Commercial property values in Las Vegas will reset through workouts and negotiations with lenders, not through commercial mortgage foreclosures once predicted to be the next crisis in the real estate market, a Los Angeles-based investment banking executive said Thursday.
David Rifkind, principal and managing director of George Smith Partners, said there’s still pain to be felt in multifamily and hospitality properties, but Las Vegas has much brighter recovery prospects than other regions of the United States, particularly the Midwest and Northeast.
Rifkind said there’s a “wall of worry” over the $80 billion in commercial mortgage-backed securities that will reach maturation in the next 18 months. As long as properties show enough cash flow, they’ll go to modification or negotiation, he said.
“That’s how the market is resetting and that’s going to be more of the product trend than lenders foreclosing and selling at a new basis,” Rifkind said during a business trip to Las Vegas. “That’s my view from the balcony. There’ll be foreclosures, but more in the form of workouts than change of ownership.”
Rifkind is negotiating with a servicer to discount a $16 million loan on a 100,000-square-foot shopping center in North Las Vegas to $9 million. He would arrange a new loan for $8.5 million and the developer would come in with $500,000.
“That gives them a bridge while they build occupancy and wait for the capital markets to get long-term stabilized financing,” he said.
George Smith Partners has arranged financing for some 150 commercial projects in Las Vegas over the past 20 years, including Boca Raton condos, Queensridge Towers and Newport Lofts.
In a 2005 interview, Rifkind told the Review-Journal that less than 20 percent of the proposed 47,000 high-rise luxury condos would be built in Las Vegas. Many of the developers lacked experience and knowledge in the technical aspects of those projects, and capital markets were being extremely careful in Las Vegas, he said.
Rifkind said the commercial market in Las Vegas has been in a “state of atrophy” for the past year or two. Lenders who took federal bailout funds are trying to figure out what they can and cannot do from a regulatory standpoint, and that’s been a slow process, he said.
“The market is going through a period of re-pricing, and we won’t see a floor in pricing until we see more transactions, more trades. You have a transactional market that’s been on ice and that needs to change,” he said. “Who are the sellers going to be?”
He expects to start seeing more normal “arm’s-length” transactions in the second quarter, though he said there will not be a lot.
“Las Vegas is viewed by the rest of the country as being a highly distressed market, and so expectations for the market to return are unrealistically high and that’s why we won’t see more trades for a while,” Rifkind said.
A fourth-quarter industrial market report from CB Richard Ellis said few Las Vegas industrial developments have been hit with notices of default, though that’s expected to increase beginning in the second quarter of this year.
Contact reporter Hubble Smith at email@example.com or 702-383-0491.