A story published over the weekend at Myfoxny.com paints a gloomy picture for Atlantic City and Las Vegas, comparing both casino markets to Detroit, a city dealing with the largest municipal bankruptcy in U.S. history.
The column appears to be inspired by a recent announcement that the Atlantic Club in Atlantic City will close on January 13. The struggling Revel property is also mentioned.
The Atlantic Club closure is terrible news for employees and the local economy. It may be long overdue, however, as Atlantic City now has one more casino than it did when the recession started.
It appears that there is not enough demand to support 12 casinos in a market that has lost over 40 percent of its gaming revenue since 2006. There is promise in New Jersey’s online gaming industry that launched in November. The continued success of Borgata and profitability of other resorts should not be discounted either.
Las Vegas Survived the Recession
The article includes a few stabs at Las Vegas. These types of articles were common four or five years ago when some pessimists predicted tumbleweeds blowing down Las Vegas Boulevard in front of abandoned resorts. At that time, there were doubts about whether CityCenter would ever open its doors. Cosmopolitan was also thought to be a victim of the recession. The properties eventually opened after restructuring.
The Myfoxny.com article missed that Las Vegas bashing party, and in my opinion, a number of relevant facts.
Las Vegas is a Diversified Tourist Destination
The major difference between Atlantic City and Las Vegas is that Las Vegas is a diversified tourism destination. Major events, conventions and trade shows are hosted most weeks of the year and help fill hotel rooms and convention space.
In 2012, Las Vegas hosted 53 of the top 250 trade shows, making it the number one destination for these events, an honor it has held for 19 consecutive years. Las Vegas was home to more top trade shows in 2012 than the number two and three cities combined.
Las Vegas is also the top nightclub destination in the U.S. Las Vegas is home to the top four and eight of the top nine grossing nightclubs in the country. The dayclub business is also lucrative for Las Vegas resorts.
Hotel revenue is another major source of income for Las Vegas resorts. Of the 20 largest hotels in the U.S., 17 are located in Las Vegas.
In 2012, Las Vegas posted hotel occupancy of 86.9 percent. The national hotel occupancy rate in 2012 was 60.1 percent.
According to the Myfoxny.com column, Las Vegas gaming revenue has plummeted due to a number of factors. The Las Vegas Strip has actually seen gaming revenue grow in each of the last three years. In 2012, Las Vegas Strip gaming revenue was the third highest in history, behind only 2006 and 2007, the peak of the boom.
The article describes a scenario where tourists are hesitant to travel to Las Vegas due to regional gaming options. Tribal casinos and card clubs are legal in California, yet 25 percent of Las Vegas tourism comes from the southern portion of the state.
Online gaming is also mentioned in the column as a possible doom for live casinos, but there is little chance that “the feds may soon allow online gambling across the United States”, as stated in the column. Nevada online poker is hardly a threat to the brick and mortar industry either.
Gaming is only a fraction of Las Vegas Strip resort revenue. In 2012, large Las Vegas Strip casinos derived 36.1 percent of revenue from gaming. The remainder came from hotel, food, beverage, entertainment and retail sales. Casino revenue has been less than half of total income since 1999.
Despite the doom portrayed by Myfoxny.com, Las Vegas experienced record visitation in 2012. An estimated 39.7 million tourists came to the city on vacation or business. Non-gaming revenue is going up, not down, as evidenced by the record tourism numbers.
Let’s Talk Las Vegas Real Estate
The column reports “In Las Vegas alone, more than half of properties with mortgages are still underwater, or worth less than the loans against them, according to Zillow Inc”.
I did not believe that statistic, so I went to Zillow in search of the facts. The actual percentage of homes that are underwater in the Las Vegas Metro area is 39.6 percent, according to Zillow (click “more” to show this stat). That is not a good number, but is more than 20 percent lower than the exaggerated “more than half” figure provided by Myfoxny.com.
Foreclosure activity is mentioned in the column. According to UNLV (page 8), Nevada ranks seventh in foreclosure inventory on a percentage basis. Myfoxny.com’s home state of New York holds third place. Nevada is third in foreclosure starts, slightly ahead of New York, which holds fourth place.
If housing is going to be used as evidence of a future ghost town, New York should be on the list too, the state where the editorial in question originated.
The article also describes a potential second Las Vegas housing bubble. According to Forbes, 27 percent of Las Vegas homes are purchased by investors. Cash sales account for 62 percent of all Las Vegas home transactions, where home prices are up 31.7 percent in the past 12 months, according to Zillow. This should help prevent a second bubble as homes that are owned outright cannot fall into foreclosure.
Speaking of bubbles, it is hard to use that word to describe the current Las Vegas housing market. The image to the right provided by Zillow shows historical Las Vegas housing prices. The graph hardly paints a picture of a second bubble, especially since so many homeowners are paying cash and many homes purchased during the boom have already changed hands at or below today’s prices.
There is no doubt that the Las Vegas job market has not fully recovered from the recession. Unemployment is at 9.4 percent, but has improved from a high of 14 percent. The national unemployment rate is 7 percent.
The employment situation will continue to recover as construction starts improve and new resorts open. Las Vegas will welcome SLS Las Vegas and the reincarnation of Bill’s Gamblin’ Hall in 2014. The Linq development will open in phases starting later this week. All of these are currently generating construction jobs and will create permanent hospitality ones.
The Genting development, a proposed $2 billion project on the former Stardust site, is expected to break ground next year. If all goes well, Genting will invest a total of $7 billion in the property that will market to Asian tourists.
Downtown Las Vegas continues to grow as there is tremendous demand for residential, retail and office space in the area. A drive down Fremont Street east of downtown shows a massive redevelopment underway that will create construction and technology jobs. Dated motels have already been razed to make room for new housing and businesses. Zappos is a major player in this diversification of the Las Vegas economy.
Las Vegas Improving, Not Declining
Nevada offers something that most East Coast states do not. There are no personal or corporate income taxes in the state. Sales taxes exclude groceries and services. This will continue to make Las Vegas attractive for entrepreneurs and retirees that are not concerned with unemployment and will create jobs with their economic activity. This will in turn help the housing market’s continued recovery.
The Las Vegas Metro population posted a gain of 41.8 percent between 2000 and 2010, according to the U.S. Census Bureau. The population grew an estimated 2.2 percent between 2010 and 2012.
These are hardly signs of a city on the verge of collapse. A case can be made that another Las Vegas boom is on the horizon.