Las Vegas Gambles on the Economy

Stallion Mountain Golf Course in Las Vegas changed hands in 2006 for $24.5 million; two weeks ago it sold for $3.9 million. Did somebody say that the economy has "stabilized"?

Las Vegas Real Estate under great pressure

For some reason ( I haven’t been able to put my finger on the why), I always check with Las Vegas as a thermometer of the state of the economy and today I ran into a notice that the Stallion Mountain Golf Club in east Las Vegas had been sold for $3.8 million to Ohio-based Tartan Golf Management. Now, I’m not a golfer, but I have some knowledge of real estate pricing and when I read that this 18-hole, par-72 championship golf course with amenities, only 7 miles from the famous Las Vegas Strip, was bought in 2006 by a group of investors for $24.5 million, but then first foreclosed on in 2008 by the Community Bank of Nevada, which bank then in turn was closed by the Federal Deposit Insurance Corp. in 2009 for insolvency, I was wondering about the real meaning of fair value. The broker involved in the recent sale actually claimed that the $3.9 million reflected Fair Value. Well in my book that calculates that today’s value of that property is only 16% of the price it was valued at in 2006, not taking any inflation into consideration.

So now my question is: If Las Vegas real estate, having been at the center of economic excess in the boom years, shows an 84% drop in real value since 2006, have we really hit bottom?

An old doctor friend of mine who sold his practice and retired in his mid forties in favor of traveling with everything he owned in a back pack (besides of course a sizable bank account) once told me that the real value of a house was determined by the circumstance that if the owner would have to sell before the next plane ride out a day later. Desperation is a powerful force.

Collier Int’l National Golf Course Brokerage team, the golf course broker, tried an auction in August of 2009; there were no takers, and that again makes me wonder why on earth, in a city where in 2008 you easily paid $225/$250 for a round of golf, golf courses should go bankrupt. Do the math: 20,000 rounds of golf pay for the purchase price. Of course it is not that simple, but here are some other details pertaining to this golf course. Situated on a 204-acre site on E. Flamingo Road, Stallion Mountain is located within a 2,600-home, guard-gated community. I would call that a captive audience if there ever was one, assuming that most people live on a golf course because they love to play the game.  Furthermore, the property includes a 37,500-square-foot clubhouse with full-service kitchen and restaurant, a second 18,000-square-foot clubhouse and a 16-acre practice facility. On top of that, besides the course’s championship-quality layout and being only 15 minutes from the Las Vegas Strip, they have a water contract with a nearby sewage treatment plant, that gives the facility a hugely competitive advantage because water in the desert is expensive.

Am I safe in assuming that some nimwits with too much money, made too easily, decided that it would be prestigious to own a golfcourse, without knowing the first thing about how to run it.

In any case, it is much clearer now, at least to me, how OMNI could buy The Amelia Island Plantation for $69 million; I say it again desperation is a powerful force, especially when mismanagement has pulled all the cashflow away.

Just for economic history I checked a bit further into Las Vegas’ real estate and found among many other examples this 2 story, 4 bdr/2-1/2 bath home for rent at $995 a month long term. No extras. It is then that you realize that we’re a long way from what some would interpret as the economy having stabilized.

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