Professor says recession will last through end of this year

By Mark Hansel (contact), Buck Wargo (contact)

Monday, April 13, 2009 | 2 a.m.

Southern Nevada is in for its longest recession since the Great Depression, according to a UNLV economist.

The economic slowdown will run through the end of 2009 based on the latest trends, said Keith Schwer, UNLV’s Center for Business and Research director.

All 10 categories of the Southern Nevada Index of Leading Economic Indicators declined in March. The index is a forecast through July 1, but Schwer said it’s evident the economy won’t be improving anytime soon.

The March index showed that, from the same period in 2008, gaming revenue fell 16 percent, taxable sales fell 13 percent, visitor volume fell 12 percent, the number of airport passengers fell 16 percent and convention attendance fell 21 percent.

Commercial building permits fell 73 percent and residential building permits fell 57 percent.

March’s index total of 126 is the lowest since early 2002.

“It’s not pretty,” Schwer said. “It’s going to take awhile before things get better. We are in the winter of the recession. It has been quite clear for some time that this was not going to be like recessions we have experienced in the last 25 years.”

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Local contractors say a Dunkin’ Donuts franchise group owes more than $1 million for construction work at four area locations, has cash available but won’t pay up.

Kainos Partners entered the Las Vegas market in 2007 and has 18 Dunkin’ Donuts stores operating in the area, but late last year the company stopped making payments on four stores under construction, contractors say.

Larry Monkarsh, owner of LM Construction, says Kainos Partners representatives have told him they are holding their cash reserves for operating capital and future expansion, while trying to negotiate a loan to pay the money owed to the contractors. Monkarsh said he sympathizes with the group and recognizes that a lot of companies are struggling to obtain financing, but he thinks Kainos has an obligation to satisfy its current debts before focusing on future projects.

“Right now we feel like we’ve been left holding the bag here.”

Bart Thorne, chief operating officer of Kainos Partners, admits the company owes money to some local contractors and said it is trying to obtain financing, but would not discuss the amounts owed or its business strategy.

Kainos Partners has 56 Dunkin’ Donuts franchises in three markets: Las Vegas; Buffalo, N.Y.; and South Carolina.

Monkarsh said LM has not been paid since October and is owed about $750,000 for work on two stores. Another local contractor, Strata Building Group, also has two Dunkin’ Donuts stores under construction in the valley. Charlie Mitchener, president of Strata Group, said his company is owed about $400,000.

“The problem is that it trickles down,” Mitchener said. “We can’t pay our subcontractors, then they can’t pay their suppliers.”

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The housing market downturn has hit again with local homebuilder Rhodes Homes filing for Chapter 11 bankruptcy protection.

The filing covers Rhodes Design and Development and a group of related companies whose assets include the master-planned communities of Tuscany in Henderson and Rhodes Ranch in the southwest valley, the company said.

The company’s assets were used as collateral for a $500 million credit facility arranged by Credit Suisse in November 2005 and funded by a consortium of financial institutions, including Highland Capital and General Electric Corp., the company said.

The money was used for growth during the housing boom but because of the downturn, company founder Jim Rhodes said, it was unable to meet a March 31 principal and interest payment.

Rhodes Homes in a statement blamed the severe economic downturn for creating a situation in which land values and home values have plummeted and new-home sales have fallen dramatically.

Company officials said the bankruptcy court filing will have little effect on day-to-day operations, including sales and construction.

Longer versions of these items appeared in this week’s In Business Las Vegas, a sister publication of the Sun.