Tony Vegas development struggles in downturn

updated 9:21 a.m. ET June 5, 2009

LAS VEGAS - It was a symbol of Las Vegas largesse during the good times. Now it's an emblem of recession blues.

With a manmade lake in the desert, an Italian-style village beyond the suburban sprawl and neighborhoods fit for diva Celine Dion, the Lake Las Vegas resort development flouted good sense and modesty in the tradition of all great Las Vegas dreams.

But it has fast turned sour for some.

Last year, the developer, Transcontinental Corp., lost the property in foreclosure after defaulting on $540 million in loans. The new owners of Lake Las Vegas filed for Chapter 11 bankruptcy last summer. One if its anchor hotels, a Ritz-Carlton owned by Village Hospitality LLC, also filed bankruptcy to stave off foreclosure and has been sold. One of three premier golf courses has been abandoned.

New home construction has slowed to a crawl, though the community is far from built out. Foreclosures have spread like a virus, and home values are falling.

Even the sparking, blue lake — the jewel of the luxury haven — nearly sprung a leak, forcing engineers to rush to make repairs before it drained.

Not surprisingly, residents are jumping ship. In May, nearly 10 percent of the homes on the market at Lake Las Vegas were either bank-owned or short sales, meaning they were priced so low a sale would not satisfy the owners' debt to the bank, according Applied Analysis, a real estate research firm.

Nearly 80 percent of the homes listed were vacant.

"I thought it was a no-lose situation. It ruined me," said Ed Santacruz, a former mortgage broker and fortune seeker who let his Lake Las Vegas hotel-condominium go into foreclosure. He had planned to rent out the property to tourists, but couldn't get enough takers to cover the mortgage.

"That's where I messed up, I believed enough in the product and in Las Vegas," Santacruz said.

Lake Las Vegas' woes largely are due to now familiar problems. The community was designed as both a resort and residential destination — leaving it heavily dependent on second-home buyers and tourism. Both faltered when the economy sputtered.

"There was a point and time when the higher end of the market had been less impacted. But as the recession has run longer and deeper than initially expected..." said Brian Gordon, a principal at Applied Analysis.

The community that strove for seclusion wasn't as isolated as some thought.

The palm trees and putting greens of Lake Las Vegas emerge out of the near empty desert off a dusty suburban highway 17 miles from the Las Vegas Strip. The homes are clustered around a 2-mile-long lake that defies the scorching heat and environmentalists, alike.

A replica of Florence's Ponte Vecchio, a popular venue for weddings, crosses the water on the south end, near a tasteful, small casino.

Two of the community's three golf courses were designed by Jack Nicklaus. Promotional materials boast a seven-minute commute to the Las Vegas casinos on the horizon — by helicopter.

The idea of exclusive desert resort living originally was the brainchild of J. Carlton Adair, an actor and businessman. Adair acquired the land in 1966 in a swap with the federal government that also included the rights for 10,000-acre feet of water. Creating what he planned to call Lake Adair would require damming water destined for Lake Mead, the Colorado River reservoir that provides water to southern Nevada.

But Adair went bankrupt before his dream was realized and a subsequent group of investors also failed to raise the necessary money.

Transcontinental took up the mantle in 1990, a year before the dam was completed. The city of Henderson, a bedroom community next to Las Vegas, was attracted by the promise of a new solid tax base. It agreed to sell the community the water it would need to replenish the evaporation under the scorching sun. The community pays a water bill of about $2 million a year.

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