Las Vagrants

Talk about a neon car-crash. It's been general knowledge for a while that the Las Vegas real estate market was heading for a hard landing. Yet today's announcement that house prices in that area have collapsed by 41% since their 2006 peak is quite stunning.

Into this mix of falling prices and soaring unemployment steps Station Casinos, which is announcing a proposed pre-packaged bankruptcy today. For information, this crazily leveraged deal was backed by Colony Capital, and unsuccessfully tried to do a debt for equity swap back in December.

Still, I don't think Colony needs to feel alone. The informal newsflow trickling into my firm about various private equity real estate funds is pretty horrifying. Talk of debt facilities maturing in the next few weeks which are not being refinanced, falling occupancy rates and rising capital expenditure requirements are joining the deleveraging party.

Of course, these real estate funds wouldn't be in this mess if they'd have a modicum of common sense in their deal underwriting. Even today, a fund updated me with a 50% drop in equity values. And yet they still think that by 2012, prices will have not only recovered, but doubled from their purchase price in the boom years of 2006-2007. Proof that people can always dream in Vegas...