We've gone through a couple of seasonally strong months and have seen significant home sales, more so than what is often reported nationally about what is happening in Las Vegas. Looking at pending sales, it looks like we should see another strong month. Currently we have had nearly 1,500 single family closings and expect many more as we have another business week to go and closings often pile up around the end of the month.

A lot of new listings entering the for-sale inventory receive significant attention, many going into contingent status within the same month the property was listed. Now about forty-percent of the inventory on the MLS is in a contingent status. As a proportion of the listed inventory, pending sales stay pretty consistent between fourteen and sixteen percent of the market for the past several months. So, if that proportion stays the same, if we had more REO inventory to sell...we could sell it.

This is a little longer than the typical blog but since we have had some questions concerning leasing we are posting here as well:

Transactions are happening across the board in the commercial real estate market, however, downward pressure remains constant. “They are not even close to the pace of deals in 2008 yet deals are getting done”, explains Ron Opfer, CCIM.  “There are many more incentives involved in these transactions, such as higher TI allowances, shorter leases, and lower rents.”  A look at the overall commercial leasing market shows industrial deals as low as 25 cents per square foot (sq.ft). per month, retail deals as low as 60 cents per sq.ft per month, and office deals as low as 55 cents per sq ft/mo. Not all deals were done at these prices, but, “there are not many tenants looking to expand. Tenants are looking for the best deal possible and not moving fast to find one”, says Opfer.  “Most tenants are experiencing downward pressure on their business from the economy.  They simply cannot afford to pay the rents they used to pay.”

Elle Gaensslen’s experience in the market is similar. Gaensslen notes, “Most businesses are downsizing to smaller square footages and lower rates to alleviate the financial pressures during these market conditions. As noted, deals are happening. “I have a retail client that is expanding into the Las Vegas market from California to take advantage of the lease opportunities and to secure prime space for less,” said Gaensslen.
 
Most economic indicators reflect a lot of downward pressure on the economy.  During the 2nd quarter of 2009 we saw vacancy rates across the board increase.  With unemployment still rising we can expect to see even more vacant spaces in the coming months.  “I don’t see signs of a turnaround coming soon.  That means there are great deals out there for those looking to expand in Las Vegas,” stated Opfer. “Take U-Swirl Frozen Yogurt for example.  They are a fast growing company.  They will open 10 stores in Las Vegas in less than 1 year.  Not to mention their franchise locations opening in other states.  The change in market conditions has proven to be a big positive in their expansion plans,” explains Opfer.  “The same goes for the medical profession” added Opfer.

Another adjustment in the market is the terms of leases. Gaensslen notes, “landlords are agreeing to shorter term leases because they don't want to be stuck with discounted leases when the market stabilizes.  Tenants want shorter term leases due to uncertainty with their respective businesses, anxious about Vegas as a market to stay in long term, and some feel the market will slide even further, giving them the opportunity to secure an even better deal in 2010.” Much of the recent leasing activity has been between one and three years.
 
Further pressures are expected to come as banks are expecting more commercial defaults during the remainder of 2009.  “This could be a great opportunity for those with cash,” said Opfer.  “It may be that the deals of the not so distant future will resemble those of the RTC (Resolution Trust Corporation) days,” added Opfer.  Property values have had downward pressure and are in need of a price re-set.  “The LTV’s are no longer in balance and when the banks complete their re-appraisals, they will be in need of moving those underperforming assets”, explained Opfer.

The properties on the market today are being sold to raise capital.  Large real estate holding companies like Weingarten and General Growth are selling some very good properties.  Some will pay down debt and others to expand.  Sonic, the restaurant franchise, plans on doing sale-lease backs on several of their properties to fuel some of its western growth plans.  Whether it is a bank, growth oriented company, or a debt heavy REIT, properties are on the market for sale and investors are underwriting the properties and making offers.

“There is a bit of a disconnect between how investors and sellers value properties.  I still see seller proformas valuing their property on last year’s lease rates assuming full occupancy, when the center is 20% vacant.  Investors are looking at the rent rolls and assigning the tenants in risk categories.  They are assuming re-tenanting the centers on what they think lease rates will be 6 months from now and are assuming a lot of incentives will be needed to attract tenants.  That all has an effect on the price they will offer for the property”, said Opfer. 

 “We are in the midst of some amazing real estate opportunities.  The affordability factors of owning commercial real estate are very favorable for those with cash.  This is going to be looked at as a highly opportunistic time to buy commercial real estate,” concluded Opfer.