The Southern Nevada Recovery: The Long & Winding Road

Presented by

June 15th, 2011

Presented to

Risk Management Association

The U.S. Economy

3333

Source: Philadelphia Stock Exchange.

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Dot Com Bubble

Semiconductor Sector Index: 6/1996 – 6/2011

The early warning system - essential in electronic technology - computers, mobile phones, DVDs.

4444

Source: Institute for Supply Management.

30

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y-1

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Ma

y-1

1

MFG Purchasing Managers Index

May 2011 = 54.5

- Above 50: Manuf. & economy expanding

- 43 to 50: Manuf. contracting; economy may be growing

-Below 43: Manuf. & economy in recession

Above 50 since 8/2009

U.S. Purchasing Managers Index (MFG):5/2001 – 5/2011

Manufacturing purchases continues to improve at national level.

5555

Unemployment rate stabilizing; but still elevated relative to the trend rate.

0%

2%

4%

6%

8%

10%

12%

Apr

-01

Apr

-02

Apr

-03

Apr

-04

Apr

-05

Apr

-06

Apr

-07

Apr

-08

Apr

-09

Apr

-10

Apr

-11

US =9.0%

Source: U.S. Bureau of Labor Statistics.

U.S. Unemployment Rate: 4/2001- 4/2011

The Long & Winding Road: The Potholes

7777

Enough said.

8888

This is what a bubble looks like. Prices at pre-2000 levels.

90

140

190

240

Mar

-00

Mar

-01

Mar

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Mar

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Mar

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Mar

-05

Mar

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Mar

-07

Mar

-08

Mar

-09

Mar

-10

Mar

-11

0

0

0

0

0

1

1

1

1

1

1

NV-Las Vegas

20-City Composite

1/2000 = 100 index

Trend

Rate

S&P / Case-Shiller Housing Price Index

Source: Standard & Poors.

9999

$680

$700

$720

$740

$760

$780

$800

$820

$840

$860

$880

$900Q1-05

Q3-05

Q1-06

Q3-06

Q1-07

Q3-07

Q1-08

Q3-08

Q1-09

Q3-09

Q1-10

Q3-10

Q1-11

Average Monthly Rent

0%

2%

4%

6%

8%

10%

12%Asking Rents Vacancy

Source: Center for Business and Economic Research, University of Nevada Las Vegas.

Another look @ avg. apartment rents & vacancy.

Q1-1110.6%$754

10101010

Little job creation.

At least 6 mos. of steady job growth needed along with deleveraging needed

Probably mid-2012 at the earliest

11111111

600,000

650,000

700,000

750,000

800,000

850,000

900,000

950,000

1,000,000

Apr

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-11

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4/11804,600

Establishment-Based JobsClark County: 4/2001 – 4/2011

Clark County job market stabilizing but back to 2004 levels.

Source: Bureau of Labor Statistics.

12121212

Establishment-Based Job Growth (% Y-o-Y)Clark County & US

Source: Bureau of Labor Statistics.

-15%

-10%

-5%

0%

5%

10%

Apr

-01

Apr

-02

Apr

-03

Apr

-04

Apr

-05

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0

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Clark County

US

4/11Clark = -0.3%

US = 1.0%

4/2001 – 4/2011

Number of jobs needed to

13131313

77,910

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

Apr

-01

Apr

-02

Apr

-03

Apr

-04

Apr

-05

Apr

-06

Apr

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Apr

-08

Apr

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Apr

-10

Apr

-11

12-M

onth Moving Totals

0

0

0

0

0

1

1

1

1

1

1

Clark County Initial Unemployment Insurance Claims (12-MMT)

Source: Bureau of Labor Statistics.

Good news: Initial unemployment claims continue to decline, but still at 10-year high.

14141414

Minimum improvement in weekly hrs workedmeans jobs creation will be slow.

33

34

35

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38

Jan-

07Apr

-07

Jul-0

7Oct-0

7Ja

n-08

Apr

-08

Jul-0

8Oct-0

8Ja

n-09

Apr

-09

Jul-0

9Oct-0

9Ja

n-10

Apr

-10

Jul-1

0Oct-1

0Ja

n-11

Apr

-11

Hours

Clark County = 34 hrs.

US = 34.3 hrs.

Source: U.S. Bureau of Labor Statistics.

Clark County & US Average Weekly Hours Worked: 1/2007- 4/2011

15151515

NV unemployment rate getting better; but stillabove national average since mid-2007

0%

2%

4%

6%

8%

10%

12%

14%

16%

Apr

-01

Apr

-02

Apr

-03

Apr

-04

Apr

-05

Apr

-06

Apr

-07

Apr

-08

Apr

-09

Apr

-10

Apr

-11

US =9.0%

Nevada = 12.5%

California = 11.9%

Source: U.S. Bureau of Labor Statistics.

US, NV & CA Unemployment Rates: 4/2001- 4/2011

16161616

700,000

750,000

800,000

850,000

900,000

950,000

Apr

-01

Apr

-02

Apr

-03

Apr

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Apr

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Apr

-06

Apr

-07

Apr

-08

Apr

-09

Apr

-10

Apr

-11

Apr

-12

Apr

-13

Apr

-14

Apr

-15

Apr

-16

0

0

0

0

0

1

1

1

1

1

1

2012 = +4,700/mo 2013 = +2,400/mo 2014 = +1,600/mo

2015 = +1,200/mo 2016 = +1,000/mo

~57,000: Total jobs needed to target 6%

unemployment rate*

Job Growth Scenarios1, 2, 3, 4, 5 years...and longer

*Assuming labor force remains constant, and 1 job (CES) equates to 1 person (LAUS) becoming employed. Source: Bureau of Labor Statistics.

Jobs needed per month

17171717

And flat incomes don’t help

18181818

$40.8

$64.0

$41.8

$65.5

0

1

Q1/

92Q1/

93Q1/

94Q1/

95Q1/

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97Q1/

98Q1/

99Q1/

00Q1/

01Q1/

02Q1/

03Q1/

04Q1/

05Q1/

06Q1/

07Q1/

08Q1/

09Q1/

10Q1/

11

$30

$35

$40

$45

$50

$55

$60

$65

$70

$ in thousands

US '92$ US current $

LV-Paradise MSA '92$ LV-Paradise MSA current $

Sources: Department of Housing & Urban Development; US Bureau of Labor Statistics; RCG Economics.

“The Challenge”: LV & U.S. median family income also remains flat. Impacts purchasing power.

Median Household IncomeLV & US

19191919

0

1

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-02

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-07

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-11

0

20

40

60

80

100

120

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Source: The Conference Board.

Consumer confidence has risen from low-point at beginning of 2009.

U.S. Consumer Confidence Index

5/11=60.8, similar to 3/03 levels

Still far from the reading of 90 that indicates a healthy economy.

20202020

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0%

1%

2%

3%

4%

5%

6%

7%

8%

9%U.S. Personal Savings Rate

Sources: U.S. Bureau of Labor Statistics.

The sign of the New Frugality. Personal savings rate likely to remain elevated for some time.

4/11=4.9%

21212121

Finally, consumer debt loads will restrain spending.

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16.64

11.74

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98

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10

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1

National Household Debt Service & Financial Obligations Ratios

Source: Federal Reserve Board.

DSR = % of debt payments (estimated required payments on outstanding mortgage and consumer debt) to disposable personal income.

FOR = adds automobile lease payments, rental payments on tenant-occupied property, homeowners' insurance & property tax payments to the DSR.

Debt Service (DSR)

Financial Obligation

(FOR)

23232323

Now we have elevated gas prices

24242424

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

$4.5

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1

A mild respite. . . but

Source: Energy Information Administration.

Real Price (Jun 2011 $)

Nominal Price

Forecast

25252525

And food price spike isn’t helping.

26262626

187.01

100

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World Commodity Food Price Index

Source: Index Mundi.

27272727

Reduced government spending is not all good.Remember government IS an economic sector

• Budget Cuts • With Rising Demands

“The upcoming fiscal year (FY2012) is shaping up as one of states’most difficult budget years on record. Thus far, some 44 states and the District of Columbia are projecting budget shortfalls totaling $112 billion for fiscal year 2012.” - CBPP

28282828

States with Projected FY 2012 Shortfalls.

45.20%

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15%

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Source: Center on Budget & Policy Priorities, 3/9/2011.

Shortfall as % of State GF Budget

Las Vegas Real Estate Markets

30303030

The industrial market will be first to improve as inventories are rebuilt.

0%

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18%Q

1 '0

5

Q3

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$0.00

$0.10

$0.20

$0.30

$0.40

$0.50

$0.60

$0.70

$0.80

$0.90

Vacancy (%)

Asking Rents ($ PSF per Month)

Valley Industrial Vacancy & Asking RentsQ1, 2005 – Q1, 2011

Source: RCG Economics.

31313131

The Valley’s office market will be last to recover.Overbuilding & anemic hiring.

0%

5%

10%

15%

20%

25%Q

1 '0

5

Q3

'0

5

Q1

'0

6

Q3

'0

6

Q1

'0

7

Q3

'0

7

Q1

'0

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Q3

'0

8

Q1

'0

9

Q3

'0

9

Q1

'1

0

Q3

'1

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Q1

'1

1

$1.50

$2.00

$2.50

$3.00

Vacancy (%)

Asking Rents ($ PSF per Month)

Valley Spec Office Vacancy & AskingRents: Q1, 2005 – Q1, 2011

Source: RCG Economics.

32323232

Valley’s retail market remains in doldrums. Consumer confidence & spending is key.

0%

2%

4%

6%

8%

10%

12%

14%Q

1 '0

5

Q3

'0

5

Q1

'0

6

Q3

'0

6

Q1

'0

7

Q3

'0

7

Q1

'0

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Q3

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Q1

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Q3

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Q1

'1

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Q3

'1

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Q1

'1

1

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

Vacancy (%)

Asking Rents ($ PSF per Month)

Valley Anchored Retail Vacancy & Asking RentsQ1, 2005 – Q1, 2011

Source: RCG Economics.

33333333

Years of supply to reach 10% vacancy.

Source: RCG Economics.

Las Vegas Valley Commercial Market: Q1, 2011

Years of Supply

10.0

5.4

0.2 0.00.3 0.4

17.8

0.2 0.6

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

Indus (3.2 Yrs of

Supply)

Spec Ofc (5.0 Yrs of

Supply)

Anchored Ret. (0.7

Yrs of Supply)

Square Feet (Millions)

Vacant Inventory

Under Construction

40-qtr (10-yr) Avg. Absorption

34343434

And that’s why the recovery will be long& winding.

Contact:John Restrepo702-967-3188jrestrepo@rcg1.com