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Takeaways – Will Las Vegas Skip the Next Recession?


Posted on 3rd May, by MDL Group in Takeaways. Comments Off on Takeaways – Will Las Vegas Skip the Next Recession?

This time I am taking a different approach, consolidating my thoughts about several topics, and will break it up in three parts. I hope you enjoy!

In January I heard two economists forecast the next recession will hit the nation around 2019. You can read more about it more here in my previous Takeaways. During the month of April I attended two events – both organized by NAIOP of Southern Nevada – that discussed major projects in Southern Nevada and the realities of passing Question 2 (a.k.a. recreational marijuana)

What I learned from these events makes me feel like even if the US Economy will recede in 2019; Las Vegas could skip that recession. Here are 2 reasons why.

1. The amount of capital that is in the works creating jobs (specifically in construction), coupled with the timing of these several large projects.

2. Las Vegas has fundamentally changed post the great recession increasing capacity and sophistication with this development cycle.

What did I learn at the two NAIOP events? Why do I believe Las Vegas has fundamentally changed? Which projects are so significant?

April 7, 2017  Economic Impact Series Part 1. The topic was “2 Buildings … $4 Billion Convention Center Expansion and a Stadium.” This event was organized by the NAIOP Education Committee. There was record attendance with 85 people gathering on a beautiful Friday morning. I will say this – if you are a member of NAIOP, and not attending these education series, you are seriously missing out. They did a great job. Thank you to Penta Building Group for sponsoring.

SO an attorney, a professor, and a researcher walked into a bar. Just kidding. But I’m not kidding. That is who was on the panel. They just weren’t in a bar. And Sallie was there too so she kept it live! 🙂

Panelist:
Attorney. Mike Wixom with Smith Larsen & Wixom spoke to the stadium.
Professor. Dr. Stephen Miller with Center of UNLV Business and Economic Research spoke to the local economy.
Researcher. Kevin Bagger with the LVCVA Research Center spoke to the Convention Center.
Moderator. Sallie Doebler with the Las Vegas Metro Chamber kept them all in line!

This program kicked off more like an economics class. But important statistics were shared to establish context for the two projects. Dr. Miller and Mr. Wixom spoke almost exclusively for the first several minutes. They went pretty deep about the local economy and got quite technical about the structure of the stadium deal.

NAIOP is an organization for real estate developers. Mr. Wixom’s background is in asset based lending, banking and finance of commercial real estate. If you are one to geek out over the nuance of ‘who’s on first’ and ‘what’s on second’ for a real estate deal, this was a conversation for you! I’ll mention one BIG takeaway a bit later.

Back to the numbers!

According to the Southern Nevada Tourism and Infrastructure Committee

•  Annual economic impact is estimated at $620 million
•  New annual visitors are expected at 450,000
•  The NFL Stadium would create 18,700 construction jobs and 6,000 permanent jobs
•  Estimated completion is the year 2020

For context in the height of the market there were 100,000 construction jobs.
In the trough there were 35,000 construction jobs.
We are currently at 65,000 construction jobs.

The resort corridor employees 44% of the workforce in Southern Nevada. This is absolutely staggering to think about!

Other interesting points that were made:
•  If successful there will be 1 event per week at the stadium
•  Properties in the area will have to rethink their highest and best uses and adjust to it
•  There are unresolved issues with infrastructure
•  Where will the raiders play if Oakland says get out before 2020?

Ok let me take a stab at explaining the parties that need to be involved in a deal structure to make this development work.

There are essentially 4 parties.
 OwnerThe Las Vegas Stadium Authority sits at the top of the org chart. They would be responsible for the ownership and oversight of the stadium project. This entity exists because of Senate Bill 1 which passed during the 30th Special Session.

•  Operator – The Stadium Events Company which would run the day-to-day operations, falls below the Owner on the org chart. An Operating Lease Agreement would govern the relationship between the Owner and Operator.

•  Developer – The Development Partner also falls below the Owner on the org chart. The developer is responsible for constructing the stadium. A Development Agreement would govern the relationship between the Owner and Developer.

•  Tenant – The Raiders Organization sits at the bottom of the org chart and would have a 30 year Sublease and a Non-relocation Agreement.

What was pointed out is when Sheldon Adelson (Sands) walked away from the deal, that effectively left a hole in the org chart where the Developer sits. The Raiders Organization will step into that role. BUT! When Sheldon pulled out, and Raiders stepped in with Bank of America, it went from being an equity deal to a debt deal. Interesting! Remember I said there was a BIG Takeaway? Here it is. The Raiders lost a ton of leverage by not having their Lease Agreement ironed out before say… the NFL Owners voted 30-1 to have them leave Oakland for Las Vegas… oh and before telling Oakland they are leaving effectively pissing off an entire City! But again, everyone on the Stadium Authority is playing nice. And since this event the Raiders have closed on purchasing 62 acres for the stadium. It’s a really good thing that we want them here and they genuinely want to be here.

OK so now enter heavier comments from Kevin with the LVCVA.

Before I get into what he said… an observation. I have heard Rossi Ralenkotter, President & CEO of the LVCVA, give remarks. His mission is always clearly and consistently articulated. Attracting visitors. Promoting Las Vegas. Heads in beds. I honestly did not expect the “research guy” from the LVCVA to speak in that manner. But he did. Verbatim. In fact, when Kevin spoke about the convention center it was with laser focus on one thing. Tourism. There is no “mission creep” with the LVCVA. Which we should all feel good about. Do you remember the stat from earlier…? 44% of our workforce relies on these folks to bring people here! When Kevin spoke something occurred to me. “Las Vegas” doesn’t just happen by accident. There are a lot of smart people working hard to keep 44% of the workforce employed. And I am grateful for them. Alright – I’m off the soapbox.

What did ole Kevin B. have to say?

  • Convention Centers don’t expand on their own
  • The Room Tax Rate increased to 13.3% from 12%. Btw – Chicago is at 16%
  • Trade show season peeks in spring
  • They are currently turning away business
  • Big clients like CES and Broadcasters Association are running out of space
  • Phase 1 of the expansion in to prepare the former Riviera site
  • Phase 2 is the expansion of the existing convention center. Adding 600k of exhibit and 150k sf of meeting space
  • Phase 3 is renovation of the existing building. Portions of building are 60 years old
  • The strategy is to swing space to never lose business
  • Magic is held in Las Vegas because LA renovated years ago. They sampled Vegas and never left
  • This project will add 8,000 construction jobs
  • Fun facts:
    From the front at the Riviera to Swenson is 2 miles. That is a lot of walking for conventioneers.
    At completion – The convention center will not be the largest in the world but it will be the busiest.

Soapbox alert – Kevin mentioned that the LVCVA is looking at stadium from a branding perspective. Not surprising. The LVCVA is one of the best branding companies in the world. I couldn’t resist asking the question “Las Vegas has a frenetic energy. The Raiders have one of the most fanatic fan bases. What type of co-branding opportunities are you discussing in your camp?” Kevin didn’t really answer the question. I mean he did, but in a very diplomatic way, effectively said no comment.

Let me give you my view. I warned you about the soapbox. Here it is. I believe the Las Vegas Raiders will become the first global NFL team. No disrespect to Oakland, but they are moving to a world class city with a brand known around the globe. If they position themselves right they could truly become a global NFL team.

Mike Wixom made a comment toward the end of the program that sort of makes this point. He said, “there is an energy here that doesn’t exist in other cities. It’s a very real factor in what we’re doing. It’s a unique place.”

Sallie also said something toward the end that would be remiss not to emphasize. “Don’t forget about the Las Vegas Golden Knights. They are Community minded.” She is so right!!

Overall the Raiders Stadium is exciting! The Convention Center is a no brainer. It reminds me of a saying i learned from a client. “You don’t get off a winning horse in the middle of the race.”

Part 2 to follow! April 20, 2017 Breakfast Program – Beyond Medical. Highlights of the Marijuana Industry. Myths vs. Reality.

 



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