Published Monday, Oct. 5, 2009 | 1:57 p.m.
Updated Monday, Oct. 5, 2009 | 6:29 p.m.
CityCenter has reduced prices of its condos by 30 percent in an effort to satisfy concerns from condominium buyers who signed purchase contracts for the units more than two years ago, when the real estate market was booming.
"We believe that in this economic climate this price reduction is an appropriate step to take on behalf of our buyers as to provide them greater flexibility in closing on their residences," Bobby Baldwin, president and CEO of CityCenter, said in a statement.
Some buyers who had complained about condo prices months ago said they felt rebuffed by CityCenter's managing partner, MGM Mirage, which had declined to discuss potential price reductions until more recently. In response, the company has argued that, with the real estate market in flux, it would be premature to change prices many months before buyers close escrow.
Lower prices may help some buyers obtain financing for their units, though some buyers have said that closing on reduced-price units will be difficult given that banks are reluctant to finance luxury condos. Other buyers, whose finances have slumped in the economy, say they are looking for a way out of their contracts.
An attorney representing multiple groups of buyers unhappy with their condo purchases at CityCenter said the discount won't be enough.
"There might be a few people who close at the 30 percent discount," Las Vegas attorney Mark Connot said. Many more are no longer able to afford the condos in today's economy, won't be able to finance them or won't want to close because they have been turned off by a combination of factors including the sour real estate market in Las Vegas and documented building problems in at least one of the towers.
Prices at MGM Mirage's Signature condo-hotel towers are selling for as low as 20 percent of their pre-recession prices, Connot said.
"Whether MGM wants to use that as a comparison or not, what's out there for comparison nowadays are foreclosed units," he said.
A real estate broker who has sold units at Veer and Vdara said buyers' mixed reactions to today's news reflect a split in the real estate market.
Clients who bought condos in CityCenter's 670-unit Veer towers are happy because they realize that the discounted prices are less than the average cost to build the units, broker Aaron Auxier said.
On the other hand, buyers of the 1,500-unit Vdara remain dissatisfied, as discounts don't solve the bigger problem that banks are unwilling to finance mortgages for condo-hotels, he said.
MGM Mirage recently offered Vdara buyers the option of exchanging their units for condos at Veer, which might be less expensive and easier to finance.
Condo-hotels are operated like hotels in that owners can rent them nightly, sharing the proceeds with hotel management. They're a greater default risk for banks than traditional condos because they aren't typically occupied by owners and because the rental proceeds are uncertain.
Developers seeking a profitable means to finance expensive resorts during the boom years built thousands of condo-hotel units along the Strip compared with only 1,300 traditional condos.
A buyer of a Mandarin Oriental condo said he is "optimistic" about the discount relative to the quality of the Mandarin Oriental brand and the limited number of available units.
The discount will knock about $900,000 off the $2.9 million he originally agreed to pay for one of 227 condos atop the 400-room Mandarin Oriental hotel.
"Do I wish it was a 50 percent discount? Yes," said the buyer, who declined to be named because of forthcoming discussions with MGM Mirage. "Do I believe it's a great product with long-term value? Yes."
MGM Mirage is scheduling one-on-one meetings with buyers to discuss the discounts, which will take effect at closing "subject to the terms and conditions of a fully executed addendum to the purchase and sale agreement," the company said in a statement.
MGM Mirage executives have said they are exploring other initiatives besides discounts to help buyers close escrow but haven't yet detailed those plans.
Buyers at CityCenter's Mandarin hotel and condo tower will begin the process of closing escrow on their units in January, MGM Mirage officials said today. Closings at Veer, a pair of condo towers, will begin in February and closings at Vdara, a condo-hotel building, will start in March.
MGM Mirage isn't expecting to make much from condo sales at CityCenter. The project's $8.5 billion budget assumes condo sales of only $250 million – a negligible amount relative to the $2.6 billion worth of condos the company hoped to sell before the recession. The company hoped to use those sales to offset CityCenter's cost, boosting profit for owners MGM Mirage and Dubai World.
CityCenter has sold at least 55 percent of its roughly 2,400 condo and condo-hotel units. Buyers began signing purchase contracts for the units in January 2007. Condo units that once sold for $1,000 to $2,000 per square foot are now selling for well under $1,000 per square foot, though MGM Mirage has touted CityCenter as a unique brand that will command a premium price in Las Vegas.