CommCap Advisors

The Las Vegas retail market experienced positive net absorption in the 4th Quarter of 2009 reversing negative absorption experienced in the 3rd quarter. This was due primarily to two completed Target stores coming on the market. 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 43.75 million s.f. shows an overall vacancy rate of approximately 8.8% as of the end of the Fourth Quarter 2009, up from 8.4% at the end of the 3rd quarter*. The big holes 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. Unanchored strip centers continue to have higher vacancies due to the collapse of undercapitalized small shop tenants. Rent levels are dropping from their peak of two years ago. Current rents are averaging $1.73/s.f. NNN, continuing a year long decline from $2.05/s.f. at the end of the previous year. Also, 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 renegotiating their loans or are simply giving the lender the keys.

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 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 the MGM City Center project is completed and opens at the end of 2009. 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.