideas are not going to make much of a dent as we have already seen with the lame Obama excuse that the stimulus saved or created 30,000 jobs. That is the a drop in the bucket when you have 5,000,000 jobs lost over the last 15 months.
One other thing that was briefly touched on- interest rates are exceptionally low at the moment and when Bernanke has to start pulling in the $1 trillion dollars or so over the next 6 months or so that is propping up the banking system you are going to see rates rise dramatically. One other thing that wasn't mentioned is that there is about $4 trillion of commercial real estate loans nationally that are coming due in the next 18 months, good luck refinancing those with 40% vacancy and higher interest rates.