Report: 25% of LV commercial real estate troubled

By Steve Green

Friday, April 3, 2009 | 3:08 p.m.

Commercial properties valued at a whopping $7.885 billion are in trouble in Las Vegas as casinos struggle under the weight of the recession and office buildings and shopping malls lose or are unable to find tenants, a research firm says.

Real Capital Analytics Inc. of New York said that in terms of troubled commercial properties and loans against them, Las Vegas ranks second in the nation behind the much larger New York market, with $8.525 billion of loans and property in trouble, and is ahead of the far larger Los Angeles market at $5.02 billion.

Real Capital senior market analyst Jessica Ruderman said the problem has accelerated in Las Vegas since February 2008, when loans on troubled local properties totaled $4.8 billion, or 17 percent of the market. She estimated the new figure of $7.885 billion represents about 25 percent of the market.

The company identifies properties that are in trouble by looking at foreclosures, tenant departures and the weakening finances of their owners, among other factors, she said. For instance, the Las Vegas numbers include the Tropicana hotel-casino, which is in bankruptcy; the Riviera hotel-casino, which has warned it may need to seek bankruptcy; and two shopping malls owned by struggling real estate giant General Growth Properties Inc. Those malls are the Fashion Show and the Shoppes at the Palazzo, both on the Las Vegas Strip.

The problem in Las Vegas, and other markets, is that developers and other borrowers who run into trouble because of the economy are having difficulty refinancing their debt; while lenders increasingly are having to make concessions so they don't have to foreclose on the properties, Ruderman said.

So far, she said, government assistance to banks hasn't freed up a lot of credit, "But we're hopeful that will help.''

Jeremy Aguero, a principal at Applied Analysis in Las Vegas, noted that in Las Vegas there are signs of life in residential real estate. On Thursday, Las Vegas was among the cities highlighted by BusinessWeek in a story called "Housing: Signs of Life.''

"The foreclosure-torn city saw a 108 percent increase in home sales in February as buyers scooped up homes at 2002 prices,'' BusinessWeek said of Las Vegas.

Aguero's firm has identified commercial real estate as the top economic challenge in Las Vegas this year and no turnaround in that sector is foreseen through 2010 as new product -- started when the economy was strong -- continues to come into an already oversupplied market.

There will soon be five years worth of inventory to absorb in the local office market, which is already struggling with a vacancy rate of 17 percent, Aguero said.

Aguero said it's hoped that government assistance to lenders will help free up credit, but that in many cases in the commercial market the only alternative is bankruptcy because so many properties are under water, meaning they are worth less than what is owed on them. It's also hoped that government stimulus packages will create jobs, which would improve consumer spending and hopefully help struggling retailers and their landlords.

Overall, he said, a local economic rebound "is still too early to call.''