CommCap Advisors

The Las Vegas retail market exhibited negative net absorption of 191,000 s.f. in the 1st
Quarter of 2011, reversing modest positive absorption of 62,000 s.f. in the prior quarter. The hope that the 4th quarter positive number foreshadowed a turnaround seems to be premature. The overall market continues to be weak as it digests the effects of closures of major national retailers and the impact of the national and local economic downturn. The overall market of 43.96 million s.f. shows a current overall vacancy rate of approximately 11.5% as of the end of the First Quarter 2011, up from 9.7% at the end of the 1st Quarter 2010*. On the positive side however, taxable sales for December 2010 showed significant gains in Clark County (up 2.8%) and Statewide (up 11.2%) versus the prior year, indicating potential pent-up demand from the long recession. Large space vacancies in power and community centers created a couple of years ago by the loss of large anchor stores like Circuit City, Mervyn’s, Linens ‘N Things, Office Depot and others generally remain vacant. However, a few well performing ethnic grocery stores are filling some buildings in older neighborhood centers. There are also a significant number of new out-pad tenants filling vacant buildings as well as in newly constructed facilities. Unanchored strip centers continue to have higher vacancies due to the collapse of undercapitalized small shop tenants. Rent levels continue to drop from their peak of two years ago. Current shop rents are averaging $1.55/s.f. NNN, continuing a year long decline from $1.72/s.f. at the end of 2009. In addition, a majority of the projects financed by aggressive conduits a few years ago are under water as cash flows have eroded. Many of these borrowers are attempting to renegotiate their loans or are simply giving the lender the keys.

The retail sector is certainly a mixed bag but we are encouraged that the bag includes some definite good news. Despite all of the bad macro-economic news, a number of in-fill retail markets in the Las Vegas area are still performing well and are signing new leases albeit at somewhat reduced rents. There is a noticeable uptick in local and national consumer confidence, evidenced by increased taxable sales, as the economy stabilizes. Local gaming and tourism statistics appear to have stabilized recently and are slowly trending back up. We also anticipate a positive impact in the jobs sector as a major west side retail complex, Tivoli Village, opens in May, 2011. These indicators will translate to better, if not robust, sales growth in the near future. Our conclusion is that the retail sector requires a much higher level of due diligence to spot the opportunities and that there will be some compelling conservative deals to be done. We are confident that the Las Vegas retail market will continue to provide solid long term results for projects whose basis has been reset to today’s reality.