A desert mirage

Every home builder in the country would probably describe 2009 as an "annus horribilis." But Las Vegas builders Adam Knecht and Ernie Domanico had a particularly horrible year.

Last January, their construction company, Domanico Custom Homes, was breaking ground for the New American Home, which was supposed to be a spectacular show house and a centerpiece of the International Builders Show, scheduled to open in Las Vegas next week.

Instead, the New American Home all too accurately reflects the state of luxury home building -- and the ravaged Las Vegas market. Unable to secure financing, the builders lost the unfinished home to foreclosure in December.

The half-acre building lot for the 6,800-square-foot, two-story house is about six miles west of the Las Vegas Strip. Domanico had already built six similarly sized houses on the quiet cul-de-sac; this one was going to be the 30-year old firm's crown jewel and bring it national exposure.

Designed by the KTGY architectural firm in Irvine, Calif., to accommodate a multigenerational household, the New American Home was supposed to boast the latest technology, upscale finishes and an extraordinary level of energy efficiency. But less than a month into the project, the private investor providing the financing pulled out. Many builders would have halted work, but Knecht, who was Domanico's general manager, said he believed that they would eventually get the $1.8 million they needed because of the unusual nature of the project. It had the backing of the National Association of Home Builders and more than $1.5 million worth of upscale products that were going to be donated by the project's sponsor, the National Council of the Housing Industry, a subsidiary of the NAHB. The builders decided to proceed with their own money.

Construction continued apace, hitting all the target deadlines, until August. But Domanico was forced to stop the job at 75 percent completion. They had run through their own money and had not secured the financing they needed to finish. Overnight, the job site went from the constant cacophony of about 30 tradespeople at work to an eerie quiet.

The list of unfinished work includes many of the donations Knecht had expected, such as flooring, countertops, lighting and appliances.

A market in decline

Knecht continued to seek financing for four more months. It didn't help that Las Vegas has one of the highest foreclosure rates in the country and every banker in town was skittish. Of the 37,124 resales in 2009, 26,338 were foreclosures, Las Vegas real estate agent Kathy Janus said. Only a tiny fraction of the foreclosures -- 27 of the 26,338 -- were large houses, as Knecht's New American Home project was. "But it only takes one in your neighborhood to make appraisals plunge," she said.

This neighborhood was not spared by Las Vegas's hard times. Two blocks from Domanico's building site, a 5,000-square-foot foreclosure had recently sold for $600,000. And, down the street, a half-finished foreclosure that a bank had been trying to sell for more than a year burned to the ground in June.

As he sought financing, Knecht found that the donated products, which included already-installed windows and a vanishing window wall, impressed no one, nor did the NAHB imprimatur. One lender did finally step up, but its offer was $700,000 short of what the builders needed. Finally, the bank holding a lien for the building lot foreclosed. The lot and partially completed house were sold at auction on Dec. 28 for $490,000.

The buyer will still have to put in at least $1 million to finish the house to "an average quality" for that segment of the Las Vegas market, Knecht said. Had the house been completed as designed, its value would have been about $3.5 million, he estimated.