Takeaways – Will Las Vegas Skip the Next Recession Part 3

May 18, 2017
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This is Part 3, and the final post of a series titled Will Las Vegas Skip the Next Recession. Part 1 covered two major projects in the Raiders Stadium and Convention Center Expansion. If you missed it you can read it by clicking here. Part 2 covered Nevada passing recreational marijuana. You can read this one by clicking here.

There is a lot here. And I put a ton of work into it. I know how this goes. You get inundated with items in your inbox. So do I. Here is my recommendation. Save this one for when you have 5-6 minutes to get through it. And then email me and tell me what you think!

Bear with me for a quick recap so we can riff through the rest of the post.

In January I heard two economists forecast the next recession will hit the nation around 2019. 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 (deliveries expected in 2020).
  2. Las Vegas has fundamentally changed post the great recession increasing capacity and sophistication with this development cycle.

May 3, 2017 Nevada State Bank Private Event – I was all set to share my consolidated thoughts in this final post. But then something incredibly magical happened. Bernard Bermudez with Nevada State Bank invited me to a private and intimate lunch at the Four Seasons. I have to unpack this a bit. The incredibly magical part. So bear with me again…

Nevada State Bank had just published the results of their Small Business Survey for 2017. The survey was conducted by Applied Analysis with analyst notes provided by Jeremy Aguero. I guess in addition to mailing me a copy of the survey results I got invited to this event, which was essentially a round table for only 30 people, with Jeremy Aguero as the keynote. What was so incredibly magical is that in the midst of consolidating my personal thoughts about these topics – How Las Vegas is changing and The Next Recession – I got to soundboard everything that I have been writing about with Jeremy himself before his presentation began. How awesome… I mean… how incredibly magical?!

  • So what did we learn from the Nevada State Bank Survey?
  • Exactly how much capital is in the works in Southern Nevada?
  • What chances does Jeremy give for a national recession and when will it hit?
  • Is there a likely scenario in which Las Vegas does not participate in the next national recession?

First I need to give two disclaimers.

  1.  I have no professional association, or otherwise with Jeremy Aguero, (other than I believe he is utterly remarkable at what he does). The opinions in this post are my opinions. Just because I had a 15 minute conversation with Jeremy does not mean that he has endorsed anything you are about to read.
  2. I am not an economist. Everything I am sharing about this topic are my observations and how I “feel”. Yes there are links and facts and figures. Still, there are pros like Applied AnalysisRestrepo Consulting Group, and ITR Economics that you can hire for real insights into your business or industry.

Alright – let’s riff!

  • Key findings from the NS Bank survey and event;
  • Followed by a list of things that exist in Las Vegas today which did not exist before the Great Recession;
  • And some closing thoughts – a scenario in which Las Vegas ‘could’ skip the next recession.

Key findings from the Nevada State Bank Small Business Survey for 2017

Optimism is everywhere!

  • Nevada business owners are looking to expand
  • 1 in 2 Nevada companies report recovery from the Great Recession (that’s interesting it’s not higher)
  • More than 70% expect their business revenues or sales to increase in the next 12 months
  • More than 3 in 4 respondents said Nevada’s economy is headed in the right direction

Challenges and concerns

  • Recruiting quality employees
  • Attracting/retaining customers
  • Healthcare costs

Those were from the survey. This bit below is from Jeremy’s talk live at the Four Seasons.

Governor Sandoval is the best Governor in the country and also the luckiest
•  Southern Nevada has added 10,000 businesses (I think he meant since the Great Recession but I’m not 100%)
•  Taxable sales are all up
•  Visitation is the highest ever (more on this below)
•  The average daily room rate is almost back to peak
•  There is $15 billion worth of capital just in the top major construction projects (see partial list below)

Construction job stats
•  At peak construction jobs were 12% of total job market in Southern Nevada
•  The national average is 4% for reference
•  We are currently at 6%
•  Jeremy estimates we are running 10,000 jobs short of what we’ll need to complete all of the projects in the works

There is no housing bubble
•  At the peak we were building 40,000 units per year
•  We will build 10,000 units this year
•  We have been the fastest appreciating market for the past 5 years
•  Northern Nevada has an issue with median home pricing coming in at $400,000

It’s not all roses and sunshine – these are four things to be concerned about if not addressed
•  Infrastructure
•  Retaining businesses
•  Education
•  Healthcare

Predictions for a national recession
•  1/3 chance for it to be in 2018
•  2/3 chance for it to be in 2019
•  Reduction in consumer spending will be the cause
•  Watch for softness in auto sales which is a leading indicator

Here’s an analogy for you.

When I was 27 I just met Danielle, my wife to be, and we got serious. I was living with my cousin but shortly after Danielle and I moved in together. : ) My extra time was spent with her and friends, getting in some rounds of golf here and there, I was still driving a Range Rover with $1,000 payment because it was cool and hey – the recession hadn’t hit yet. My mom was still alive. And I just started a partnership with Jarrad Katz in commercial real estate. My timing was… awful! But not really. Where is all of this going…?

Today I am 37 years old and happily married with 3 kids ages 5, 3 and 8 months. I am a proud resident of Summerlin. My extra time (cough) is spent with my family. No golf. The car I drive is more sensible with a reasonable payment. I have grieved. My partnership with Jarrad is still vibrant and has evolved to include Curt Anderson and Carol Cline-Ong. Would it be fair to compare the output of 37 year old Hayim to 27 year old Hayim? Simply said, I am not the same person I was 10 years ago. Las Vegas is not the same city it was 10 years ago. See what I did there?

Here is a list of things that exist in Las Vegas today which did not exist before the Great Recession:

That’s a big list. And I have to say, it’s not conclusive. But you get the gist I hope.

Ok. Let’s button this bad boy up so I can get some sleep. I promised to explore a scenario in which Las Vegas skips the next recession. According to this graph from Wikipedia there have been 4 recessions since 1980, not including the Great big daddy recession. The duration of the recessions lasted between 6 months to 1 year / 4 months.

Let’s assume Jeremy Aguero and Dr. Dotzour and Alex Chausovsky are all correct and the next national recession hits in 2019. And let’s assume it’s a typical recession… not a Great Global Recession.

Will Las Vegas take a hit? Most likely. Tourism will slow down because folks won’t be coming here as much for about a year. But don’t forget, more people are coming here than ever before.

Will a drop in tourism cripple our economy? I don’t think so. I think the local economy will still have life because of the projects in the works and the jobs (again, specifically in construction) that could carry us through. There are three major projects: The Stadium, Convention Center, and Resorts World all moving forward with an estimated completion of 2020. That’s not to mention other projects planned like the Lagoon-Theme Park at the Wynn.

But will another recession trigger a PTSD, knee jerk reaction in our community, because of our deep scare tissue from the Great Recession? Gosh I hope not. Because that would be the scariest outcome. An “overreaction”. Especially when there is so much momentum that is going in the right direction!

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