Another Las Vegas construction project bites the dust. On June 9, the Las Vegas Fontainebleau filed for bankruptcy. This newest Las Vegas Boulevard property was to be an upscale resort with over 3,000 rooms. The Fontainebleau was going to include expensive shops, restaurants and a spa. Rumors have been swirling around the possible failure of the Fontainebleau and whether it would file Chapter 11 or not. On Tuesday night, the Fontainebleau and two of its entities filed bankruptcy paperwork. Miami Beach Fontainebleau and Las Vegas Fontainebleau are related business projects but both are separate companies and the Florida location isn’t part of the Chapter 11 filing.

The Fontainebleau is suing several of its lenders and claiming that they are partially responsible for its failure. The chief restructuring officer of the Fontainebleau, Howard Karawan, is quoted as saying, “It is unfortunate that our lenders forced us to take this step. By reneging on the revolving credit facility, they effectively shut down the project and put thousands of people out of work.” Fontainebleau lawyers filed a lawsuit for the company against its lenders. The suit filed on the 23 of April makes a claim that the banks backed out of agreements to give the developer $770. million to complete construction.  The banks in turn counter that Fontainebleau defaulted on a loan. The 3 billion dollar lawsuit against the banks was cancelled in the civil courts and moved to the bankruptcy court. Also, the developer also has complained about a conflict of interest with Deutsche Bank because the bank owns the Cosmopolitan which is a rival in the Las Vegas condominiums market. Both secured and unsecured creditors are listed in the lawsuit. A list of twenty secured creditors has been filed with the complaint. As of now, the unsecured creditors have not been identified.

 If lenders had honored their financial obligations, then the Fontainebleau wouldn’t be in this trouble is the claim the developer is making. Three thousand people working on the construction of the Fontainebleau are now unemployed as of April as are lots of office support staff. Las Vegas employment suffers a big set back with the failure of the Fontainebleau. Not only are thousands of construction workers left unemployed, but the resort was to have employed thousands of people when it opened.

 All this is another set back for Las Vegas condominiums developers. But this is good for buyers, unless you’re a buyer who’s already got money tied up in one of these failed ventures. This is a great time to buy a condo. The Review Journal business section said condos are down 53.4% from one year ago and the average price of a condo or town-home is $65,000. Even though I think Las Vegas housing prices will go down a bit further, I wouldn’t hesitate to purchase at today’s prices.

Lately, all the news has been focused on the residential housing foreclosures but there is another forclosure storm soon to hit the US markets. Commercial real estate values have fallen 30% – 40% since two years ago when they were at their height.  Since the economy as a whole has slowed, less people are starting businesses and already established business have stopped expanding or are even shutting down existing locations. This has led to a rise is vacancies in the commercial real estate markets and is also pushing down overall rents. Anchor tenants are leaving strip malls in droves which threaten the overall health of the other mall businesses.

Of the 3.5 trillion commercial mortgage backed securities, banks hold half of the debt. These loans are all backed by commercial property as collateral. According to Keefe Brunette & Woods, a New York based investment ban, “delinquency rates on commercial loans jumped from 4.4% to in the first quarter from 1.6% in the previous quarter” as reported in the May 31, 2009 issue of The Review Journal.

Currently, not a lot of press time is being given to this next wave of foreclosures. Perhaps the threat of “big money” or large corporations heading into foreclosure doesn’t make for as dramatic news coverage as Joe Average losing his family home. But this next wave of debt has the potential to affect the entire US economy as well as the local Las Vegas market. Even the experts don’t know what to expect, but be warned that it is coming to a real estate market close to you. Most likely it will result in further bank closures and tighter lending standards for both commercial and residential properties. A greater threat exists to the US economy as a whole as the residential housing foreclosure problems were in part to blame for the current economic recession.

 Most experts believe the economy is showing slow and gradual signs of improvement with a possible recovery by the last quarter of this year or early next year. I’m waiting to see how the market deals with this commercial real estate problem before I make up my own mind.

May 29, 2009

Well, Nevada now has the dubious honor of being first in the nation for both loan delinquencies and foreclosures. About one in eight Las Vegas condominiums or house owners in Nevada are behind in their mortgage. People behind in their mortgages increased for the first quarter of this year from 11.12% to 11.75%. This is an increase of .63% from the final quarter of 2008. Homes starting through the foreclosure process also increased during this time frame to 3.35% and homes already in the foreclosure process increased to 7.83%.

These numbers from the first quarter of 2009 foreshadow what a lot of experts have already been saying. The Las Vegas condominiums and housing market is still very weak and more foreclosures are on the horizon.

Although there is a $350 billion dollar federal housing plan in place to help troubled home owners, but some experts say this will bring little relief to the market. Although banks and lenders are being encouraged to change loan payment terms so that people can afford their monthly mortgage payments, nothing can be done to help people who are upside down in their property. If your house is now worth 40% less than what you paid for it 2 years ago, an affordable mortgage is only one of your considerations. It’s almost easier in a lot of ways for buyers to just let their houses go and start over again from scratch.

With home prices already down an incredible 40% from the market highs of two years age, an incredible buyers market has been created. Even though the Las Vegas condominiums and housing market is still in trouble, some signs of life can be found. Over the last 13 consecutive months, housing sales have risen as home prices have plunged. In April, 3,198 single family homes were sold. This is an increase of 78.3% from April of 2008.But most of this increase in sales is being led by bank owned properties, foreclosure sales were about 80% of all sales during this time frame. The amount of homes for sale has decreased about 3.6% from one year ago. But this decrease can in part be ascribed to the moratorium that was placed on foreclosures by the current administration and not on the general overall health of the market. Legally reducing foreclosures by banks is of course going to decrease the amount of homes for sale by lenders and when this moratorium is lifted, look for a glut of houses to appear on the market and a further decline in home prices.

May 6, 2009

 The Las Vegas condominiums project, Streamline Tower, located downtown continues to have problems. When it opened in 5/2008, it was a full year and a half behind its scheduled opening. Two years ago it was worth about 300 million and today it is part of a bankruptcy hearing involving the 3 firms that helped build it. To date, only about 10% of Streamline Tower’s 275 Las Vegas condominiums have been sold.