Las Vegas property values at 2000 levels

Las Vegas property values have declined to levels of 10 years ago, but will recover to 60 percent of their peak in the next two to three years, the leader of a local academic institution said Wednesday.

Real estate has reached a point of stability and established a new base line for values, said Robert Lang, director of Brookings Institution at University of Nevada, Las Vegas.

"There is a point where real estate drops so low, it's past the intrinsic value of replacing that real estate," Lang said at a quarterly market presentation by Colliers International brokerage. "I think the actual bottom is irrelevant once you pass that zone. Anything on the upside of intrinsic value, you don't even need a full recovery."

That's why people are coming to Las Vegas and writing checks for homes, he said. Investors know they can't replicate the product for the price, even if there's no expectation for appreciation.

Lang, who was recently appointed to the Brookings' job at UNLV, remembers coming to Las Vegas in 2005 for a think-tank discussion on affordable work force housing.

"The big issue was where are people are going to live. Apparently they're going to live in McMansions," he said. "In recovery, the real estate overhang can switch from being a drag on growth to being a driver of growth."

John Stater, research manager at Colliers, said there are signs of a national economic recovery, but he doesn't see much improvement in Las Vegas.

Vacancy rates are rising in every commercial sector and rents are declining. The positive news is that new supply hit zero in the first quarter.

"I didn't think I'd ever see that in the valley," Stater said. "It's not good news if you're a developer, but it's good for the economy."

The condition of Southern Nevada's industrial market is improving slowly, he said. Lower rents help stimulate demand and create opportunities for startup businesses and expansion.

There is still some pain to endure, he said, as the amount of distressed industrial property is increasing and employment continues to fall.

Office vacancy remains elevated at 22.6 percent with negative absorption, or more space being vacated than leased. The market is showing signs of ending the free fall experienced in the past two years. Stater said the office market will emerge from the recession before retail and industrial.

"Employment is the key," Stater said. "Strong employment means strong absorption. We're going to need more jobs to get out of this."

He's seeing some interest from retailers looking to expand in Las Vegas. They include BJ's Brewhouse, Chipotle and Hispanic grocer Cardenas.

Attorney Tisha Black-Chernine said she's noticed commercial lenders taking a lesson from the residential sector, particularly in doing more workouts of loans in default. She estimated $1.8 trillion in commercial real estate debt workouts.

"There is this notion of the other shoe falling with regard to commercial real estate," she said. "Whether that's a soft shoe or a hard shoe ... as you know, there's a lot of regulators in discussion with banks that are too big to fail."

Lang said he recently attended a meeting in Boston sponsored by the Urban Land Institute and heard someone say Phoenix, Las Vegas and Denver are the "new Cleveland."

"I don't know if it's the Eastern bias. Either they love us or hate us. Either everybody's moving here or everybody's abandoning the place," Lang said.

Las Vegas is the largest city for the exchange of business ideas, he said. Major companies aren't wasting money sending top executives here as junkets, but to work 12-hour days and meet business contacts at evening events, he said.

"There are surveys that said they lose business by not going to these shows," he said.

Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.