Village Square latest casualty

Village Square, once a thriving shopping center on Sahara Avenue anchored by Regal Cinemas, is going into receivership, the latest casualty of the commercial real estate collapse in Las Vegas.

Like residential real estate, the commercial sector has been battered by plummeting property values and rising vacancy rates. Some analysts predict an impending foreclosure crisis in commercial real estate, one that would take down major banks with it.

That fallout has yet to be felt, though notices of default on commercial properties have doubled in the last year, according to monthly reports from Nevada Title Co. Most of them are for vacant land.

For the two-week period of Nov. 16-30, Nevada Title reported 39 notices of default on commercial properties, including 20 for vacant land, five for storage facilities and four apartments. The largest loan of $35 million was for a professional building owned by Montecito Partners at 6605 Grand Montecito Parkway. The lender was US Bank.

The Mortgage Bankers Association reported that the share of commercial mortgage-backed loans at least 30 days past due rose to 4.1 percent this year, compared with 1.2 percent in 2008. It's the largest increase since 1997.

About 3.4 percent of bank-owned loans on retail centers, apartment complexes, office buildings and other income properties were at least 90 days past due, up from 1.4 percent a year ago.

The situation has been called a "time bomb" waiting to explode, the next shoe to drop.

Whitney Tilson, principal of New York-based T2 Partners investment firm, told the Review-Journal in June that the final wave of foreclosures is coming from loans outside of the housing sector, the largest of which will be in the $3.5 trillion area of commercial real estate. They started to surge in 2008.

Triple Five Development, developer of Village Square, defaulted in March on a $27.6 million loan from Keybank National for vacant land in northwest Las Vegas that was planned for the Great Mall of Las Vegas. The company also developed Mall of America in Bloomington, Minn.

The company now acts as manager on behalf of different syndicated investment groups with assets in Nevada, including Village Square, said Jeff Dragovich, senior vice president of Triple Five.

"Like many other projects in Las Vegas and nationwide, Village Square has been negatively impacted by the prolonged recession, which has put a strain on occupancies and sustained cash flow, which we anticipate to continue until the public gains confidence that the economy is on its way to recovery," Dragovich said.

Bank of America filed a $59.7 million lawsuit in District Court against Village Square Shopping Center.

Triple Five has been in "constant and open communication" with the lender to resolve the situation and pull the project through the recession, Dragovich said. The company allocates significant resources and manpower to manage and lease the shopping center, and has brought in new tenants and worked with existing tenants in extending their leases to stabilize occupancy and cash flow, he said.

Jim Weld, commercial broker for Associated Ventures Capital in Las Vegas, said the market appears to be headed for the worst period in more than 16 years. Still, depending on product type and region, performing loans -- those that are current on payments -- are bet-ween 96 percent and 98 percent of most portfolios.

"It does sound much more dramatic to say that there is an eye-popping 500 percent increase than to say nonperforming loans went from 0.5 percent to 2.5 percent," he said. "It's easier to get more bang out of it when everything is negative."

Weld said he'd heard complaints about Village Square's poor design. In-line stores, or those sharing common walls within the shopping center, were blocked from view on Sahara Avenue by stand-alone pads out front, most of them restaurants.

"It's always the same," Weld said. "The developer wants the most square footage he can get on the property and the tenants want as little square footage as they can take but give them all frontage."

Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.