Less Vegas: The Casino Town Bets on a Comeback

I have come for revenge. For years, I’ve hyperventilated at restaurant "tasting menu" checks, forfeited 1,000% markups for bottle service at clubs, neared my credit-card limit for hotel suites, paid usury to strip-club ATMs and pushed far too many chips to the dealer. On this trip, I will get a hotel room for less than the upkeep on the room, eat a meal for near what it costs to serve it and — at least according to a sign in the Cheetahs dressing room berating the strippers for undercharging — get some kind of deal in the VIP room. For the first time ever, it is possible to complete a monetary exchange in Las Vegas and feel bad for the other person.

I, however, feel guiltless about taking advantage when someone is down, and Vegas is way down. This has been the first major recession Vegas has experienced since it became a real city. After two decades as one of the fastest-growing metropolises in the U.S., Las Vegas has seen its population growth flatten. It’s got the highest foreclosure rate of any major metro area, and the unemployment rate jumped from 3.8% to 12.3% in just three years. Even if you have a job, it’s not a good time to have your wage be dependent on lavish tips. The No. 1 convention city has also had a wave of cancellations from the AIG effect — companies don’t want the bad publicity of being seen in Sin City. Just as Las Vegas was the epicenter of the extravagant consumption of the past 20 years, now it’s the deepest crater of the recession over the last year. And while I do want to get my money back, I’m a little worried about seeing the dream sucked out of our most American city, the one with the optimism and possibility of New York City in 1900. The one I’ve, embarrassingly, come to love. (See pictures of hard times hitting Las Vegas.)

But I’m here because Las Vegas is on sale. The hotels, led by Wynn Resorts boss Steve Wynn, slashed room prices to increase occupancy rates to 82% from a low of 72%. On the right day in July, you could book the type of 750-sq.-ft. room that was $500 a year ago at the Wynn for $109 and get a $50 gift certificate. The high-end restaurants at the MGM have gotten rid of most of their $400 bottles of wine and replaced them with $100 ones. This is either a model for the rest of the country or, if the reset fails, the beginning of a long, long slide.

Vegas was in the midst of building a real urban center, trying to turn what was just a break from sanity — fake Eiffel Tower! giant dancing fountain! a dance in every lap! — into a permanent installation of insanity. If we decide that we don’t need a resort town that’s roughly the same size as Washington, D.C. (which Las Vegas is) — that we can’t continue to devote as many resources to gambling, tasting menus, spas, strip joints and nightclubs as we do to our national government — then we finally revert from being a nation of optimistic materialism to one of Puritan thrift. The one that not even Cotton Mather could get Americans to buy.

This precarious moment — early on a Tuesday afternoon — I could not be more unconcerned that my room reservation has been screwed up. In this city hurt hardest by recession, partly because it built too many hotel rooms, I smile at the man behind the desk, sure that I am about to be upgraded to a presidential suite. Then I’m told there are no more rooms of any kind available at The Hotel. When I go to meet a friend by the pool at the Mandalay Bay, it’s too crowded to find chairs. All the price-cutting has succeeded: the town is full. This recession business is totally not working for me.

As I turn out of my hotel’s full parking lot, veering onto the Strip, I come across something rarely seen in Vegas: frozen construction projects. I pass cranes abandoned at the site of the Echelon, a huge, multibillion-dollar project of four hotels that is now just three buildings of nine floors of concrete and steel beams sitting idly on some of the most expensive real estate in the country. I pass three more abandoned sites — 63 empty steel floors of the Fontainebleau, a sad unfinished shell that was supposed to be Caesars Palace’s Octavius Tower and two cranes halted on a structure that was supposed to be a St. Regis condo building. I then drive up to where the New Frontier was razed to build a resort modeled on New York City’s Plaza Hotel. It’s just a dirt wasteland, so ugly that Wynn planted a row of trees so his hotel guests wouldn’t stare at it from their windows. I never realized an economic defeat could look so much like a military one.

Just as Americans did with their houses, casino owners borrowed way too much money to build hotels that were way too big. Economists like Yale’s Robert Shiller have warned that the next big wave of failures in the U.S. recession will be in commercial real estate — and once again, Las Vegas is headlining. Even worse, the bottom fell out as casino owners were building, so a number of them couldn’t replace construction loans with the financing that was once readily available to complete and open hotel-condo-casino projects. Deutsche Bank foreclosed on the $3.9 billion Cosmopolitan Hotel; only it couldn’t find a buyer, so the bank is in the odd position of owning a casino — though given the way banks have operated in this decade, that seems like a logical business extension. Meanwhile, Station Casinos, Tropicana and Herbst Gaming have disproved the adage that you can’t lose money owning a casino. They borrowed big and went bankrupt.

Others, like MGM Mirage, are in too deep. The few operating cranes in town are scattered among the 9,500 construction workers still crawling over CityCenter, an $8.4 billion, five-skyscraper, ultra-luxury project that is the largest privately financed development ever in the U.S. Although the company has managed to keep the project going through a desperate battle for financing deals with Dubai World, a number of people who signed up for condominiums are looking to bail. So MGM Mirage, which owns the most properties on Las Vegas Boulevard — the Strip — ducked and weaved around bankruptcy for six months earlier this year by pumping $140 million, almost a quarter of its monthly revenues, into the project. MGM sold off Treasure Island at a bargain price: Phil Ruffin, the buyer, paid the equivalent of $225,000 for each room on the property; CityCenter’s rooms cost about $1.5 million each to build. Even if CityCenter is a big success and people want urban density as a part of their Vegas experience, experts like Bill Lerner, a gaming analyst at Union Gaming Group, figure it will be five to 10 years before Vegas needs more than the 150,000 or so hotel rooms it will have when CityCenter’s 6,000 and the Cosmopolitan’s 800 are completed. And if CityCenter tanks, Vegas will be holding some very bad cards.

The real estate mistakes on the Strip were made in miniature by thousands of Vegas homeowners. To see the real devastation, I have to leave the line of casinos along the Strip and drive to where people in Las Vegas actually live. I head out to spend the day with real estate agent Brooke Boemio, a bouncy, sweet, recently remarried 31-year-old mom whom I met years ago when I was on another assignment. Boemio is doing great during this recession. In fact, she’s never had a job that paid as well: she made more than $100,000 last year. Even better, she’s willing to show me how messed up the real estate scene is.

Boemio specializes in short selling, in a particularly Vegas way. Basically, she finds clients who owe more on their house than the house is worth (and that’s about 60% of homeowners in Las Vegas) and sells them a new house similar to the one they’ve been living in at half the price they paid for their old house. Then she tells them to stop paying the mortgage on their old place until the bank becomes so fed up that it’s willing to let the owner sell the house at a huge loss rather than dragging everyone through foreclosure. Since that takes about nine months, many of the owners even rent out their old house in the interim, pocketing a profit.

Tons of people were doing this, but there were consequences. Renters were being evicted, through no fault of theirs, with a couple of days’ notice when the house finally went on the market. People are now paying a premium to live in apartment buildings, which in Vegas are almost always owned by a corporation. Sure, short selling damages the sellers’ credit rating, but they just bought a new house, so they don’t care.

It’s an entire city of John Dillingers, feeling guiltless for stealing from the banks. Boemio is well aware that short selling isn’t ethical and is exacerbating Vegas’ economic problems. People, she believes, should make their payments, accept their paper losses and ride out the crash. "Guess what, a______s of Las Vegas. That’s what gambling is about. That’s what investing is about," she says. "It’s greedy. But we’re all doing it. Because why not?" It’s very hard, she says, to suffer as the one honest person in a town of successful con artists.

In fact, last year Boemio and her new husband did it themselves, paying $279,000 for a house nicer than their old one, which cost nearly twice as much. They stopped making payments on the old one as soon as they signed their new mortgage. "I make people happy all day with foreclosures. Now I want to be happy too," she says. The new house, like so many she deals with, was trashed by the previous owners, who were angry at being foreclosed on. The doorknobs, hinges and copper wiring were stolen, as were the appliances and carpet. The owners even left their dogs behind. (Abandoned pets have become a huge problem for local shelters.) "You couldn’t walk into that house without holding your nose to keep you from vomiting," Boemio says. She and her husband had to spend $7,000 on appliances and carpet to qualify for a Fannie Mae loan.

She’s driving this morning to try to sell an apartment, with her husband along as protection. He’s been accompanying her into potentially shady situations ever since she entered a for-sale house with a key only to be greeted by a squatter with a gun who fired a warning shot.

The apartment she’s trying to sell today is in Newport Lofts, a doorman building with a pool, gym and clubhouse on the roof, which, the custodian tells us, haven’t been used by anyone in months. Newport Lofts is one of a cluster of several luxury condos that were supposed to be part of a revitalization of the downtown area. Apartments in Newport Lofts — Boemio’s client, an out-of-town investor, paid $600,000 for one — are now listed for as little as $179,000. And this particular apartment isn’t exactly in great shape. A squatter slipped past the doorman and, even more impressively, got a locksmith in to switch the lock and give her keys.

The squatter left behind no bed, but she did leave stained bath mats, towels, flip-flops, Chinese-takeout remnants, Sun-kist soda cans, prescription medicine, old mail and some used airline tickets to Miami. Boemio casually walks around all of it, occasionally laughing. The buyer’s agent — a woman in a Gucci scarf and sunglasses — is a little more freaked out, trying to figure out how much this mess will cost to clean up. Which is strange, since she’s offering $250,000 on behalf of her overseas client — $70,000 more than the asking price. There are no other buyers. Boemio goes over the offer three times with the Gucci lady to make sure she understands exactly what is going on. Gucci lady, she figures out, is just trying to score an extra $2,100 in commission and is screwing over her client for $70,000.

It is lawless right now in the Wild West. There’s even a real estate agent (and the figures and details are slightly changed here to protect him) whose out-of-town investor demanded that the agent find a way to cover some of the losses he was taking on the $60,000 down payment he’d sunk into a house. So the agent created a separate contract, never shown to the bank, that said the new buyer had to purchase a $60,000 Persian carpet from the seller — a check his mortgage company, which was sucking up hundreds of thousands of dollars in losses on the short sale, would never see. When the buyer — who was happy just to get a deal on the house — asked if the Persian carpet was really worth $60,000, the agent looked at him as if he were insane. "I bought it at Wal-Mart," the agent told him. Now all the friends of the investor who got his $60,000 back are asking the agent to pull the same scam for them. And he’s doing it.

Leaving the condo with the sale apparently finished, Boemio drives into a huge subdivision in western Las Vegas, one of the hardest-hit areas. The houses look nice enough, but every third one has a for-sale sign, and there are almost no cars in any of the driveways. She picks a house at random, and we go to the back. She figures the odds are high that a squatter has left a door or window open. Indeed, the bathroom window has already been pried open, and the screen is bent, so I bend it a little more and squeeze myself through onto the toilet seat and then open the porch doors and let Boemio and her husband in. There’s a Rolodex’s worth of real-estate-agent business cards on the kitchen counter, but this home has been sacked and stripped: black mold creeps across the ceiling and walls near the pipes where the washing machine had been; paint is angrily splattered on the walls, including an artistic flourish of purple handprints. They’re almost all like this, Boemio says. The police can’t stop it because people have the right to trash their home while they still own it. This is what an empire looks like when it falls.

The recession has hit everything from philanthropy to stripping to the solvency of Nevada. Because Nevada has no income tax and relies almost entirely on taxing casino owners, the state is nearly bust. Governor Jim Gibbons, a Republican, whom only 11% of voters say they would re-elect, tried to turn down federal stimulus money, was accused of cheating on his wife and lost control of the legislature, having his vetoes overridden more times than any other Nevada governor. Budget cuts have closed the only hospital cancer wing for uninsured patients. "We’re on the bottom of every bad list," says Steven Horsford, majority leader of the Nevada senate and de facto head of Nevada’s government, who tried and failed to enact a corporate income tax. The state is so desperate, the legislature even considered a state lottery. Which is about as good a revenue plan in Nevada as opening a literary salon.

The devastation has spread into every aspect of Vegas. The city has lost the Las Vegas Art Museum, its oldest one. Strippers, who are facing less extravagant tippers and floods of newly unemployed women from other cities flying in to audition, are shelling out more than $100 for online classes at a site called StripandGrowRich.com to hone their sales tactics. There are lifeless shopping malls everywhere; Neonopolis, the $100 million, 250,000-sq.-ft. downtown mall, has almost no open stores left.

If it’s this bad, why, then, does every Vegasite I meet still talk as if he or she is about to go on a winning streak? The people in Vegas aren’t nearly as depressed as those in far less devastated cities. "This is a town built on hopes and dreams, and people don’t give up hopes and dreams when there’s a recession," says Neal Smatresk, executive vice president and provost at the University of Nevada at Las Vegas. Anyone who has ever stood at a craps table knows that losers always believe they’re one roll of the dice from starting a winning streak.

That is true even of Sheldon Adelson, who has lost more during this recession than anyone else on the planet. The 76-year-old chairman of the Las Vegas Sands Corp., which owns the Venetian hotel, the Sands Expo and Convention Center and the Venetian Macao, was in 2007 and ’08 the third richest person in the world, with — by his estimate — a net worth of $40 billion. By February of this year, he said he had lost $36.5 billion — more than the GDP of half of the countries in the world. In the years before that slide, banks were begging him to take their money, given his massive success in building the first Vegas-style hotel and casino in Macao, China, in 2004. Adelson didn’t hesitate, taking all he could get and building an entire mini-Vegas in Macao called the Cotai Strip, along with huge casinos in Singapore; he also doubled his Vegas space by adding the Palazzo to his Venetian hotel. In a short time, he has accumulated a debt-to-earnings ratio of 6.8 to 1 in the U.S. Then the loans stopped coming, and his stock price sank from $144 to $1.42 in March. (It now hovers at about $12.) That’s his crane parked between the Venetian and the Palazzo resort, atop the St. Regis condominium, on which work has been halted for the foreseeable future.

Las Vegas Adelson is a self-made, risk-loving, Boston-born entrepreneur who, after creating the hugely successful COMDEX computer convention in 1979, helped turn Vegas into the top convention destination. He’s a feisty ultraconservative who has managed, seemingly on purpose, to make enemies of all the other casino owners, a pretty friendly group. When his nemesis Wynn invited him to dinner recently to bury the hatchet, Wynn says Adelson refused, recalling that Wynn had once referred to him as Mr. Magoo. Sitting for an interview at a giant conference table, Adelson stops the conversation every time his videographer — who is either documenting Adelson’s entire life or preparing a libel case against me — needs to change tapes and once when he feels the angle is wrong.

But other than making sure his good side faces the camera, Adelson doesn’t seem worried about much besides his exercise-and-diet plan to reduce the gut he’s added since he began to need a walker to get around. "If you believe what you read in the newspaper about us, we have one foot in the pail of bankruptcy and the other foot on a banana peel, and there’s a high wind. It’s all wrong," he says. Adelson, always a self-believer, has reinvested more than $1 billion in his company. But he has also fired his longtime right-hand man, been sued by shareholders and shed more than 700 Las Vegas employees since November.

He doesn’t seem too crushed by his losses. "A billion dollars doesn’t buy what it used to. So it’s not as tragic as one would assume," he says. "I say to my wife that the worst tragedy I could have in business deserves a two-hour cry, and I scale down from there. I didn’t cry one moment." When his wife asked him to cut back on expenses, he dismissed the suggestion, telling her he still had more money than they could ever spend. Eventually he capitulated: whenever possible, he uses his small private jet instead of his big one.

Adelson may have changed planes, but he’s not changing his strategy of using high-end dining, giant suites and plush convention spaces to attract customers. He does not believe that America is going to fundamentally change its values from extravagance to thrift. "There’s no way this world will change. There’s no way people are going to stop doing things they want to do … People aren’t going to say, ‘I’m going to see Old Faithful or the redwoods instead of taking a trip to Vegas. Or I’ll go to Cape Cod with a book.’ I don’t think they’re going to do that. I used to fish. I don’t want to go back," he says. "That’s the nature of people. It’s like the old song, How you going to keep them down on the farm once they’ve been to gay Paris?" The last part, Adelson, whose bank account has been pretty much wiped out by the recession, sings. And rather well.

But behind all that confidence, I figure, must be some hard lessons learned. This is the man who has been taught the main moral of this recession better than anyone else: you can’t borrow more than you can afford to repay. His debt is going to be hard to dig out of even if things get better soon. So when I ask how long it will be before he’d even consider getting a loan for more expansion, I expect him to apologize for his recklessness and pledge to become a saver. Instead, he sits up, widens his eyes and smiles. "As soon as someone wants to lend it," he says. "I’ll be first in line."

So Vegas has made its bet. This recession, it clearly believes, is just another business cycle. It will end, sooner rather than later, and the world will go right back to gambling on slot machines and real estate and tasting menus and double-digit corporate earnings. In fact, Wynn bet me $100, an amount I had to spend several minutes explaining to him, that the U.S.’s GDP growth will be positive by April 2011. In the meantime, he and the other people who run Vegas believe the deck will get reshuffled and new players will sit down at the table as casino owners, but the game itself won’t change. Americans, they think, will continue to get economically better off. It sounds a little hollow, especially looking at this city in the desert that creates nothing, the world’s greatest ghost town in waiting. But a lot of people have gone broke betting against the people who run Las Vegas. Besides, the Las Vegas people have no choice but to bet things will go back. They’re all in.

See pictures of Las Vegas.

Read TIME’s 1994 cover story "Las Vegas, U.S.A."

Read "Stick It to the Recession: Wynn’s Vegas Encore."

Read TIME’s 2004 cover story "The Strip Is Back!"

Photos courtesy of TIME.