Las Vegas is to the real estate bubble what Detroit was to the US automobile industry – Empty condo projects, apartments poorly built to face the desert sun, and the collapse of commercial real estate.
- 18 Comment
If Wall Street is the hub of American finance then Las Vegas was the manifestation of credit dreams going viral. Las Vegas, the beating heart of Nevada had a tremendous boom with the real estate bubble because it played into the narrative of making it big. Where else can unknowns strike it big and have their name put up in lights? With Wall Street feeding the frenzy Las Vegas seemed to be an endless playground of free flowing capital. During the boom it was hard not to notice the high end Rodeo Drive like stores of Gucci, DKNY, and Prada covering the floors of many casinos. The stores were full and money seemed to flow like the exhaust of Maserati’s cruising up and down Las Vegas Blvd. If heaven on Earth for kids is Disneyland Las Vegas was the heaven of debt. What once seemed as an endless dream has burst into a barren desert nightmare. Las Vegas once boasting some of the fastest growth rates now has largely led Nevada into having the highest unemployment rate of all states in the country. If Michigan was the result of the offshoring of American manufacturing and the demise of the US auto industry Nevada is the exclamation mark at the end of the credit bubble era.
You only need to look at the drastic collapse in real estate prices to see how quickly the bubble burst in Nevada:
What took from 1980 to 2000 in terms of price growth was achieved in four years from 2000 to 2004. The rapid rise in Las Vegas was largely due to the real estate bubble, both residential and commercial. The bust in commercial real estate values in Las Vegas was all but set in stone but the bubble grew to a point where many started believing that the mania would last forever:
Source: Las Vegas Sun
The above photo is from an excellent article in the Las Vegas Sun. The above skeletal remains of a structure are of the proposed Summerlin Mall. This photo was taken in December 9, 2010 just in case you are wondering what happened with the project. Just like an empty Hollywood set the structure was designed without a deeper more sustainable outlook. If you build it, they will come was the apparent motto for many of these projects. Years later, the only thing that has arrived is the staggering bill:
“(Las Vegas Sun) As it happens, the best view of Ascaya, that Henderson hillside, is from a vast parking lot behind an empty commercial development, one built with the expectation that growth would drive demand for new shops. The parking is in the rear, presumably to give the front of the shops a more urban feel. But it’s a pointless, faux urbanism — most everyone will have driven to get here, and it’s set far off the road.”
…Context. Now we’re on Gibson Road in Henderson, up the hill from Interstate 215, and there sits Vantage, a boxy, glassy modernist condo development; a historical artifact of the era of the credit boom, and, perhaps, delusional exuberance. It was a $160 million project, but no one lives there. It sits on the hill, surrounded by suburbia, like a hipster who’s stumbled into a church that he thought was a nightclub.”
When you see these projects littering the Las Vegas landscape, you have to wonder how much of this has been bailed out by the American public through ancillary bailouts through the Federal Reserve. The Fed would never openly come out and state this but they are some of the biggest gamblers placing it all on Wall Street red. Of course as many of these failed malls, condos, and apartments idly sit for future residents new building is non-existent:
The above chart is rather startling. The data seems to be drawn to the zero line with a magnetic like pull. Las Vegas built so much excess housing that it will be a drag on their economy for years. For example, take a look at this condo project that was built close to residential areas without any thought of their customer or market:
I just notice how wide the windows are and anyone that has been in the Southwestern desert realizes that this is like an oven in the middle of hell. The air conditioning bill on these places would be like the equivalent of an auto payment each month. Yet Wall Street was more than happy to make loans to dirt gamblers since they were sending the loans off in toxic packages to pension funds and naïve investors around the world. In the end, their wallets were deep in the green thanks to taxpayer funded bailouts and all that was left for everyone else was brown dirt painting the horizon with empty shells of buildings.
“It seemed any project, no matter how preposterous, could make money. Thus, Vantage. Any number of condo and hotel projects on the Strip could also fit in this category.”
…Foolish consumers. Investors thought they could make a quick buck, while families who merely wanted to own a home thought they had to buy now, lest they be left out in the cold. They were like people in a food line who gorged themselves on whatever the developers fed them, fearing this was the last meal, or fearing that the next meal would be unaffordable. So they ate and ate and ate, and then borrowed more money to keep eating, until they got sick.”
As the real estate bubble burst and Wall Street went into a tailspin the heart of the housing mania seemed to implode simultaneously:
Nevada that had an unemployment rate under 5 percent suddenly finds itself with an unemployment rate flirting with 15 percent. A double-down and a bust. Yet none of this would have been possible if credit wasn’t flowing from Wall Street so freely. And Wall Street would not have made these loans if it didn’t have an insurance policy from the Federal Reserve that it would bail it out no matter how absurd the bet. This is the endgame of the American big bet thanks to Wall Street. Americans who looked to Wall Street for financial wisdom found nothing more than slick haired gamblers willing to make a fast buck on poorly built projects that did nothing to improve the lot of the people in the immediate area. The Las Vegas Sun article puts together a sobering contrast of Wall Street and government synergy:
“As we pull away from ManhattanWest, we pass an empty lot with a sign: “FDIC owned property. No trespassing.”
Sort of sums up the entire debt fiasco we are now living through. Manhattan, the home of Wall Street gamblers had a sister development in the desert that is sitting empty decaying under the desert sun. Why emulate a place that is largely designed to strip away productivity and wealth from producers in the economy and stick it in the middle of the desert? Unlike Manhattan and Wall Street, Las Vegas doesn’t have a lifeline to the Federal Reserve. Las Vegas is merely another victim in the biggest casino of all which is operated by the Fed and Wall Street.