billddrummer

Slump's Over? Vegas Employment and Housing Looking Up

Hi Judy,

Great resource. Just keeping up must be a full-time job!

As far as the LV home sales vs. national employment--

I'm not sure that there's a direct correlation. When junk bonds became attractive vehicles for RE financing, a lot of the mega-resorts came into existence. The cash flows from those properties allowed them to pay down the high interest debt and reissue lower rate debt, while the companies' net worths rose because of both stock appreciation and profitability.

The availability of cheap financing was principally responsible for the construction money, in my opinion, not the growth of the broader economy.

But with the high fixed costs inherent in the mega-resort industry, it's possible that none of the new properties will start to show positive cash flow for several years. That essentially means that the asset base will remain debt-heavy for far longer than first anticipated. Factor in the long lead times for these huge projects (I believe the Wynn project broke ground 3 years ago, when everything was rosy) and there's definitely inordinate pressure on management to get revenues up and up fast.

If new properties aren't immediately profitable, and existing properties are suffering because of a decline in the leisure/hospitality industry, an investor would probably be more interested in the debt side of the companies than the stock side.

Your question remains an interesting one, though. If higher stock prices suggest improved consumer confidence, does the consumer then feel more comfortable with spending at a mega-resort? And if so, does that spending continue (or even rise) when new resorts come online?