Raw data suggest that Las Vegas is the epicenter of the nation's foreclosure meltdown. All but three of the top 13 zip codes hardest hit by foreclosures in December 2007 were in the city, according to CNNMoney.com. And in March, Nevada ranked first in the nation in foreclosure rates.

Brokers familiar with the area say that so far, the fallout in commercial real estate appears milder than the numbers might indicate. Yet some warn that the situation could be about to get worse.

On the upside, Las Vegas continues to draw new residents even as foreclosures mount. A crop of new hotels on the city's renowned Strip is slated to adorn the skyline in coming years, which could create upwards of 350,000 new jobs, according to Chris Cunning, vice president of investments for Encino, Calif.-based Marcus & Millichap Real Estate Investment Services.

But Woodland Hills, Calif.-based Merrill Group developer David Frank points out that apart from the hotel business, construction throughout the city is slowing and national retailers are less keen to expand. Frank anticipates stresses on the commercial real estate market will follow retail trends starting in the third or fourth quarter.

“It's our feeling that the commercial market has not even begun to see the effects of the financial crunch,” says Frank, whose firm is a preferred developer for Wal-Mart, the Home Depot and Lowe's. In October, Frank reactivated his business as a court-appointed receiver in anticipation of the coming demand for such services.

Frank last worked as a receiver in the early to mid-1990s, an era with an economic climate he says stands apart from today's. Back then, banks lacked funds. “Today, the banks have the cash,” Frank says. “But they're not willing to lend…. This time, the recession is hitting the actual consumer right in the pocketbook as a homeowner.”

Other symptoms of the crisis evident in Las Vegas include softening cap rates, scarce tenants and space that sells slowly if at all. Cap rates for class-A and class-C properties in the city were once only a fraction of a point apart, says Cunning. But today, cap rates for class-C space are rising to 8 percent, which is 150 basis points higher than the average class-A rate of 6.5 percent.

Among retailers, mom-and-pops and national tenants alike are wary to sign leases. Frank has seen more tenants asking for lower rents as their revenues have weakened over the last three to four months, and landlords seeking to fill vacancies must sometimes grant additional concessions.

Considering the climate, brokers are finding it necessary to put in more legwork than in the heyday of Las Vegas's real estate upswing. “You have to show what the property has to offer and how it works with investment and real-estate goals,” Cunning says.

Otherwise, the alternative may be to fold — a trend broker and attorney Jack McRae has seen among brokerages that grew too quickly. McRae is a partner at Sperry Van Ness Franceschi-McRae.

Three to four years ago, McRae says, properties could sell without a “For Lease” sign in sight. Today, he and his partner are returning to the basics: negotiating, working the phones and posting those signs. “You have to do Sales 101,” he says. “But things are still leasing — and leasing quite well.”

LAS VEGAS

Population: 552,539

Foreclosure rate (for Las Vegas-Paradise metro area): 4.2%

Median household income: $53,000

Median value of owner-occupied homes: $309,800