Shortly after the housing crash in 2008, there were many prophecies of an impending commercial real estate market crash. The good news is that doesn’t seem to have happened.

This article from Bloomberg goes discusses the state of the national commercial real estate market and where it is headed.

In my opinion, there are 3 core reasons this hasn’t happened:

1. A commercial crash would spell failure for nearly every major bank… the fact that they have so much skin in the game means they are much more willing to negotiate and work out solutions before turning to foreclosure.

2. The “tweaking” of accounting principles that has allowed lenders some flexibility in how they report the troubled assets that are on the books… this has allowed them to hold onto properties longer without being forced into a fire sale of distressed properties.

3. Interest rates remaining low have attracted buyers with the lower cost of capital and the opportunity for a larger upside potential.

The cities that seem to be poised for recovery consist of the usual suspects: New York, Washington, Boston. As the Bloomberg article discusses, in New York, cap rates are down to 5.5% versus a 6.2% national average for central business districts. This is pushing investors to begin looking for higher yields in markets such as Seattle, San Francisco bay area, and parts of Chicago and Atlanta.

The bad news for Las Vegas, and this shouldn’t be news for anyone, is that we still look to be a long way out from full on recovery.

Markets hit hard by the housing bust are struggling and are less likely to recover quickly, PriceWaterhouseCoopers LLP said in its annual Emerging Trends in Real Estate survey in October. Las Vegas, Milwaukee, St. Louis, Detroit and Cleveland are among the cities that scored the lowest in its poll of investors.

Las Vegas is a secondary market… we depend on tourism and gambling to bring the bulk of our revenue and until we have more people that are comfortable spending their money on leisure, we will continue to suffer.

The good news behind this is that the hotel sector does seem to be improving… as things continue to get better nationally, travel has started to resume:

The upswing is boosting hotel sales in the Americas, which are expected to jump as much as 25 percent this year, Jones Lang LaSalle’s hotel investment-services unit said on Jan. 4. As property values rise, lenders are reworking existing loans and making new ones, according to Christopher Jordan, head of hospitality banking at San Francisco-based Wells Fargo.

“Hotels represent a very attractive investment opportunity because they’ve seen such a sharp decline,” Jonathan Gray, senior managing director and co-head of real estate at New York- based Blackstone Group LP, said during a conference on Nov. 18. “We’ve been deploying a lot of capital in this area.”

Hotels have an advantage that other types of commercial real estate lack, said Morgans Hotel Group Co. President Marc Gordon. They can boost room rates quickly to take advantage of economic growth, while tenants at offices and retail properties tend to sign multiyear leases.

For the Las Vegas strip, this means we should be focusing on business and convention travelers. We need to be looking at ways to not only retain the conventions and shows that we have had in the past, but also be aggressively pursuing new opportunities. The more difficult fact we face is that, in the middle of a sharp decline in demand, we added over 7500 hotel rooms to the city. Soaking up the additional supply could mean a prolonged recovery, additional losses, or a combination of both.

The most important lesson we can garner from all of this as Las Vegans is that we must work to diversify our economy so that we are not relying on a single sector to bail us out. If we make it through to recovery without any significant changes, we have missed the opportunity and will be doomed to repeat history.