With depressing economic news bombarding developers on a daily basis, it's easy to fall into the trap of constantly hitting refresh on your Internet browser. But that's the worst thing you can do, says Rich Worthington, president of The Molasky Cos., a developer in hard-hit Las Vegas.
"You need to turn the monitor, stop looking at Wall Street, and know your market," Worthington said during the "Where the Deals Are" session at the 2008 Developer Conference in Las Vegas this week.
Instead, Worthington, who has a diversified portfolio in of 5,000 apartment units in the Las Vegas area, is trying some new things with his development platform. "I'm now building prisons and jails," he says. "They're a multifamily product."
Worthington isn't the only developer in Las Vegas choking on unsold inventory. Developers are trying anything, from reengineering products to implementing price cuts.
"Most developers are trying to figure out?how do I make forward progress?" says Alex Edelstein, founder and CEO of locally based Gemstone Development. "The product in Las Vegas can't differentiate itself."
In his effort to differentiate himself, Edelstein says that he's finding that areas for socialization are strong selling points with younger buyers and renters. "They want places to hang out," he says. "I want to have something where my friend will come across town and visit me."
In Phoenix, Eric Brown, a one-time builder and former managing director of RCLCO, a real estate advisory firm based in Bethesda, Md., is seeing developers do things such as sell two lots for the price of one to move product. "You try to do anything other than just dropping your price," he says.
Brown, who has lived through past downturns in the '80s and '90s, won't really feel comfortable that Vegas has stabilized until he sees about four sales per month for a few months. Richard Gollis, principal of the Boston-based real estate advisory firm Concord Group, thinks Vegas probably won't recover for three to five years.
But in the meantime, there will be opportunities for deals. Institutional capital needs more return than what the current market can support. That leaves room for others. "Deal size will go down," Gollis says. "That creates an opportunity for the small guys."