I get a lot of inquires about Las Vegas commercial real estate by both real estate investors and those who want to sell their commercial property in Las Vegas. So here is my evaluation.
Everyone knows about the credit crunch that is affecting all areas of US economy and has had a pronounced negative effect on Las Vegas residential and commercial real estate. The deal is that in 2007 Las Vegas homes and condos were not selling due to their pricing and did not start to sell until the end of 2007 when price drops accelerated and these home and condos became undervalued with respect to current market conditions.
As we can see, even with the credit crunch banks are making VA and FHA loans and those who can qualify for these loans have no problem with obtaining these loans. Condominiums and homes that can be financed with these loans are selling very well and the best deals often get multiple offers.
Other than getting tax payer government hand outs, VA and FHA loans are the only way that these banks can make money. Actually many banks require the buyer for their foreclosed condos and homes to get a pre-qualify letter from one of their mortgage officers, regardless of being pre-approved by another mortgage lender so they can get a shot at writing the loan for their own foreclosed property and offer some incentives to attract the borrower to their loan package.
The price drops for Las Vegas residential real estate did not happen quickly and it took wave after wave of foreclosures during a two year period. Greater Las Vegas condominiums and homes were then priced realistically and quickly became undervalued. The same has not happen for Las Vegas commercial real estate yet, but I predict it will.
- A gentleman contacted me from Spain asking for a parcel of land that his company can build between 100-200 condominium apartments in Las Vegas. I told him that this is not a good time to attempt such a project and a better option for him would be to finish someone else’s unfinished project or a foreclosed condo community and here is why:
The majority of commercial properties in Las Vegas are overpriced with respect to current economic market conditions. Time after time I see commercial properties that have been listed for sale for 20%-75% higher than the previous purchase price in 2005-2007. Although this could be justified in a few locations, it is crazy in most other locations. Pricing a property based on what the seller paid for it previously guarantees failure.
It is the real estate agents job to tell the seller what their property is worth and even if the agent fails in doing their job and then takes the listing, the seller should think about what happened since they bought the property to justify such an increase in their property values. If the market not only doesn’t support a price increase but points to a down market the seller should take a loss on the property. As I have stated in my last article I predict a significant price drop in commercial properties in Las Vegas which will be forced by upcoming foreclosures, but it is not here yet.
We have some one acre or less parcels of land near the Las Vegas Boulevard (Strip) or in downtown area that are advertized for high-rise buildings. Except those who would want to build a high-rise on a one acre parcel of land in the current market have no money because they are intellectually challenged.
The other problem is whoever wants to build a new project in Las Vegas will eventually have to compete with existing foreclosed (REO) resales which the previous builder could not finish or finished and now is repossessed by the bank. The bank can sell the repo commercial property much cheaper than its real cost because there isn’t any “no down payment” commercial property. The builder or the seller has had to come up with a 15%-30% down payment which is lost when the property is repossessed, and when foreclosed commercial properties number go high enough then the banks will be willing to take further losses to move them.
At the moment, the percentage of repo commercial properties s relatively low but it will grow. The best option for investors and builders is to leverage their cash to get the best possible deal by buying foreclosed or pre-foreclosure, unfinished or finished projects only.
As I mentioned in my last post, when the dust settles and commercial real estate prices in Las Vegas follow the same path as residential real estate, then Las Vegas will be the best real estate investment on earth, but we are not there yet.
One last point; Las Vegas is a global destination which attracts investors worldwide. Many of these investors do not need to finance a loan and if they do they have deep pockets and can arrange a loan, so all of Las Vegas commercial real estate problems can’t be solely the fault of the credit crunch. Overpriced commercial properties in Las Vegas are equally responsible. My hope is that the worldwide credit crunch will subside in a few months and by that time Las Vegas land and commercial real estate pricing will be forced to adjust by foreclosures just as residential pricing did.