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Fri, Feb 5, 2010 (3 a.m.)
CityCenter is starting to finalize sales of condominiums, which coincides with already difficult conditions in the Las Vegas high-rise condo market, analysts said.
Although many expect CityCenter to do much better than the high-rise market as a whole, the condominium market remains in tough shape.
The inclusion of CityCenter brings the number of high-rise units in Las Vegas to more than 11,000 and prices will probably slide more because the bottom may not have been reached, said Grant Govertsen, an analyst for Union Gaming Group, a firm that analyzes the gaming industry.
By its calculations, of the 8,700 high-rise units, excluding CityCenter, 36 percent have not been sold, 10 percent are in default and 1 percent are owned by banks, it said.
The projects that opened last are struggling the most, Union Gaming reported. Only 12 projects have sold 90 percent or more of their inventory.
SalesTraq, a housing research firm, reports 46 percent of high-rise units have been sales finalized. By its count, 4,926 units have sales finalized since 2005, including only 215 in 2009.
At that rate, it could take five to 10 years to absorb that inventory, SalesTraq President Larry Murphy said.
Union Gaming said more than 100 units closed in 2009’s fourth quarter compared with 33 in the first quarter. It will take five years to sell all inventory, including CityCenter, at that rate, it said.
“At the current inventory (excluding CityCenter), the number of available units that need to clear the market is alarming,” Govertsen said. “This does not include currently owned units that are actively listed or what we believe could be a large number of owners who would prefer to sell, but simply won’t given current market conditions.”
CityCenter will get its initial surge in sales, but Murphy said that won’t affect the market because nothing else is selling anyway. He cited One Queensridge Place, where he lives, which hasn’t had a sale in a year and others that had just two or three sales in the past year.
“It means a longer absorption period, but the market is in the toilet anyway, so it (CityCenter) is not a bone-crushing blow,” Murphy said. “There is a big supply and right now the demand is very low.”
Brian Gordon, a principal at research firm Applied Analysis, said the boom in the condo market was driven by excess consumption and an expectation that prices would continue to appreciate. Clearly, that hasn’t happened because of the recession and prices have declined as fewer people want those units, he said.
High-rise condos depreciated at the fastest rate of all housing in 2009 at 44 percent; the average price for residential real estate fell 23 percent, according to SalesTraq.
Union Gaming reported the average price per square foot for condos is $252, down 58 percent from the peak for each project. The average price per square foot of $309 for condo hotels is down 71 percent from the peak of each project.
CityCenter is in a better position than other projects because of its distinctiveness and because the owner — a joint venture of MGM Mirage and Dubai World — is offering financing to buyers after dropping prices by 30 percent last fall because of the market conditions, analysts said. But Murphy said CityCenter closings won’t come easy.
“The proof will be in the pudding,” Murphy said. “CityCenter was making the claim at one point that it was 50 percent sold out. I doubt that will be true when it comes to closings. If it has 25 percent sold, I think that would be fairly normal and healthy.”
Gordon said CityCenter has some challenges in this environment, and the price reduction has a lot of buyers intrigued.
“But today is a different world, and we will have to see how those sales play out over the next several months,” Gordon said. “It depends on the national economy and people’s willingness to invest in second, third and fourth homes.”
Tony Dennis, MGM Mirage executive vice president of residential sales, said a handful of units have closed at Mandarin Oriental — where 205 of the 227 condos have been sold since the sales started in January.
Closings at Veer Towers and Vdara aren’t expected to begin until mid-March, slightly behind the schedule announced last year, Dennis said. At Veer, 480 of the 670 units have been sold and 698 of 1,543 units at Vdara have been sold, he said.
It’s taking time to ramp up closings because CityCenter co-owners didn’t launch a new program to provide financing to buyers until December. So far, 500 buyers have submitted applications for financing and they take about two months to process, Dennis said.
Closings should start to hit a peak in the middle of March, said Dennis, who calls the lending program important in an environment in which the mortgage market isn’t lending money.
The 30 percent price reduction has made it much easier for buyers because they already put down 20 percent. That gives them a 29 percent equity stake in their property and puts them in a strong position, he said.
Dennis said about 40 percent will use cash and 10 percent will bring in their own banks.
“We are finding from our own customers that they are a different animal all together,” Dennis said.
CityCenter is distinctive to Las Vegas with its city inside a city concept, and MGM has the ability to tap its patrons for sales. And once models are completed within the next month, that will lure even more buyers, Dennis said.
This isn’t the best environment to start closings, but interest has picked up with the price cuts with a dozen sales in December, Dennis said.
“We continue to outperform the market in an otherwise stagnant marketplace,” Dennis said. “I am really anticipating that we will outperform other markets in Las Vegas based on our different product and a different buyers with different (wealth levels) and motivation.”
The units are priced below what it costs to replace them and that should lure in even more buyers over time, Dennis said. He said there won’t be any more price cuts for any short-term gain.
Union Gaming reports that even with the 30 percent reduction, CityCenter is in excess of the current market prices by 172 percent to 178 percent per square foot, respectively for Vdara and Veer and 344 percent per square foot for Mandarin Oriental.
“We have a patient view of the world,” Dennis said. “CityCenter was not built for a day; it was built for many decades. It took 60 months to develop and open and it will take 60 months to see its true potential. We are going to work with buyers who see that patient view of the world and build something special with us.”
High-rise condo stats, by Union Gaming
• Allure — 190 of 427 units unsold; 40 in default; 10 bank owned.
• Juhl — 309 of 344 unsold.
• Newport Lofts — 23 of 168 unsold; 51 in default, 12 bank owned.
• One Queensridge Place — 85 of 219 unsold; 8 in default.
• Panorama Tower 3 — 334 of 372 unsold.
• Sky Las Vegas — 79 of 405 unsold; 50 in default; 5 bank owned.
• Streamline Tower — 248 of 275 unsold.
• Turnberry Towers West — 255 of 318 unsold.
• MGM Signature 3 — 84 of 576 unsold; 105 in default; 17 bank owned.
• Palms Place — 204 of 599 unsold.
• Trump International — 977 of 1,282 unsold.
Discussion: 19 comments so far…
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how will City Center fare better? will they lower their price to compete?
Beyond the sad numbers, you have to wonder about the maintenance fees. If Trump is almost abandoned, I would assume the few residents have to pick up the total of the security, cleaning and God knows what else costs. Even the cost of The Donald's raccoon on his head. Pitiful...
Going forward with Vdara as a condo-hotel is a mistake and is being influenced by short-term thinking. Look at what has happened at MGM Mirage's other condo-hotel concept -- it has been a disaster. CityCenter's better location or amenities will not change the fact that the condo-hotel concept in Vegas has been a failure.
Yes it's possible that MGM Mirage will close a few units at Vdara, but then what. There are no other financing options to buyers that don't qualify for their program. If MGM Mirage wants to close more Vdara sales, they would need to adjust prices which will weaken values of other CityCenter units. The 18-month restriction of listing units for resale with not stop foreclosure units from eventually hitting the market. Because of the listing restriction, foreclosures would be the only comparables which will further weaken property values of units at Veer or Mandarin Oriental.
The solution is simple: contract holders at Vdara should be given the option to transfer their deposits to purchase in Veer or Mandarin Oriental or otherwise refund their deposits in full. The pure residential condo offerings at CityCenter (not condo-hotel) have a very good chance of holding their property value and eventually appreciating nicely, but with Vdara creating a downward pressure on pricing, this will negatively affect all values at CityCenter and other strip projects.
It's clear that 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.
"Outperforming the market" isn't saying much. Look how low the bar is set. This is like being the world's tallest midget. Big deal, Bucko.
Let's see, pay $400K for a studio at Vdara, or go across the street and pay $100K for the same unit and amenities at Signature ... hmmmmm, why would I do that? Vdara has financing for buyers previously under contract, but new buyers now must pay cash. Even with the drop in prices, that still is a tough sell.
I'll be in town later today to check out City Center. I'm hopin' it lives up to the hype!
$400k for a studio? Why on earth would someone buy a condo when they have a choice of so many great places in Vegas to stay??
A few years ago a relative approached me about going in together for a condo-hotel unit at City Center, Vdara I believe.
I think the price was like 600k+ for a small 1 bedroom. I wondered how this could this possibly be a good investment, when even under the best "rental" circumstances you'd be losing money. Needless to say we didnt buy, and boy am I glad about that. The only reason to buy would have been to flip at some point.
As has been noted previously, you can stay at so many great places on the strip for close to free (just got more free nights from Palazzo), so why would anyone ever buy one of these things?
how will condos at CC do any better than the rest of that market when there is already a huge oversupply? eventually appreciating nicely? sure, maybe in 10 years.
Boy I would like a strip condo. Too bad I cannot afford. :(
If there was a growth cap, like in Boulder City, this would not have happened. There must be a cap on Casinos, Condos, and homes.
The libertarian loonies, think that low taxes, growth and no laws requiring re-bar in concrete structures (like in Haiti) are the keys to employment and prosperity.
We need to raise taxes like in Oregon on rich, put a tax on food (like in Phoenix) and cap growth in the future.
For bdover:
In that case, the condo sponsor (Trump) would pay the common charges for the unsold units. The owners would only be paying their proportionate share. I imagine that having so many unsold units would bring some common costs down, there must be entire unsold floors.
"We need to raise taxes like in Oregon on rich..."
mred -- Oregon has very little to fuel its economy there. One of its few (and maybe only) billionaire is Phil Knight, who founded Nike. He made it well known if that tax passed Nike would leave Oregon. Last I heard he's getting lots of offers, direct from governors.
Your suggestion of taxing food is just stupid. Taxes were never the solution -- healthy commerce is.
and jessica simpson MAY call me tonight for a date.
please.
vegas is dead and it will be until well after the national economy gets better.
there's just too many americans out of work and until those people can get jobs, vegas will continue to suffer.
it's not being a "hater" or "negative" to say that. it's just economic reality.
the same "experts" that come out every other day with some prediction are the same ones that said vegas is "recession proof".
the ONLY number that matters...the ONLY one...is the number of visitors at mccarren airport. when that number goes up for 3 or 4 months in a row...vegas can start feeling good again.
If authorities get their acts together we can get more foreign visitors especially from Europe. Dollar value currently is low compared to the Euro so authorities need to sell Vegas to the Europeans of which it has a large population as a whole. We have beautiful hotels and great attractions compared to many cities around the world and the current room rates are actually a bargain compared to other cities especially compared to their European counterparts.
How many of the MO units were bought by MGM executives?
Sorry for my acronym deficiency, but what is an MO unit?
Anything greater than zero is better I guess.
Dennis's comment that "we continue to outperform the market in an otherwise stagnant marketplace" amounts to nothing more than ridiculous, arrogant palaver.
Despite CityCenter's quoted numbers ("at Veer, 480 of the 670 units have been 'sold'", etc.), a simple fact remains: a property hasn't SOLD until it has in fact CLOSED. Trump trumpeted that they had "sold out" of available units based on contracts signed and deposits collected -- nearly two years later, less than 25% of these "sold out" units have actually closed.
CLOSINGS will in fact define performance at CityCenter, rather than contracts signed and 20% deposits collected before the LV highrise real estate market plunged off a cliff. At this moment, ZERO units have in fact sold at CityCenter. (I see that Dennis was quoted as saying that "a handful" of units have closed at Mandarin Oriental -- what precise number does "a handful" represent?) So, please Mr. Dennis: stop insulting the intelligence of people following this story by distorting the picture with your self-serving hyperbole.
(PS: If you are "going to work with buyers who see that patient view of the world and build something special with [you]", why not contribute to this atmosphere of "patience" by fully returning all deposits to anyone making this request, and permitting them to re-examine purchasing later once greater clarity has been established in the market? THAT would demonstrate confidence in your product, rather than holding buyers hostage with the deposits they paid.)