Friday, 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.