By Brian Wargo

Mon, Oct 6, 2008 (2 a.m.)

Wall Street’s financial woes have played havoc with all sectors of the Las Vegas development community, from housing to office and retail.

Even with the congressional bailout, the future remains dicey for some projects.

Not only have there been delays in Strip projects, but development across the valley could be pushed back because of limited access to capital, said Brian Gordon, a principal with Applied Analysis. Even with the bailout, it will take time before financial institutions will be able to lend again.

“There are a number of planned office, retail and industrial projects throughout the valley that are not only competing with existing product on the market today but also with financial markets for limited capital,” Gordon said. “That will likely cause a shift of timing or cancel plans altogether.

“With above-average vacancy and soft demand, there is a multitude of factors against many of these projects moving forward already.”

The financial crisis already has had a deep impact in the valley because banks haven’t renewed lines of credit and there is growing difficulty getting loans for new projects, said John Restrepo, an economist and principal of Restrepo Consulting Group.

Even with the bailout it will take time for money to flow through the system, he said, and the existing economic slowdown will be protracted.

“Even with the infusion of capital, it will depend on the type of project,” Restrepo said. “It may be more difficult to get office financing because of a higher vacancy rate, but easier for retail and industrial. It will be determined on a project-by-project basis.”

Tim Sullivan, president of Sullivan Group Real Estate Advisors, said the housing market stands to benefit from a bailout.

“I don’t think anyone knows what is the right solution, but my point is that the one positive element is that it at least offers some stability or perception of stability,” Sullivan said. “That instills some blanket of confidence in the marketplace.”

Many homebuilders have had their lines of credit called back from the banks even when they are in full compliance with their loans, Sullivan said. Without that access to capital, they have to cut back operations and halt projects.

The financial crisis has hurt sales of new homes, which were down sharply in the second half of September, said Tom McCormick, president of Las Vegas-based Astoria Homes. “I think all of this is scaring people from purchasing a home, and when we don’t sell homes, that constricts our cash flow.”

Alex Edelstein, chief executive of Gemstone Development, the developer of the Manhattan West condominium mixed-use project, said he’s also worried about the lingering credit crunch and the ability of buyers to get mortgages.

“Lending has pretty much dried up the last 90 days, and so developers have to bring more equity to the table to try and get a building built,” Edelstein said.

If the bailout is successful in taking huge amounts off banks’ balance sheets, lenders will be in a position to raise money from investors, he said. They won’t be afraid the banks will be wiped out.

“I am a hard-core free-market guy,” Edelstein said. “I don’t like government intervention, but it is the right thing if it is executed well. If they do nothing, we will go into a prolonged depression that essentially will be caused by cascading economic contraction as companies that can’t borrow money are forced to lay off and shrink.”

Associated General Contractors of America, the nation’s largest commercial construction association, backed a bailout to help restore liquidity, stability and confidence in the financial markets and restore credit to finance construction projects.

Steve Holloway, executive vice president of the group’s Las Vegas chapter, said he’s seen a large number of projects that have permits but are not moving forward because of the lack of financing, especially smaller projects off the Strip.

Even though he thinks the bailout will make construction loans more readily available, Holloway said that’s not the only problem to overcome with any rebound. “Housing usually leads us in a recession and something needs to be done with housing to take us out of this recession,” he said.

Kirk Boylston, regional director of EJM Development, said his company hasn’t had trouble getting financing for its Arroyo mixed-used project in the southwest valley. But many other companies are finding it difficult to obtain construction loans.

“Lenders don’t have money to lend, and they are not inclined to lend for speculative developments,” Boylston said.

Not only does the lack of capital affect developers directly, but if prospective tenants lose their lines of credit, they don’t have the money to expand or move into a new building, he said. That is especially true for companies that did business with Silver State Bank, Boylston said.

“It is one big clog in the pipeline right now,” Boylston said. “It is hurting everybody, and it is going to have to be worked through, and it is going to be painful. There is no quick fix.”

Kyle Nagy, director of CommCap Advisors, a Las Vegas mortgage banking firm, said it continues to become tougher and tougher for developers. Two years ago lenders required developers to put up 15 percent of the project, but today that is up to 25 percent to 30 percent, and developers don’t have enough equity.

Many regional and local lenders are not considering loans for clients unless they have a deposit relationship of 10 percent to 15 percent of the project, Nagy said.

Lenders also want developers to have 50 percent to 60 percent of a project preleased compared with as little as 0 percent to 20 percent in the past, Nagy said.

“This is a credit crunch and not a fundamental real estate problem,” Nagy said. “Real estate is still doing well. Vacancies may be up and rents are soft, but it is not like we have a lot of vacancies up and down the street.”