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In January of 2008 the latest addition to the Strip was opened “The Palazzo.” In my opinion this is a top notch laced in class all the way around. The genius is not the $1.9 billion price tag, nor the prime location. It is the level of operations it shares with its sister property The Venetian. These neighboring properties share an indoor walkway. By constructing it in this manner it provides significant savings in the following areas:

1. Only one gaming license was necessary. Basically, the property operates under the same license The Venetian uses. This is a significant savings in both time and cost of obtaining a gaming license.
2. Both properties share back door services. These services are made up of; laundry, restaurants, food and beverage distribution, client services and HV/AC service just to name a few. It is believed that by doing this it will save Las Vegas Sands Corporation around $60 million per year.
This concept is not new to the Strip. Binion’s was the first to implement the idea in 1989 when they acquired the Mint Hotel and removed a wall separating it from Binion’s Horseshoe. In 1999 Park Place Entertainment did the same when they built Paris Las Vegas connecting it with Bally’s. The savings these companies have orchestrated is just plain genius.

Andrew M. Cuomo, New York’s Attorney General, has investigated a portion of the appraisal industry which appears to have encouraged unethical practices in the lending industry.  Here is the deal; specific lenders own or have ownership interest in the appraisal companies they use for appraisals.  In short, during the process of funding the loan these lenders ordered appraisals done by their personal appraisal company.  These loans were then sold on the secondary market to the likes of Freddie Mac and Fannie Mae.

Companies have been doing this for years and when the market is on the rise no one seems to care.
However with the state of the current real estate market it causes one to stop and question the conflict of interest in this process.  Let’s be honest, if the Loan Officer is rushing to get a transaction closed it is easy to have your partner company do the appraisal and compromise the process in the interest of “getting it done.”

Cuomo’s investigation has resulted in implemental changes to the Freddie Mac and Fannie Mae has already agreed to.  The changes are as these:
1. Lenders won’t be able to fund new mortgages without verifying that the appraisal conforms to the new national quality code for appraisals.
2. Hotlines created to allow appraisers and consumers to report appraisal interference by professionals involved in the transaction.
3. Lenders who have ownership in appraisal companies or in house appraisal staff won’t be allowed to sell the loan on the secondary market if their specific appraisal services were used in the transaction.
4. Mortgage brokers are to be cut out of the appraiser selection process completely.
5. Oversight of residential real estate appraisers will be turned over to a newly formed 3rd party evaluation company to monitor accuracy of appraisals.

Fannie Mae and Freddie Mac have already agreed to these changes and committed $24 million over the next five years to assist in implementation.  It is expected that these changes will be fully adopted for these two companies by January 1, 2009.

In my opinion this is a great move.  I seriously doubt appraisers are intimidated by those involved in the transaction, but they are asked to compromise on occasion.  A 3rd party company will give appropriate oversight of appraisers as well as create regulation to lenders dipping their hands in the appraisal pot.

In the event the buyer or seller does not approve of an appraisal, they can agree to order another one to confirm or deny the previous appraisal.  The way to protect long-term property values and the integrity of buying and selling Las Vegas Real Estate is to create processes which prevent abuses from happening in the beginning.

On a slightly different note, I suggest another angle in the appraisal industry which Mr. Cuomo should look into.  Today, new home builders are causing long term difficulty for buyers which most buyers are not aware of.  For instance, these days when a buyer purchases a new home from the builder the comparables used for the appraisal are the other properties the builder has sold, not re-sales in the neighborhood.  You can walk down the street of a development in which the developer is competing with like re-sales, some of which were bank owned.  In some cases the prices are $50,000-$100,000 less.  How is it that the developer can get away with sales, appraisals done by their preferred appraiser, at a specific price when the neighborhood re-sale comparables are less?  Simply put, new home appraisers rarely use comparable sales from the neighborhood.  They actually use a list of sales from the sales office.  This hurts the buyer because they are immediately upside down on the property once they close.  A lot like buying a new car.  In many instances builders have added loads of upgrades and stated the upgrades are worth x amount of dollars.  Those same upgrades in the re-sale market will likely equate to 50% of what the builder’s appraiser will value the upgrades at.

This reeks of inconsistency and in the overall picture hurts buyers.  If lenders are going to be regulated in effort to purify the appraisal process it would be nice to see the entire system reviewed.

A lot of folks have misconceptions about how home ownership affects taxes.  This article provides one of the clearest explanations I have come across.  I would put it in the must read category for homeowners.  The misconceptions addressed are as follows…

Mortgage interest will reduce my tax bill.

All costs related to my home are deductible.

I must use home profits to buy a new home.

Putting my children on the deed is tax-smart.

If I take a loss on a sale, I can write it off.

Bankrate.com provided this article.  You can find the complete version here.
http://finance.yahoo.com/taxes/article/104384/Five-Homeownership-Tax-Myths

CNN had an interesting article on subsidized housing in resort towns for public employees. In our country the dream of home ownership is so great that local governments are willing to pick up the tab to make it a reality.

The home is the equivalent of real estate gold: He and his wife Jessica recently purchased it for $230,000, a far cry from its $750,000 market price.

In most of the country, the two-income couple would be unlikely candidates for subsidized housing. But in this Rocky Mountain resort town, where the median home price is $1.2 million, officials have made it a top priority to keep public employees and other middle-income residents living in town, and if that means subsidizing families with incomes up to six figures, so be it.

The article in its entirety is here.
http://www.cnn.com/2008/LIVING/wayoflife/02/12/subsidized.paradise.ap/index.html

The Federal government takes a shot at helping lenders and homeowners as they work their way through the foreclosure process.

The program would let qualified homeowners who are at least 90 days late on their mortgage payments pause the foreclosure process for 30 days.

During the extra time provided by the program — called Project Lifeline — lenders and borrowers would try to work out more affordable terms, said Secretary of the Treasury Henry Paulson.

The entire article is posted on cnn.com

http://www.cnn.com/2008/POLITICS/02/12/foreclosures/index.html

CNN reported that in some parts of the country foreclosure was up 75% in 2007. It’s a good article listing the states with the greatest burden. Here is what it had to say about our beloved state of Nevada.

Nevada had 3.376 filings for every 100 households - a foreclosure rate of more than three times the national average, and the highest of any state.

According to Gail Burks, the CEO of the Nevada Fair Housing Center, a community advocacy group that aids home owners facing foreclosure, some communities in Las Vegas, Nevada’s biggest city, have as many as 40 percent of homes in foreclosure.

Get the full article here

For 4 days every January the already entertaining Las Vegas is a buzz.  Why? The Consumer Electronic Show (CES) is in town.  CES is the world’s largest electronic gadget show attracting over 140,000 attendees, consuming nearly 2 million square feet of convention space which draws global attention to Las Vegas.  Trust me, I was there.  While at the NBC booth Brian Williams was broadcasting the Nightly News, live!

This event, which was estimated to bring nearly $230 million to the local economy, appears to be on shaky ground.  The number one reason, room rates!  Hotel rooms nearly triple in price during the event and attendees are getting sick of it.  Imagine being a normal middle class person and paying $700 per night for a room.  I can’t say that I blame them.   A show like this is not a necessity.  Don’t get me wrong, it is impressive to walk the halls and see all the “cool” gadgets companies have created, but it is too expensive and ultimately it is dispensable.

I suggest that the Convention Authority recall the events of 2003.  That was the last year that Comdex, a technology show, was in Las Vegas.  The show drew nearly 200,000 attendees and left town for the same reason.  If they are not careful this is likely to self-destruct.

My Opinion:  I love this show being in town.  Seriously, everyone in Vegas seems to know about it and it draws people from all over the map.  As I walked the halls at CES this year I was amazed by the amount of brainpower and billions of dollars in capital generated to invent all of the new technology now available.  This show has a cool factor unlike any other convention which comes here.  It would be nice if the hotels saw the need to keep it and make it affordable.  After all, if it leaves, $230 million goes with it.

Recently approved by the State Transportation Board was a road project for up to $35 million.  There has been heavy conversation in the past 2 years in reference to an over $1 billion in road construction which is needed in the state, much of which directly affects Southern Nevada; First on the slate, building an expressway on the I-15 freeway.   As a resident in Southern Nevada we are elated. The congestion both North and Southbound on the I-15 is ridiculous.  Seriously, sometimes you have to give yourself an extra hour to get across town.  It is estimated that close to 240,000 cars travel that stretch per day.  Here are the details on the project.

1. The express lanes will be North and Southbound between Russell and Sahara.  That stretch makes up over 5 miles of the busiest freeway in the City.

2. Unlike the 95 freeway and much of California’s freeways, these express lanes are not carpool lanes.  They are express lanes which anyone can use.  There is no minimum limit to the number of pedestrians in the vehicle.

3. There is a significant financial advantage for the city on this project.  There is currently enough excess room currently used as shoulders, which can be retrofitted.  This will aid the city both financially and time wise.  Typically in this situation private property is purchased through Eminent Domain and cost the city in land purchase, court cases and time given to complete the purchase.  That makes this project appear to have a strong cost savings to the City.

4. Where is the money coming from?  Some time ago legislatures levied a tax on hotel and car rentals from those who travel to our city.  Between those taxes and property tax revenue, approximately $1 billion in funds has been produced to fund this and other projects.

Historically, FHA has been a popular choice for home financing since the 1930’s. In the past 5 years it has basically been non-existent in comparison to Mortgage Brokerages across the country. The reason is that basic loan requirements lessened and FHA loans became more complex. Let’s be honest, being able to state your income and receive 100% financing is ridiculously easy. People were walking into brokerages and saying what they made whether it was true or not and getting a loan was as easy as taking a walk. We all know the fallout of that these days….foreclosures everywhere. In times past FHA loans were quite desirable for first time home buyers because at that time the requirements for the loan were the easiest thing available.

1. You had to have respectable credit, not great just respectable.
2. Down payment assistance was permitted by family members or even the seller.
3. Only 3% of the purchase price was required to put down, which can also be attributed toward closing cost.
4. FHA loans were assumable meaning when you sold the home the buyer could step in and take over the mortgage.

At the time FHA was the closest thing to 100% financing Americans had seen. Today 100% institutional financing is basically non-existent and FHA is the closest thing we see once again. The Federal Housing Administration (FHA), is a branch of the Federal Government which provides loan funding / housing assistance to Americans looking to purchase a home. I believe this model of home financing will become the norm again for several reasons:

1. Americans are horrible at saving money and cannot put an adequate down payment down when buying a home. Unless that trend changes, (and I don’t think it will) people will be looking to purchase with as little money down as possible.
2. The Federal Government has a global economic interest in keeping money flowing, home sales circulating, and also values Americans realizing home ownership. Thus being the case I believe the Federal Government will both encourage and advertise FHA loans as the way to go.
3. Currently the Federal Government is trying to pass legislation raising the FHA loan limit to $750,000. Currently this loan limit varies state to state. They are also encouraging the homeowners with Adjustable Rate Mortgages to utilize FHA as a way to fix long-term interest rates.

For these reasons, I believe FHA will be the predominate model for residential lending over the next few years. This will allow the excess inventory to be purchased, help people purchase their home, and create a steady real estate market once again.

www.fha.gov

It is no secret that residential Real Estate has been on a downturn across the country. The question often asked here is, “What kind of influence does that have on other Real Estate Sectors?” I find this interesting and worthy of consideration. Whether you are a developer, investor, business owner or homeowner it doesn’t matter. When residential Real Estate suffers there is a ripple effect in all other Real Estate Sectors.

I want to take a specific look how this has affected office space in the Las Vegas Market. We have seen office vacancies increase (especially real estate associated business i.e Title Companies and Mortgage Brokers). The fallout has been over 1 million square feet of sub lease office space now available, not including standing inventory, from these vacated companies. It is estimated that an additional 2% can safely be added to the actual vacancy number to account for these subleases.

Data to specific target areas can be accounted as follows:

1. Downtown Las Vegas has over 3 million square feet of and currently averages over 4.5% vacancy. If you add the 63,000 square feet of sublease space available, the vacancy increases to over 6.5%.
2. North Las Vegas has been hit the worst. There is currently over 1.3 million square feet of vacant space with over 71,000 square feet of sublease space available creating a total vacancy rate of over 23%. That is excessive my friends. You can actually sublease office space on North Las Vegas for as low as $1.16 per square foot.
3. West Las Vegas has over 233,000 square feet of sublease office space available with rent prices averaging $1.86 per square foot. The standard lease range is $2.25 per square foot.

Point being, the residential downturn has directly affected the office space sector. The graph below gives more direct detail to the statistics; however it doesn’t attribute available sublease space. In fact, those numbers are difficult to obtain. The numbers presented above are common understanding among brokers and can give or take a couple points. However, it does give a clear understanding. An investor certainly can purchase office buildings at a good price. And if you are considering changing the location of your office, you can probably do yourself some good today.

LAS VEGAS OFFICE MARKET   4Q 2007   3Q 2007   4Q 2006
Office inventory (square feet)   38 mill      37.1 mill   34 mill
Under construction (sf)           1.5 mill       2.3 mill   2.8 mill
Vacancy rate                          12.2%       10.9%    9.3%
Monthly asking rent (psf)         $2.51        $2.52     $2.38
Net absorption (sf)                508,000     664,500  491,900
Completions (sf)                     1.1 mill      747,100  785,800
SOURCES: Restrepo Consulting Group/Colliers International (Las Vegas Review Journal 1/11/08)

Leading Casino Company Makes Plans for Henderson Expansion

Station Casino’s, a prominent Las Vegas casino developer, has acquired a 45 acre site located in Henderson real estate’s Master Planned Community of the Inspirada.  The price tag was $80 million.  For years Station has been in the business of developing casino’s (and entertainment properties) that target the locals market.   Their portfolio includes properties such as Green Valley Station, Red Rock Casino and currently under construction Aliante Station in North Las Vegas.

Inspirada a 2000 acre master planned community will have over 11,500 homes upon completion.  This location is also slated to have a large mixed-use center, comparable to The District at Green Valley.

To date no plans have been finalized for the 45 acre site.  More than likely the company will hold the asset for the next couple of years while the residential side of Inspirada becomes more established.  Waiting will likely mean a market of casinos users will already be established by the time Station is ready to build.

Station is a master at identifying a strategic market and building a casino right in the middle of it.  I would not be surprised to see a Station casino in every major master planned community in the Las Vegas real estate area.  Station is also in the business of building beautiful structures with a great atmosphere.

On a strategic level, I like what this does for Inspirada, not to mention every other community Station builds in.  Not only does the casino become a destination, the community does as well.  Anytime you have a community becoming a destination, i.e. a place people want to be, it strengthens property values and the overall perspective of the community.