Real estate in Deadwood: How Fremont Street in Las Vegas became a ghost town . . .

by Greg Swann

Suburban Phoenix Real Estate Broker

Author website

My mother gives us money for Christmas every year. This year we used the lucre to buy seasons one and two of Deadwood, the acclaimed HBO television series about gold-mining, lawlessness and profanetasizing — a condition afflicting screen writers, who pretend to affect to believe that people in the past were even worse potty-mouths than they are. In any case, the show is filled with dubious real estate deals, just the thing to keep us entertained as we wait for the next purple outburst.

Here’s an example: In the first few episodes, laconic hero Seth Bullock and his more loquacious partner Sol Star rent a lot for their hardware store from Al Swearengen — pimp, faro hustler, saloon keeper and curator and conservator of the Deadwood Hall of Fame of Outrageous Profanity.

What’s the rent? Twenty dollars. A day.

Deadwood is growing fast, and the bloom is barely off the boom. This is a seller’s market such as we have never seen. So when Bullock and Star offer to pay $1,000 to buy the lot free and clear, in fee simple — what should Swearengen do?

It’s worth $600 a month in rent. Potentially, it’s worth $7,200 a year. Why would Swearengen sell it at all? Why wouldn’t he lease it to the hardware store? They can improve it all they want, but those improvements and the underlying dirt would revert to his control when the lease terminated.

Better yet, why not write a participation lease? The hardware store planned to sell much-needed equipment to the prospective prospectors arriving by the dozens in Deadwood every day. Why wouldn’t Swearengen want to cut himself into a piece of that action, in exchange for surrendering for a term the right of possession to his lot?

If we stipulate that a gold rush is a short-term phenomenon, this would have been Swearengen’s optimal strategy for maximizing his own profit from the lot.

But what happens when a short-term windfall turns into a long-term travesty?

Last week I wrote about two multi-billion dollar multi-use projects being built on Las Vegas Boulevard — “The Strip.” Kirk Kerkorian’s MGM-Mirage will spend $7 billion to build Project City Center, while Bill Boyd’s Boyd Gaming will drop $4 billion to put up Project Echelon. That’s a lot of money even by Sin City standards. Wynn Las Vegas weighed in at only $2 billion.

So here’s an interesting question: Why, if gaming corporations are willing to spend such huge sums of money on The Strip — why is Downtown Las Vegas in such disreputable shape? An unrestricted gaming license is a precious thing. Contrary to appearances, very few spaces in Clark County, Nevada, are zoned for table games. And Boyd Gaming has a relatively strong presence Downtown — Main Street Station, The California Club and The Fremont.

So why aren’t Boyd and other Downtown owners spending millions upon billions of dollars to develop their properties?

A simple question with a simple answer: Land leases.

Some Downtown casinos own their own land — or parts of their own land — but much of the land in Downtown Las Vegas is owned in tiny parcels which are leased to the casinos sitting on that land. The casino once known as Binion’s Horseshoe, now just Binion’s, sits on seven different leased parcels. Some of these little parcels have as many as twenty owners, each one of whom can veto any change in the terms of the lease. Moreover, since the rents charged the casinos are exorbitant, and since any upgrading to the properties would temporarily cut into that rental income, the many and diverse landlords, collectively, have no interest in the cycle of demolition and rebirth that characterizes The Strip.

Downtown Las Vegas has other disadvantages, of course: Grime, crime, mendicants, winos, drug addicts and cheesy souvenir shops. But the two blocks of Glitter Gulch were closed to street traffic by the City of Las Vegas, and The Fremont Street Experience, a consortium of Downtown casino owners, has erected a giant Diamondscan canopy overhead — a video display five football fields in length. Fremont Street offers what The Strip could and should but doesn’t: A giant open-air party every night.

But because of the land leases, change is slow. And because change is slow, cash-flow trends downward year after year — robbing Downtown casinos of both their investment capital and their appeal as investments.

Some people talk about condemning the land by Eminent Domain, but that “cure” is worse than the disease. In reality, the true problem is zoning. If investors could build casinos wherever they might be able to acquire suitable property in fee simple, then Glitter Gulch would die quickly, rather than slowly and painfully, futilely kept alive by one taxpayer subsidy after another. But if it could finally die, then it could finally live. The current land owners would have no reason not to sell, and new structures — casinos, stores, offices, residential towers — could rise on that land.

Zoning has ossified the land on and around Fremont Street into a slow motion ghost-town-in-the-making. The current use of the land is so valuable that the current owners won’t set it free to soar to even higher and better uses. You might argue that they are short-sighted, but it is the de facto oligopoly caused by zoning that rewards them for being myopic.

Deadwood’s Al Swearengen would know just what to do about this. You might join him in his efforts — but not where children can hear…

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