November 7, 2009 REAL ESTATE: Homebuilders hunt for land Las Vegas one of areas with falling prices By HUBBLE SMITH LAS VEGAS REVIEW-JOURNAL The housing bust left homebuilders with plenty of red ink on their books as they walked away from swaths of land they no longer needed. But now homebuilders are on the hunt again, vying for choice parcels even in foreclosure-riddled markets such as Las Vegas, Southern California and Orlando, Fla., where prices are cheap and there are early signs of a recovery. While experts don't see a full-blown land rush, they notice a surge in land deals since early summer as home sales and prices began to stabilize. For the better lots, the competition is fueling bids well above the asking price. It was primarily investors buying lots in Las Vegas for the past two to three years, said Michael Stuart, senior vice president of land for Colliers International in Las Vegas. Since August, major builders such as KB Home, Richmond American and Harmony have "jumped back in the game," he said. "Raw land is still pretty much dead," Stuart said. "Everybody realizes that nobody is producing finished lots. By the end of next year, we're going to be out of finished lots or close to it." He represented Kimball Hill Homes, which filed for bankruptcy last year, in the recent sale of about 1,100 lots in Las Vegas to Irvine, Calif.-based SunCal Cos. for more than $20 million. Most of the lots were in the master-planned communities of Providence, Mountain's Edge, Green Valley and Southern Highlands. Kimball Hill has cleared out most of its Las Vegas portfolio and reduced its staff from 1,600 employees to about 10, he said. Ryland Group Inc. and Meritage Homes Corp. are among those that jumped into the fray. Meritage recently signed contracts to buy 2,500 lots spread out over new communities in several states, including California. The builder plans to open nine new communities this year or early next. This summer, Ryland bought land or signed option contracts to do so in several markets, including Indianapolis, Atlanta, Houston, Las Vegas and Baltimore. "We are pursuing more deals than at any time in the past several years," said CEO Larry Nicholson. Dennis Smith, president of Las Vegas-based Home Builders Research, said he's seen a flurry of activity from both builders and investors purchasing residential lots in Las Vegas. He reported more than 17,000 finished lots in the metropolitan area, including about 2,500 available for purchase. Not all builders are looking to expand their land stockpile. Pulte Homes, for example, has been more conservative. The builder added thousands of acres to its land holdings when it acquired rival Centex Corp. in August. And roughly half of those parcels are already primed for construction. "We're not one of those who need land," said Richard Dugas, Pulte's CEO. Before it was acquired by Pulte, Centex let the option expire on an agreement to purchase about 2,200 acres owned by LandWell Co. in Henderson. The land, former site of a World War II chemical manufacturing plant, was in escrow for two years while the soil was being tested and analyzed. "In the past (builders) had really been the ones that had been feeding the market and selling lots to investors," said Tom Dallape, principal at Hoffman Co., a land brokerage firm also based in Irvine. "Now all of a sudden they are rushing back in." The timing of these land deals could also be risky. "The stability we've seen has been nice, but it hasn't been for long, only five or six months," said Megan McGrath, an analyst with Barclays Capital. "There is certainly some risk that if the market tails off again or we start to see cancellations pick up, some of those deals that previously penciled may not pencil anymore." Still, with new home sales up 22 percent this year, builders have grown more confident in their ability to estimate what they should pay for land and expect to profit after construction costs. Land is changing hands in Las Vegas at a faster pace than anytime in the past three years and prices are inching upward, said Aman Lal, who recently opened an office for Hoffman in Las Vegas. That's a strong signal the city's housing market has hit bottom and is starting to recover, he said. "There is a big misconception out there that the land market in Las Vegas is dead and all the homebuilders have gone away," Lal said. "In fact, what's happening now is just the opposite. The supply of finished lots is diminishing rapidly and builders are clamoring to snap up what's left so they won't be forced to buy raw land." Builders are primarily looking for land in areas that are already cleared for home construction. That way, they will be ready to build and sell in just a few months. The Associated Press contributed to this report. ____________________________________________________________________ A Focus On The Future MGM shrugs off quarterly loss, says CityCenter will spur rebound By HOWARD STUTZ LAS VEGAS REVIEW-JOURNAL For the moment, forget about MGM Mirage's $750.4 million quarterly net loss, $1.17 billion in noncash impairment charges and a revenue decline of 9 percent. To the Strip casino giant and its investors, the company's third-quarter earnings announcement Thursday was all about CityCenter. The first component in the $8.5 billion, 67-acre Strip development, the 1,500-room nongaming Vdara, opens in 26 days. The project's retail, dining and entertainment component opens two days later, followed by the nongaming Mandarin Oriental on Dec. 4. MGM Mirage executives spent a considerable portion of their hourlong conference call with analysts expressing optimism that the $8.5 billion CityCenter will not only grow the market, but will fuel Las Vegas' economic rebound in 2010. They said the company, which now operates nine Strip hotel-casinos catering to all ends of the consumer spending spectrum, has the necessary data showing that a turnaround has begun. "We're not out of the woods and we're not popping the champagne corks like the New York Yankees, but there are signs the market is healing itself," said MGM Mirage Chairman and Chief Executive Officer Jim Murren. "We know the market. None of our competitors has the empirical data that we have in front of us because we deal with every type of customer that comes to Las Vegas." Murren told investors CityCenter could spur a 5 percent to 10 percent increase in Las Vegas visitor volume in 2010 and a gradual increase in revenue per available room, a nontraditional measurement Wall Street uses to determine profitability. Convention bookings into 2010, he said, have increased. The company has booked about 550,000 convention room nights into the third quarter of next year, the bulk of which are at Mandalay Bay. Las Vegas history, Murren said, has shown new resorts grow the market. He cited The Mirage's opening in 1989, MGM Grand in 1993, Bellagio in 1998 and Wynn Las Vegas in 2005. None of those resorts, however, opened in the middle of a recession. "We believe this opening will truly differentiate ourselves," Murren said. "(CityCenter) is a must-see iconic destination. It's an investment not only for next year, but also for future years." Wall Street is still skeptical. "We remain cautious on Las Vegas' operating trends heading into a 10 percent supply increase starting next month with CityCenter," Goldman Sachs gaming analyst Steven Kent said. To ensure attention, MGM Mirage plans to spend $20 million by the end of December on advertising and promotional activities surrounding CityCenter's opening. In 2010, the company will spend $27 million on newspaper, television and Internet advertising to build the CityCenter brand. CityCenter CEO Bobby Baldwin said company projections have Aria, the development's centerpiece 4,004-room hotel-casino that opens Dec. 16, generating $1.2 billion in revenue in 2010. Aria has booked hotel rooms 258 days and has become the Strip's most expensive hotel, booking a room rate that is a premium to Bellagio 80 percent of the time. Crystals will open with 47 percent of its tenants in December and expects to be 82 percent occupied by July. Baldwin said the CityCenter residential sales employees have spoken with about 700 of the 975 buyers of the project's residential offerings about the 30 percent price reductions announced in October. Condominium sales will begin closing in January at Mandarin Oriental, the all-residential Veer Towers in February and Vdara in March. Even with the price reductions, Baldwin said the condominium sales will exceed the company's financial projections. _____________________________________________________________ Data Show Economy in Recovery Manufacturing activity soars THE ASSOCIATED PRESS                 WASHINGTON – Better-than-expected news Monday on manufacturing, construction and contracts to buy homes boosted hopes for the fledging economic recovery.                 The surprisingly strong readings provided some comfort that the economy is packing more momentum than assumed going into the end of the year.  Still, with jobs scarce, lending tight and consumers wary of spending, it’s unclear whether the gains can be sustained as government stimulus programs wind down.                 The institute for Supply Management’s gauge of manufacturing activity grew in October at the fastest pace in more than three years.  It was driven by businesses’ replenishing of stockpiles, higher demand for American exports and support from the government’s $787 billion stimulus program.                 The ISM index shot up to 55.7 in October, the third straight reading above 50, which signals growth in the sector.  It was the highest level since April 2006.                 “It clearly looks like we are seeing a turnaround in the manufacturing sector,” said David Wyss, chief economist at Standard & Poor’s in New York. The overall economy, as measured by the gross domestic product, expanded at a 3.5 percent rate in the July-September quarter.       Economists cautioned that the manufacturing pattern seen in the past two post-recession recoveries likely will be repeated this time:  In each case, early strength in manufacturing, led by companies’ restocking of inventories, faded within a few months.      Wyss agrees that the ISM index could dip below 50 in the first               quarter of next year.  But he thinks that would be a temporary slump and not a sign that the economy was dipping back into recession.                 “A bit of a slip in manufacturing would be consistent with a sluggish recovery,” he said.                 The overall economy, as measured by the gross domestic product, expanded at a 3.5 percent rate in the July-September quarter.  That number provided compelling evidence that the longest recession since the 1930’s was ending.  Wyss said he expects GDP growth to slow to around 1.7 percent in the current quarter and to remain sluggish in the first half of next year.                 Other economists are more optimistic, with some forecasting that GDP growth could come in around 3 percent in the current quarter.                 They pointed to the government report Monday that construction spending rose a bigger-than-expected 0.8 percent in September, fueled by the strongest jump in home construction in six years.  The gain in housing offset continued weakness in construction of office buildings, hotels and shopping centers.                 In a third report, the National Association of Realtors said the volume of signed contracts to buy previously occupied homes rose 6.1 percent in September to a reading of 110.1.  That’s the highest level since December 2006.  And it’s more than 21 percent above a year ago.                 The eighth straight monthly gain came as the housing market rebounds from the worst downturn in decades.  The improvement has been aided by federal intervention to lower mortgage rates and bring more buyers into the market. ___________________________________________________________________ October 15, 2009 Las Vegas Commercial Office Market Third Quarter 2009 Market Update by Jake Joyce     The Las Vegas Valley office market reported its fourth consecutive quarter of negative net absorption, suggesting the amount of space being vacated continues to outpace move-ins.  The latest market activity is sourced to contraction in office-using employment and continued weakness in the broader economy.   Supply and Demand     Office market inventory expanded by 214,600 square feet during the past quarter, reaching 49.5 million square feet.  Additions to the market were concentrated in the south and southwest submarkets, with 55 percent of completions sourced to owner-user buildings and the remainder in speculative developments seeking tenants.  Market additions during the first nine months of 2009 totaled 908,800 square feet.  Despite the positive absorption sourced to the occupancies of two owner-users in the third quarter, market-wide net absorption was negative with 154,600 square feet.  During the first nine months of 2009, net move outs totaled 1.8 million square feet, which will almost assure a negative performance for the entirety of the year, a scenario that has not occurred in recent history.     The latest supply and demand movement resulted in a record-high vacancy rate of 22.7 percent as vacant space reached 11.2 million square feet.  Current availability remains ahead of the 22.0 percent reported in the preceding quarter (Q2 2009) and the 17.0 percent posted one year ago (Q3 2008).  Vacancies hit the trough during the current cycle during the third quarter of 2005 with an average rate of 8.1 percent, suggesting the vacancy factor may triple from the bottom before peaking in 2010.   Key Market Considerations     With weakening demand for office product, excess supply levels and only a handful of projects actively under construction, it is likely the market will see development activity essentially cease by mid 2010.  In the near term, pricing adjustments will continue to prevail as business contraction continues and lender-involved transactions set the bar.  While the development community continues to struggle through the correction period, the brokerage community may very well remain busy as tenants seek out more cost-effective rental and/or ownership options as leases expire.     The amount of occupied product continued to decline for the fourth consecutive quarter, while vacancies followed the expected path -- rising significantly.  Assuming market demand returns to normalized levels, approximately three and a half years of excess, effective inventory remains on the books.  This timeline combined with the period at which market demand turns positive could result in elevated vacancies for a period of five years or more.  There are several factors that could shift the correction timelines, including economic diversification efforts and expansions in the medical field for an aging senior population. __________________________________________________________________ March 18, 2009 Las Vegas Vacant Land Market A Market Update by Brian Gordon The Las Vegas valley vacant land market continued to report declining sales volumes and volatile market pricing through the fourth quarter of 2008.  The combination of tight capital markets and sharply declining profit margins translate into fewer sales (to speculators and end users) and lower prices.  Weakness in overall demand is also forcing some property owners into foreclosure as asset values drop and the ability to weather the storm is more limited.     When reviewing broad market averages it is important to note that limited sales volumes can materially impact pricing.  Additionally, every parcel sold maintains unique characteristics including location, accessibility and entitlements as well as varying circumstances including those of the buyer and seller.  Despite these considerations, the latest market performance trends are clear. During the final quarter of 2008, the market reported 320.9 acres changing hands, which is down 29.0 percent from the same quarter of the prior year.  During peak periods of sales activity in the 2004 to 2005 timeframe, the amount of property changing hands was approximately 10 times the levels witnessed in late-2008.  During all of 2008, a total of 1,223 acres were sold, which is approximately one-half the total reported in 2007 and about one-fourth the amount sold in 2006.     During the fourth quarter of 2008, property values continued to decline as demand dictated lower price points.  On average, properties traded for approximately $391,900 per acre, or $9.00 per square foot, which represented a 14.8-percent drop from the preceding quarter (Q3 2008) and a more significant 58.3-percent decline from the same quarter of the prior year.  It is worth noting these comparative values exclude resort property transactions which carry significant pricing premiums.  During the fourth quarter no significant resort properties were sold.  Additionally, the comparison to the prior year fourth quarter reflects the highest quarterly average recorded in Las Vegas’ history.   Performance by Parcel Size   • Representing 9.8 percent of all sales activity, parcels less than 2.5 acres in size reported sales of 31.4 acres with an average price of $448,600 per acre, which was approximately one-half the value reported one year ago ($908,000 per acre).   • The market witnessed 35.9 acres of property change hands in the 2.5 to 4.9 acre range.  They traded at an average price of $327,900 per acre, which was well below the prior year, which included selected resort parcels.   • Property sales of parcels ranging in size from 5.0 to 9.9 acres represented 47.1 acres or 14.7 percent of valley-wide sales volumes.  The average price of those transactions was $336,200 per acre. Pricing comparisons to the prior year were impacted by high-end resort transactions in 2007.   • The larger 10.0 to 19.9 acre sized parcels represented 7.2 percent of market activity with 23.2 acres sold.  These parcels traded at an average price point of $280,200 per acre, down 70.8 percent from the prior year.   • Parcels ranging from 20.0 to 49.9 acres accounted for 34.2 percent of all property sold, while reporting an average price per acre of $555,400.  Pricing was down by 53.5 percent from the prior year.   • A single 50-acre-plus transaction took place during the quarter.  Approximately 73.6 acres were transferred at an average price per acre of $225,400.  No large parcel transactions took place during the same quarter of the prior year.   Performance Summary and Outlook       Broader market conditions continue to impact overall demand for commercial and residential property, ultimately factoring into demand for raw land.  The national recession combined with sluggish local fundamentals have investors and developers contracting and conserving resources, which is placing downward pressure on pricing.  Commercial vacancy rates have reached new highs in the majority of segments, which limits demand for underlying real property.  We expect these conditions to continue into the foreseeable future as unemployment rates remain above 9 percent, office vacancies extend beyond 17 percent, gaming and sales activity are down significantly from the prior year and consumer confidence levels remain at all-time lows.             Although the correction now underway was not unexpected, it has left many investors, developers and lenders in a tenuous position. Our analysis focuses specifically on vacant land transactions; however, we are closely monitoring similar trends for land underlying homes, office buildings and retail centers. This value that was once equity underlying development and collateral for residential and commercial loans has been reduced significantly.  There are few signs market conditions will improve significantly during 2009, and we expect an increasing number of vacant land sales to come from distressed and bank-owned transactions.