Friday, May 29, 2009 | 3 a.m.
- Report: Nevada's 31 percent home price drop tops nation (5-28-2009)
- Analyst predicts new-home recovery in 2012 (5-25-2009)
- Price of existing homes drops to '98 levels (5-22-2009)
- Underwater mortgages mount (5-22-2009)
Steve Bottfeld is not afraid to share his opinions on the Las Vegas housing market even though he admits being right has been tougher in recent years for most prognosticators, including him.
The 65-year-old executive vice president of Marketing Solutions, a real estate consulting firm he owns with his wife, Marcia, has been at the center of the predicting business when it comes to Las Vegas real estate.
The New York native who has worked in Las Vegas for about 20 years, teams with SalesTraq’s Larry Murphy on a quarterly basis to give insights on the housing market to the real estate community.
The affable Bottfeld, who once had a three-month stint working public relations for the Miss Universe Pageant when he was just out of college, said it took him awhile to find out what he wanted to do in life but combining real estate and research was his calling.
Bottfeld has overcome a failed business venture in California and bankruptcy before moving to Las Vegas, where he has been quoted in national and international media on the housing market.
IBLV: What started your path into what you do today?
Bottfeld: I sat down with my wife. I am married and have a child at this point. I am 22. I told her I am just devastated. I figured out what I want to do with my life, but it is going to take me five to six years to get there. She said, “What do you have to do?” I said I have to get an MBA, and I’ve got to figure out some way to get into marketing research. I left General Electric and took a job with an ad agency and then left the ad agency to go work for Wall Street for a while doing advertising and promotion. Wall Street was worth its weight in gold in learning about cynicism and how cynical people are. That is when I got in the predicting business.
I wrote an article that got published in one of the local magazines that predicted the Dow would break 1,000. I was called on the carpet by this president of a billion-dollar group of mutual funds. He fired me summarily. He said nobody in this organization says the Dow will break 1,000. That will never happen. Talk about your head in the sand. Even back then Wall Street had its head in the sand. I left the building and thought to myself, “Treat it like an opportunity, Steve.”
What happened next?
I got my MBA and my wife wanted to move to the West Coast. We ended up in San Diego. I loved it. I was the marketing research guy to an advertising agency. The problem with most advertising is it is not based on sound research. Someone gets a creative idea and says, “Let’s do this.” Our thinking was if we can give you a research base to come up with a creative concept, it will be much more effective. We did that, and that was my first introduction to real estate. I met a guy named Sandy Goodkin, and he needed focus groups done because they were getting ready to advertise some stuff. I went to Seattle to do some focus groups for real estate. I found it fascinating and interesting. So if you combine research and real estate, I am a happy camper. I have been a happy guy since my late 20s because I am in two businesses that I like.
Where did you go from there?
I had a disagreement with my partner and instead of screaming at each other, we just simply separated. I believe that was a smart move. I got into concrete business and vanity press. I got away from real estate because I needed to make a living. I got back into real estate with a research company in 1977. In 1980 I opened up a real estate research firm. That was the first time I had ever done that. That was called Insights. The idea was we do what Larry (Murphy) does or Dennis (Smith) does (in housing statistics research in Las Vegas) with a couple of little twists. We got killed. I learned something. I can’t run a business. I am great at getting the job done. I am lousy at directing people. We went belly up. It took us five years and by 1988 I was broke. That was a year for me that was an epiphany. I think I was growing up. I was the one to blame for the business failing. You can point fingers at someone, but you are responsible for your own success and, most assuredly, you are responsible for your own failures. I just hadn’t been able to admit it to myself. So I admitted it to myself.
What was your next move?
About three weeks later I got a call from a guy at a title company (in Las Vegas) to do some marketing research — management consulting. I flew out here on a Sunday and began reading the Review-Journal and the Las Vegas Sun. I got both papers on Monday and Tuesday. By Wednesday afternoon I got a business license and P.O. box and a telephone number. I loved Las Vegas. I loved everything about it. I had been here several times in the ’70s and ’80s.
You have talked during seminars how that was a tough time for you. What happened?
It was Oceanside, Calif., on Oct. 1, 1988. We had 11 bucks between us, and neither one of us was going to get paid for two weeks. When I say we had nothing we were scrounging through furniture for lost coins. We were broke. At that point, I was beginning to pay the IRS (for business-related taxes). The IRS took my home in San Diego.
How did your business fail?
I went into bankruptcy on Insights in 1991. I satisfied all of my creditors, but there were three guys I couldn’t. I owed him $7,000, and he had me for $70,000. I had another for $14,000, and they had me for $400,000. I said, “We can go to court and fight or I can do bankruptcy, which is easier to do.” The IRS came in and killed me. I wasn’t overseeing the books properly. I put us on a tax service, which means our payroll service. They would take the tax out. My secretary saw that we weren’t going to make payroll so she took us off, and she never told me. Three years later, we were still off, and I owed three years of employment taxes. They got me good. By the time it was done. I owed them about $1.1 million. We finally got it straightened out, but by the time it was over, I paid them a fortune. I was broke, but I was hopeful.
So when you are asked to come to Las Vegas, you came here with no money?
When I got over here, they paid my airfare and my hotel room. I had to pick up my own meals. I was here five days. I had 50 bucks, and I didn’t have a credit card that worked. That first job paid me well, and we had a couple of other clients.
You started working here then, but you didn’t move here until 1993?
I stayed in L.A. and commuted. I had clients in L.A., here and San Antonio. But I was spending four to five days a week here. My wife became a vice president of Tandy in 1990. I began to get a reputation and part of it was I would tell the truth as I saw it.
What kind of work did you do?
I worked for builders all the way through this, doing consumer research or economic research or feasibility analysis of how big, how much and how fast. If you got a piece of dirt, what are you going to do with a piece of dirt? So they would hire me to tell them the best use. They would tell me they were going to build single-family homes ranging in size from 1,800 to 2,200 square feet and they were going to sell it at prices ranging from $189,000 to $250,000, and what did I think? I might come back and say the market won’t sustain it. The big advantage I have had as a real estate analyst is that I have a better understanding of the consumer than most real estate analysts do.
How did you have success in this business venture?
The two smartest moves I ever made in my life were in 1993, before we moved here, I asked my wife to become my partner. I wanted her to run the business end of the business, and I wanted to do the business. I wanted to do the work. She said, “Fine, as long as we don’t have employees.”
You have mentioned you are working with overseas investors. What is that about?
I have been working with the same Dutch investment consortium since 1984. I still work with them today. They were in town (two months ago) and I showed them some stuff in Las Vegas they may or may not end up buying. I have made them a lot of money and they have made me a lot of money. The reason that I am on my second generation of management is because they call me the atypical American. For me, that is a compliment. I have been to Europe, and I speak passable French. I speak a couple of words of Spanish and a couple of words of Italian. I am patient, which most Americans are not. The other thing I don’t necessarily have to have is the last word.
When did you start making predictions about Las Vegas real estate?
In 1989 a local newspaper panned the hell out of me because I predicted the price of a house here would double in the next decade. The median price of a home in 1989 was in the $60,000 range. I was predicting $110,000 and $120,000. Richard Plaster (Signature Homes founder) thought I was out of my mind.
What about forecasting today? Isn’t the spotlight on everything you say talking about the economy and housing market?
Everybody has a forecast. You think doing a forecast in 2007 and nobody is going to remember it in 2009? Wrong. I screwed up big time in 2007. What I didn’t tell people was I was hospitalized in December of 2006 for 21 days. I came out and had to prepare a seminar, and I read my own research incorrectly. I thought we had a confidence level of 54 percent, so I made a prediction based on that confidence level. I had been pretty good up until then. Unfortunately, I was racing so fast I screwed up. The confidence level was 38 percent. If I read that, I would have never made the prediction I made (about the economy). I got up in April and said I screwed up, and I got up in July and made a big point of saying I screwed up. Once you make a mistake, everybody labels you The Optimist. Fine. OK. Admit your mistakes and tell people what you are going to do about it. At GE, we took something called disaster planning and the first three rules are: Tell them what happened, tell them you are at fault if you are at fault and tell them what you are going to do about it. If Bill Clinton had followed that, he would not have had Ken Starr. That was because he had an ego larger than mine. Nobody has an ego larger than me.
What is it about this market that makes it special?
Las Vegas is maybe the single most interesting market in the country for three reasons. First, it is a market where people are friendly with their competitors because you never know when your competitor is going to become your colleague. Second, until very recently, there was very little competitive denigration in this market. I like that. And third, and maybe most important, people here tend to see the bottom line more quickly because they don’t have the time to fool around. This market moves very quickly. I can get a decision in 15 minutes in this town. I can’t get a decision in weeks in Denver. The other thing I like is people here have vision. They don’t see things small. Yeah, I know that is a problem and we have had a lot of failures, but without vision, nothing grows. One of the reasons I think Oscar Goodman is one of the best mayors the world has ever seen, he may not get everything accomplished but he has a vision to get it accomplished.
How do you deal with people calling you on the carpet for mistakes and saying you were overly optimistic about the economy and housing prices?
Eventually I am going to be right. Larry (Murphy of SalesTraq) made a great point: We looked at it one way a year ago, but we have additional data now. So we are looking at it a little differently. Time changes opinions. Yeah, all right, I was the first one to call the boom. Fine. I was the first one to call the end of the boom. I missed the recession. OK. Fine. In 2008 I said I thought the bottom would be in the fourth quarter of 2008 or first quarter of 2009. It is still too early to tell if I am right or wrong on that, but if we are not on the bottom, we are close enough. When people say you keep on saying that, I say you are not listening to everything I said. You are just picking up one thing. If you are going to be in the public for any length of time, you have to listen but you have to decide what’s really right and what’s really wrong. Am I wrong? Yeah, if I am wrong I will stand up at that podium and say I was wrong. But I think up to this point, other than that huge mistake, I have been right most of the time.
What can we learn from this?
I think three analytical tools are missing that would help us. One is we are not learning when the government changes the rules and regulations. One of the big causes of the subprime crisis was the oversight of the SEC was basically eliminated in 2001 or 2002. I didn’t find that out until after we were in this thing big time. I was laboring under a misconception. We need more transparency in government when government changes.
Second, I think we have to stop letting the media dictate. Some elements of the media have an agenda. We have to stop letting them pursue that agenda.
Third, what people like me need to do is run their opinions by others before they get up and discuss them. One of the things I didn’t do before the 2007 debacle was run my opinions by anybody. Larry and I have been pretty much batting back and forth. Not that we hadn’t discussed it before, we never really went at it.
You never expected a downturn like we had with prices?
No. But at the height of the boom, I don’t think anybody else could have either. The answer is no, I couldn’t. Would I have predicted it? No. Would I have believed this last year? My answer by 2008 was we knew we were going down, but we just didn’t know how far. Yes. We are further down than I expected, no question. By the same token, when you look at March data, that is a huge hopeful sign. You had since August of last year through now, you really had a lot of signs that were pointing to we are near a bottom, we are near a bottom, we are near a bottom. Is this the bottom? I don’t know. But the bottom line is there are enough signs out that we feel good about. Going back to your original question, would I have predicted prices this low? No. And I would have been mistaken. So I would have had to get up and answer I screwed up.
What about some suggestions there may be improvement this year?
Anybody who thinks we are out of it this year is wrong. But I do think we will have signs that we are coming out of it this year. We will come out next year. And when I say we will come out next year, we will begin to approach normalcy. Normalcy in this market would be the equivalent of 2002, 2003 in terms of home prices. The other thing people miss is that we are a market that is in significant transition. Everybody says vertical is dead and Manhattanization is dead. We only have so much land and we will eat through it a little slower now, but we will eat through it. The bottom line when it’s gone it’s gone. That will definitely turn to new urban solutions. And that will be in the next decade.
Do you continue to believe the single-family home is in trouble here?
At the time I said we were within a decade of our being able to build new single-family homes because there would be no land that would (make homebuilding affordable). A decade from now most builders are going to be building four-story stick-and-stucco midrises. You are going to see a lot of in-fill projects.
What are other lessons from what happened?
If the recession has taught us anything, it is that prices have to be more reasonable in the home market. There came a point where prices were so unrealistic. The lesson that builders are taking from this recession is not that they got greedy, but that they misunderstood what they could do with pricing.
What do we need to watch?
The key issue will be prices and if we are, in fact, correct, new-home prices will be stable from this point on. Once we establish a true pricing bottom, that is the bottom of the recession. Once prices begin to come back up a little bit again, it will start turning loans back on. But that process is a three-year process. When I say we will be out of the recession in the first quarter of next year, we are still going to have overhang and difficulties.
Are we ever going to see a boom like the one we had?
I never say never, but I don’t see one within the next 10 years that would create that. But everything goes in cycles and people forget.
Are you the one who coined the term Manhattanization of Las Vegas?
In 1999 I did a study for Irwin Molasky and Mark Fine on what is now Park Towers. Turnberry Towers came and I wrote about Manhattanization of Las Vegas and in-fill solutions. That is the first public mention of it. I am not saying people didn’t come up with it independently. I am simply saying that is the first time anybody used it. I think it would be difficult for people to use that term if they didn’t grow up there. I wasn’t just talking about building big buildings. I was talking about luxury. If someone else wants to claim it, Paul Murad wrote the book on it. I may have been the guy who coined the term, but the guy who popularized it was Richard Lee. He got up at a Perspective (an outlook presentation) and used it and it caught on from there. I am the guy who coined the term. He popularized it, and Paul Murad used it.
What is on the horizon for you?
I am about to make some pretty significant changes. I wrote a novel, whether or not it is any good, we are going to find out in 60 to 90 days. It a story about Cain and Abel. If Abel had a son would he want justice or revenge? I am going to write.
I am going to spend a lot more time on the investment end of the business. There are some interesting opportunities. I am going to spend a lot of time shuttling back and forth between my grandkids. I will be far less public in the next six months than I have been over the last 20 years.
Why is that?
It is time. I am getting older. I think the worst thing to watch is an athlete past his prime trying to keep up with the younger kids. Do I think I am past my prime? In some respects I am well past my prime. At some point, you have to admit to yourself, I am good. I am probably better now than most guys will ever be. But I am not as good as I was. If I can’t be the best at something, maybe I shouldn’t be doing it. I enjoy lots of other things, and there are lots of other ways to make money. I will continue to write (housing reports with Larry Murphy). I will probably begin to withdraw from the seminars. I think it is time for new voices. Larry’s is an important voice. I think you need to begin hearing from other people talking about this besides me.