Analyzing Commercial Property in Las Vegas in 2008

What makes the Las Vegas economy and commercial real estate markets different are the 3.2 million visitors that we had last month (July of 2008) and that 3.2+ million we expect to have in each upcoming month. The visitor volume is down of course from expected numbers due to the current recession, but the 39+ million visitors that we had in 2007 had a $ 41.6 Billion dollar economic impact on our economy. [1]

The affects of this visitor volume are evident throughout the metropolitan area, and even as a commercial broker and commercial appraiser located in an outlying metro area (in Henderson), I still get walk-in customers visiting my office from places like Australia, England and India, it is pretty amazing.

Las Vegas has had a strong economy, almost without exception, over the last 15 years. Foreign capital found its way into our markets, and I expect that it will again become the focus of foreign investment after this dark time. While the current economic upheaval has caused some serious losses in the residential market, and now in the banking system, commercial properties still stand or fall on their own individual economics.

Most commercial properties are bought and sold by investors based on their income generating capacity. Commercial property owners with established leases and strong commercial tenants will continue to receive a good return on their investment even in the worst of times. Commercial properties are analyzed by appraisers based on the quantity and importantly the quality of their income stream, with consideration being given to the risk and durability of their continued cash flow.

With major commercial banks failing every day, it appears clear that the answer to the age old question "buy stocks or real estate?" has once and for all time been answered. As bad as the real estate business has been, real estate is still a hard asset. It doesn't drop from $ 50 Billion to zero in a month, a day or an hour. It may not be liquid, and holding a debt position in it may bankrupt you, but when all is said and done there is usually a value associated with its replacement cost and with its potential leasehold income.

The creation of paper wealth based on artificially inflated housing prices via mortgage backed securities has brought the financial system to its knees. The ownership of real property and especially commercial investment property is, however, still as sound an investment today as it ever was. Beyond Economics 101 its common sense, if you own a hard asset with income, even if banks continue to fail, your investment and income will likely survive.

[1] Las Vegas Convention and Visitor Authority (LVCVA), http://www.lvcva.com