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Fri, Sep 11, 2009 (3 a.m.)
Sun Topics
Sun Archives
- Get 'em while they're cold (8-15-2009)
- CityCenter condo prices not bending to market (5-21-2009)
- CityCenter safe - for now (3-28-2009)
- Adaptation or ‘disaster’?: Depends on your view of the Harmon (2-8-2009)
- Condos struggle in icy market (2-6-2009)
- Units aren't closing so Trump says: Rent 'em out (1-24-2009)
- Trump Tower’s shift to apartments could become trend (1-23-2009)
- Harmon condo cancellation helps some, hurts others (1-16-2009)
- MGM Mirage cancels CityCenter condo project (1-7-2009)
- Promises unkept? Condo buyers sue (11-14-1008)
- Strip’s vaunted condo-hotels losing their luster (5-20-2008)
Sun Coverage
CityCenter, by the end of September, is expected to announce how much it will cut condominium prices, but one gaming research group says co-owner MGM Mirage will have success trimming those prices about 30 percent.
That’s the figure Realtors have said they are hearing MGM will cut its condominium prices.
If looking at potential price cuts in a vacuum, MGM would have to slice prices by 50 percent or more to close on units, but CityCenter isn’t like any other condominium project, says Grant Govertsen, an analyst with Union Gaming Group.
CityCenter opens in December when it brings 227 units at Mandarin Oriental, 670 units at Veer Towers and 1,495 at Vdara on line.
“If you were looking at the data in a vacuum and what was happening at all the other condominiums and condominium hotel projects, that data suggest prices are down 50 (percent) to 70 percent,” Govertsen says. “However, CityCenter is a completely different animal than typical high-rise products, whether it’s the location or amenities and quality of product. It is premier to the marketplace.”
By cutting prices by 30 percent and having MGM Mirage partner with lenders, buyers who already put down 20 percent won’t have to put down any more money to close the deal, Govertsen says.
Wall Street and investors aren’t expecting much from the residential sales at CityCenter, so anything decent will surpass expectations, said Govertsen, who says he thinks Wall Street will be surprised.
“Wall Street investors looking at MGM stock when they build financial models aren’t given any credit to residential,” Govertsen says. “We don’t think they will sell 100 percent, but not do the numbers (Wall Street investors) are expecting.”
The estimated price reductions per square foot would go from $1,600 to $1,120 for Mandarin Oriental. Veer would be sliced from $1,000 to $700 per square foot. Vdara would go from $1,200 to $840 if it remains a condo hotel, Govertsen says.
The Harmon, which will open in about a year at half its original planned height, will now be only a hotel. The effect of the loss of the Harmon as a condominium project will be negligible, and Mandarin Oriental should have the highest percent of closings early on, he says.
“These buyers are less price sensitive than the typical buyer of a Vegas high-rise residential and more likely to be cash buyers,” he says.
As for Vdara, Union Gaming is like others in the real estate community who predict MGM will do away with Vdara as a condo hotel and convert it to a boutique hotel similar to the Four Seasons. That means buyers of Vdara would be diverted to Veer, Govertsen says.
Vdara has the most units to sell and is likely to have the lowest closing rate with about 700 contracted so far, he says. MGM doesn’t want what took place at Trump Tower and other condo hotels to happen at CityCenter: A limited number of closings reduced the number of hotel rooms made available, he says.
Although the market isn’t good for adding hotel rooms, MGM will take a longer-term view, Govertsen says.
As for Veer, it would still have higher prices than other Strip condos, but Govertsen says the expectation is that it will lose 15 percent to 20 percent of deposits in escrow.
CityCenter is going to hurt other condominium projects on or near the Strip because it will be considered the jewel, he says.
The resale market will remain weak because so much of the inventory is similar to what the single-family housing market had to go through, he says.
Union Gaming points out that prices at Palms Place, down 8 percent, and Trump, down 18 percent, haven’t declined significantly because most of the sales are units owned by the developer. That’s not the case at MGM Signature because foreclosure sales have pushed prices down 70 percent to the low $300s per square foot.
Overall, condo prices declined more than 50 percent from the peak, with prices now about $250 per square foot, the firm says.
“Sales have been almost nonexistent,” Govertsen says. “Difficulty in acquiring financing is part of the problem.”
Most of the current buyers are using cash, with condo hotel projects seeing about four units close each month and condo projects even worse at under two units a month, he says.
Through 2009’s first eight months, Union Gaming estimates 156 condo hotel units have traded hands, 4.3 percent of total inventory or an average of 3.9 units per building per month. It estimates 159 residential condominiums have traded hands.
August was the weakest month of the year with 13 sales.
Union Gaming reports that Panorama III and Turnberry Towers West have collectively sold 13 percent of their inventory.
There is a 25 percent price differential between bank-owned sales and nondistressed properties, Govertsen says. It is believed that half of the sales at Panorama II and Sky Las Vegas are foreclosure sales, meaning prices could go up once those units have cleared the market.
Some foreclosed units have sold for less than $200 per square foot, he says. That includes a 1,712-square-foot unit at Turnberry Place II that sold for $300,000 or $175 per square foot.
Among other highlights of the report:
• Allure has sold 226 of 427 units or 53 percent.
• Palms Place has sold 380 of 599 units or 63 percent.
• Panorama III has sold 29 of 372 units or 8 percent.
• Sky Las Vegas has sold 329 of 405 units or 81 percent.
• Trump Las Vegas has sold 300 units of 1,282 units or 23 percent.
• Turnberry Towers East has sold 266 of 318 units or 84 percent.
• Turnberry Towers West has sold 62 of 318 units or 19 percent.
Brian Wargo covers real estate and law for In Business Las Vegas and its sister publication, the Las Vegas Sun. He can be reached at 259-4011 or at wargo@lasvegassun.com.
Discussion: 28 comments so far…
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The only option that would make sense for Vdara at CityCenter is if its contract holders are given the option to transfer their deposits to purchase in Veer or Mandarin Oriental or otherwise refund their deposits in full. The reality is that it is nearly impossible to obtain financing on a condo-hotel unit. Those that end up closing will be very few. Price adjustments will spiral downward in an attempt to close more sales penalizing those that honor their contracts and further weakening property values of other units at City Center and other strip properties.
And from MGM Mirage's perspective, running a condo-hotel will prove to be a loss in the long run and is not a viable option for a successfully operating luxury hotel.
The condo-hotel concept was brought to Las Vegas by short term thinking on the behalf of the developer and will end up being a long term liability and ultimately a huge detriment to MGM Mirage.
Those executives that don't see this as the right thing to do, don't fully understand the condo-hotel concept and it's affect on cash flow and operations, as well as the long term negative consequence to CityCenter property values.
@realtybites I 100% agree with you. I hope to God that MGM comes to their senses and refunds Vdara deposits. At this point, it's the only thing that makes sense. Anything else would be a financial disaster for all involved.
Govertsen says. "However, CityCenter is a completely different animal than typical high-rise products, whether it's the location or amenities and quality of product. It is premier to the marketplace."
"Quality of product," eh? Hmmm. Which quality does this guy mean -- the shortcutting on the workmanship or the shoddy inspections or who-knows-what hasn't been discovered yet?
hey if they go down 2 70k may b ill buy 1
I will gladly wait until prices spiral down then snap up my CityCenter condo with cash!
davidwayne
would you REALLY want to live there? with all the construction problems,i'd say your investment would be tied up in constructon defect lawsuits for the next 20 years.
bill gates himself could not "cook" an excel spreadsheet to make these things look like a good investment.
I thinkpeople bought these with the idea of renting them out, like a timeshare,when they're not there. Wait until they find out that that is not allowed under HOA regs! NRS 116.
this sounds like an investment for the foreign crowd; asians and eastern europeans will jump when the prices drop. any resident knows better to steer clear of this mess.
I forgot to add that renting a property normally like a year lease is okay under NRS 116,like everyone is doing, but short term rentals are not allowed in 99.9% of theHOA's here.so you can 't rent it 3 weeks here, 2 weeks there or even for a month. It has to be under a standard 12 month lease.
I'll buy. In 5 years. I'll pay a fair market price, which then will be 150K, in Obama Dollars (interchangeable with Monopoly money). I want lifetime exemption from HOA, which is highly unappealing and essentially a scam. 3% down, 15 fixed.
Scottsdale
Sorry no HOA exempton here in Las Vegas.You can't buy your little condo unless you understand it has an HOA with an extra monthly assessment of $300 ifyou're lucky. So forget about buying your "3% down 15 fixed" overpriced condo on the stripin 5 years with Obama Dollars - which means you have accepted that Obama will be a two term president!!!
That was my question, what are the fees now and what will they be in 5 years. Some of fees are $1000 mo on NY and Phx highrises
Couldn't ever the cut the prices enough for me to live in a middle eastern financed building. If you want to hang out with akbar, mohamed and the shiek families go to city center.
If you want to live in a building that compromises your safety go to city center. Perini and the MGM family paid off building inspectors so they could meet there schedules. They also killed many good men in the process since they had and have no regard for job site safety.
Hope you know how to sky dive. I feel sorry for all the fools that have bought or are going to buy a condo here.
Key Question: How many months after the opening will there be a colapse or structural issue in one of the buildings?
Practise up on your base jumping skills.
The first minor earthquake & that entire place might fall like dominos.
Mismanagement of HOA funds by a struggling developer is not unheard of in condos. With the developer teetering on the edge do you think they would be totally transparent with the HOA funds?
Alright, this thread didn't take long to swerve off into goofiness. The several comments about "shoddy inspections" and "first minor earthquake & that entire place might fall like dominos" is just stuff being made up out of boredom, or misunderstanding. Not that county inspectors haven't been caught looking the other way at the Rio, or Harrah's; or that Nevada Osha inspectors aren't complicit in the deaths of construction workers in the way they revise findings and usually let constractors off the hook when somebody dies. Don't get me wrong -this town is run by the big money interests.
BUT, I have seen first hand both the craftmanship being put into the City Center towers, and the power the county inspectors have wielded over this project. Many a floor's work has had to be torn out and redone because of technical issues. Perini got punished early on for opening and using a gate without county permission, and had to wait MONTHS before they were able to resume using this gate, which opened onto LV Blvd. From the hi-rise grade concrete used in all the pours, to the double sheet rocking, to the expensive Italian marble used in the bathrooms -there is nothing cheap or shoddy. If anything, this was a major example of a privately financed, corporate boondoggle. For I saw a LOT of waste going on. But no fraud or shortcuts with the actual construction.
Now I will say, that the rooms are very small, with low ceilings and tight or non-existent corridors. There is no way these jewel-studded rabbit warrens are worth even the reduced asking prices. But the quality is not an issue. Like every other Vegas landmark, these towers will be around until the day they are imploded in front of tv cameras.
Also, the HOA factor is not an issue, or I am crazy. All the condos up and down the strip, including City Center's, have been specifically marketed as investments that can be rented out as luxury suites to wealthy visitors. I guarantee MGM and the other developers are not creating any HOA covenants that prohibit this practice. MGM-Mirage runs this town and has that base covered. Be sure of it.
The investors who actually think they're going to get a return on this?? That's another story. I've talked to a realtor about this. She told me most wealthy California doctors and such who have bought on this premise, don't realize that property management fees and agencies fees for booking guests will eat up as much as HALF of what the rooms go for. And with plunging room rates and a glut of unoccupied condos, I think it will be actually worse. I think this investor model will fail on this basis alone, let alone all the other pie-in-the-sky projections that haven't panned out.
its a lousy investment with too many question marks. if i had a few hundred thousand laying around doing nothing this would be my last place i'd want to keep it!
dTJ
Very informative post. And tha tmakes sense about property mgmt fees and agency fees. And thhose fees will be huge.
A little offtopic, but I could never underwtand why people bought time shares here. You were always able to get better deal on hotels to stay here 2-3 times a year then paying the price of a timeshare. Most timeshare properties only allow you a week anyway at any location so what if you wanted to come here more than a week every year? You'd be paying more above and beyond your time share fees. I knew a couple who did that. the timeshare wasn't that expensive but they could only use it a week out of theyear and they liked coming here at least 6 times ayear. So they would have to pay for hotels the rest of the time. I think they eventually sold the timeshare because it was, in their words "a really dumb idea'.
CONDO DEPOSIT HOLDERS, MAKE SURE YOU SIGN UP FOR THE BLOGSITE
http://citycentercondodepositgroup.blogs...
and the twitter @CCDepositgroup
STRENGTH IN NUMBERS!!!
Det_Munch,
Ah yes, "Timeshares." Good point. Timeshares are yet another feature of Las Vegas (and Florida, etc.) designed to separate people from their money. I'm with you; except for maybe 10-20% of timeshare users, the plan just doesn't make sense and doesn't worked out the way the sales people pitch them. And that's exactly why there's a huge secondary market for all the various timeshares plans. All of them sell for about one-half of what they retail for in the secondary market. Shoot, in these times, I wouldn't be surprised if a Hilton, Marriot, Starwood, etc. timeshare could be picked up for 20-30 cents on the dollar.
I looked into a CC condo early on and thought that while they were nicely appointed, they were way overpriced. Personally I like staying at the different properties and didn't want to be tied to one place.
My question - why do folks expect MGM to reduce prices just because the market is in flux? If, for example, you had signed an agreement/put down a deposit, BUT the market went the other way, and suddenly prices for comparable spaces on the strip were worth 50% more - what would you say if MGM asked you to pay additional money based on this new market value? You'd tell them to GTFO and thank the condo-gods for your gold mine while possibly looking for a buyer to turn a hefty profit. I know most who comment here are very anti-MGM, but I think people are trying to enforce a double-standard.
Scout7,
I don't know who's "trying to enforce" anything, but a lot of us have observed -as have you- that these properties are overpriced. Hopelessly so, to call a spade a spade. My understanding is that many a practical investor is walking away from his or her deposit on these condos, because kissing off that money still works out to be less of a loss than following through with the original purchase. As far as I know, there is nothing illegal about surrendering your deposit and walking away.
Myself, I am not anti-MGM per se. I am anti-reckless corporate governance, wherever it may be found. And it most definitely can be found at MGM-Mirage. They're hardly the only bad actors in this economy, however. May they get a new game plan and turn their ship around.
Yes, the tide is out. Ships that are stealing thru these dark waters are packed with visions of good life, affluence, discretionary income, and folly. Without folly, this town dries up like an old french fry on a skid row sidewalk; rejected and objected to by birds and rodentia. I like MGM. Nothing evil about a company like that. I actually feel sorry for them, the stockholders and the birds that perch on their roofs. Nothing to feast on. Just a mirage of shimmying windows, full of ghostly tenants. I will put my stock in U Haul, as I watch the town i love purge itself..off to the land of jobs and cheap condos.
When all is said and done, the prices will be what the market will bear. Isnt that one of the fundamentals of real estate?
LV4Life,
Yes, you are right about the real estate market. But the complete lack of fiduciary responsibility by the corporate chieftains, their financiers, and the county officials who allowed all this bubble building to take place, have collectively destroyed endless billions of dollars. People who entrusted their savings or retirement plans to money managers that invested good money into these rackets, have seen their life savings crushed by this. Many of public retirement fund invested in MGM-Mirage, as well as in it's bankers. Perfectly well run corporations like Wynn Resorts, or many of the smaller casino operators, say, like the group that runs the Sahara, have also seen monumental destruction of their equity and their business markets.
Plus, all these vacant condos will destroy that market, which in turn, will necessarily bleed over into the larger residential real estate market in L.V.
A lot of innocents have been maimed by the greed and lack of oversight of MGM and the other big boys.
Will the condos even get completed? Both MGM and its partner Dubai World are highly leveraged and are struggling financially (despite the recent run-up in MGM stock).
While I wouldn't rule anything out, my sense is that MGM (and its backers) will somehow will the completion of City Center. At this point, it's more important than any other property in their portfolio. Which is a giant shame. I hope company's (and the entire strip's) true jewel -the Bellagio- doesn't get cannibalized by this.