Las Vegas’ real estate bubble took developers on a wild ride, something Jim Stuart knows all too well.
Through his old firm Centra Properties, Stuart teamed with actor George Clooney and others in 2005 on Las Ramblas, a $3 billion hotel-condo project just east of the Strip. But amid fast-rising property values, they sold the land in 2006 for about $200 million.
Stuart sold other real estate holdings before the economy crashed and, with Florida partners, built Town Square Las Vegas — only to lose the 100-acre retail and office complex to foreclosure during the recession.
Now, after a decadelong hiatus from development, Stuart is building in Las Vegas again, but he’s not putting up the flashy projects of yesteryear.
Stuart, 51, is a partner at Matter Real Estate Group, which announced its formation in May. The development firm has four industrial projects, totaling 1.1 million square feet, at various stages and locations in Southern Nevada, including in the southwest valley, North Las Vegas and next to the Raiders’ future practice facility in Henderson.
Stuart, who lives in San Diego, sat down with the Las Vegas Review-Journal recently at the Four Seasons on Las Vegas Boulevard South. The interview was edited for space and clarity.
Maybe start with an overview of the stuff you’re building now.
There are four projects. A lot of my peers and friends ask me, Why are you back? I was given a remarkable gift, to spend a decade in the most important developmental years of my children, to be part of their life. I now refer to this as a reverse retirement.
So you weren’t doing any development for 10 years?
I was in other businesses — I invested in consumer products, started a national retail company. I had partnered on Las Ramblas, we finished Town Square, we sold a bunch of properties. The younger version of myself back then, I kind of felt like I had done it. I really wasn’t sure I could repeat that.
You didn’t stop developing because of the recession and how bad things got in real estate?
At the time, we were selling properties because of our own confusion in the market. We were disposing of all of our assets — we sold the Centra Point office park, the Las Ramblas site. The market wasn’t what everybody thought it was. We started digging into these sales that were being reported and asked a bigger question: Were they actual buyers or were they a bunch of speculators?
My understanding is that during the bubble, it was pretty common to buy a 5- or 10-acre site, get approvals for a high-rise project and then flip the land to someone who would build the project or flip it, too.
That is not a real market; that’s a house of cards. It was going on at every level. People in the land business were flipping to an interim developer who was not truly qualified, and they were flipping to a qualified developer who was reading the headlines in New York and coming out here for two days of activities – drinking, great dining – and then going back saying Vegas is on fire. It was a lot of hype.
Why did your group sell the Las Ramblas site within a year of announcing the project? Was it because the buyers offered you some crazy number and you said, ‘OK, let’s get out and cash in while we can?’
It was the intersection of both of those things. At that time we were becoming highly suspect of the market and what people were reporting. … You had rising construction costs and a looming supply glut that you would look to and think, if all these units are coming, it will be a hypercompetitive, low-margin business, if it’s even true. So we started exiting everything — our office parks, our land holdings. Everything we could imagine getting out of, we did.
But not Town Square.
Town Square was under construction. Our takeout lender was Lehman Brothers; we had a loan commitment from Lehman that, when construction was complete, they would pay off our construction lenders and hold our long-term debt. It was on a perfect glide-path. The project was leased and stabilized, but who could have predicted that Lehman Brothers would collapse?
When you heard that Lehman was filing for bankruptcy, what did you think?
I immediately knew it was over. … That is a cataclysmic moment when you see a storied firm like Lehman Brothers collapse. You had a massive financial crisis, you had our lender disappear, you had the Las Vegas economy descend into a dark place that people couldn’t have ever imagined. You could not have predicted the wave of financial disaster that was on its way.
Looking back, did you think Las Vegas was in a bubble, and with your other projects did you want to cash in before it burst?
I didn’t have the foresight to see what was coming, but we knew the only way we could meet projections for projects was to inflate rents based upon growth. That is a very dangerous place. When you’re building models based on expectations of rent growth versus the reality of what people are willing to pay, you have one foot on the land mine.
So developers were planning huge Class A office parks with the expectation that, by the time they open, the rents will be so high that the projects will make sense financially?
Right. Here’s what I would have said back then: There are only two possibilities, and I didn’t know the answer, but either this business is too sophisticated for me – i.e., I’m too dumb to be in it, which is literally the conversation I had with myself – or the fundamentals don’t support development and everybody else is playing a game. It was A or B. So I packed up my toys and said let’s take a breath.
And there were plenty of buyers around who wanted your properties?
There were plenty of buyers; there were buyers paying numbers we would have never anticipated. If there was one thing I’d give us credit for, we were smart enough to slow down, and we allowed ourselves to think and challenge the assumptions, and when you allow for the emotion of doubt, it will change your perspective. But too often, developers are type-A personalities, easily excitable – I’m as guilty as anybody – and we have a tendency to bias our beliefs based upon the information we filter and accept, and dismiss things that are counterproductive to the assumption we’ve already made.
Do you think a project like Town Square could get built today in Las Vegas?
No. It would take such a large slug of equity that it would scare off most people. You take retail, which is already under a lot of pressure, and the idea of someone risking a couple hundred million dollars to speculate on retail, that’s not a risk developers want to take.
Contact Eli Segall at email@example.com or 702-383-0342. Follow @eli_segall on Twitter.