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November 28, 2014

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How much will CityCenter slash its condo prices?

CityCenter

Eco-friendly resorts: Construction continues on the CityCenter on the Strip between Monte Carlo and Bellagio. Aria and Vdara were given the second-highest certification by the U.S. Green Building Council. Launch slideshow »

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 [email protected]

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