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CityCenter condo prices not bending to market
MGM Mirage isn’t budging, though some buyers may walk away
STEVE MARCUS
A sales executive talks about Veer towers during a January 2006 media open house. So far, 432 condo and condo-hotel units have sold at Veer. The average price per unit at Veer, Mandarin Oriental and Vdara towers is $1,250 per square foot, four to six times as much as other luxury units have sold for in Las Vegas recently.
Thu, May 21, 2009 (2 a.m.)
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Beyond the Sun
Buyers of CityCenter condos are urging the project’s managing partner, MGM Mirage, to lower prices on the units by 30 percent to 50 percent to better reflect the valley’s sagging condo market.
MGM Mirage is balking at the idea — at least for now.
Some buyers — many of them prominent and wealthy MGM Mirage customers who signed purchase contracts more than two years ago, during the real estate boom — are bracing for an uncomfortable confrontation with the company late this year, when the units are scheduled to close escrow.
MGM Mirage spokesman Alan Feldman said the company is aware of the changes in the condo market, but it’s too early to predict where the market will be at the end of the year. It would be foolhardy for the company to guess where prices will fall months before the units close escrow, he said.
“None of us could have predicted how the market changed throughout 2008,” Feldman said.
“We’re all going to have to take a breath and wait until the end of the year to have these discussions,” he said. “Anything else is just speculation.”
Condos in the super-luxury Mandarin Oriental resort — the first residential building at CityCenter to go on sale — were nearly sold out within weeks of opening reservations for “friends and family” and before the company opened its CityCenter sales center to the public in January 2007. Tourism was soaring in Las Vegas and the Strip’s biggest building boom — led by CityCenter — was in full swing.
Subsequent condo sales for CityCenter’s Veer and Vdara towers weren’t as brisk, a reflection of the slowing economy.
Buyers have so far signed purchase contracts for CityCenter condos worth an average of $1 million per unit.
Some buyers say they are most frustrated by MGM Mirage’s unwillingness to discuss potential price reductions.
Among them is Steve Mack, a retired Las Vegas pawnbroker who pocketed $90 million from the 2004 sale of his multistate SuperPawn chain.
“They indicated to us about six months ago that they would have a better picture of how this would be resolved. But they aren’t saying anything other than ‘we’ll get back to you,’ ” said Mack, who forked over a 20 percent deposit on a $3 million condo at Mandarin Oriental. “I think they need to work with the people like us who’ve committed to this project in a way that’s fair for both parties.”
Mack says buyers are unlikely to close on their units unless they sell for at least 30 percent off the prices specified in their contracts. Others may walk away from their nonrefundable deposits if units sell for more than half their initial purchase prices, he said.
“We gave them that deposit money with no interest with an implied guarantee that values would not go down,” he said.
Besides depressed demand, financing is also a problem, with banks reluctant to make jumbo loans for second homes.
Some buyers have requested switching from larger condos to smaller, less expensive units they can pay cash for, avoiding the need for a mortgage that may not be forthcoming, Mack said.
CityCenter is a unique development that will command a premium price over any Las Vegas project, in any economy, Feldman said.
“The combination of amenities ... is unique to CityCenter,” he said. “This is one of those cases where we think two and two adds up to 10.”
Unlike many other Las Vegas developments, which financed construction based on a certain number of signed sales contracts, the financing for CityCenter doesn’t require that any units be sold. Still, developers and their banks were counting on more than $2 billion in condo sales to improve CityCenter’s profit potential.
A recent deal to guarantee financing for CityCenter requires MGM Mirage to raise at least $243 million from the sale of condos to avoid responsibility for costs above the project’s $8.5 billion budget. That’s less than what MGM Mirage would receive if the company retained buyers’ deposits and no units closed escrow. (The deposits aren’t refundable unless the company doesn’t deliver the condos, and CityCenter sales contracts give MGM Mirage until the end of 2010 to open the condos.)
High-rise condo broker Bruce Hiatt, owner of Luxury Realty Group in Las Vegas, said MGM Mirage should consider lowering the price of CityCenter condos in order to ensure that units close escrow. Vdara, a condo-hotel tower, has a more difficult challenge given that financing for units priced before the recession has dried up with the units’ investment potential. Hiatt said he is advising clients to obtain independent appraisals to compare against those offered by the developers’ appraisers.
There’s little dispute that CityCenter units will sell at a premium, Hiatt said. The challenge for appraisers will be determining how much to discount the units given that foreclosed condos are priced 70 percent below pre-recession levels, he said. It’s not yet clear what that discount will or should be, he added.
Buyers, many of them from foreign countries, are pouncing on luxury condo foreclosures at prices below the cost to construct the units, which is at least $300 per square foot in Las Vegas, Hiatt said. Sale prices are typically half their purchase prices of three years ago but have recently attracted multiple bids — a sign, Hiatt said, that the market may have hit bottom.
Few units are still available at such fire sale prices, Hiatt said: Of 28 foreclosed condo units on or near the Strip resort corridor, about half are under contract to be sold and about a third of 79 available for short sales are under contract.
Given that developers are unlikely to build condos for many years, demand is likely to overtake supply after buyers realize how few Strip condos survived the recession, Hiatt said. But that turnaround might not happen for another year after CityCenter is open for business — which would mean bad timing for MGM Mirage if it begins closing these units this fall, he said.
So far, CityCenter has sold about 55 percent of its roughly 2,400 condo and condo-hotel units, including 206 units at Mandarin Oriental, 432 at Veer and 698 at Vdara, at an average price of $1,250 per square foot. This compares with recent sale prices of $200 to $300 per square foot for luxury units in Las Vegas. During the boom, condos in premium buildings and locations sold for more than $2,000 per square foot.
Mack said he expects to pay more for his CityCenter condo than prices paid for similarly sized luxury condos in Las Vegas but not more than prices in other high-end markets, which have also experienced declines.
“I think they would have to admit that these are worth less than what they sold them for because there isn’t any real estate in the world that hasn’t seen a discount,” he said. “I’d have to think that CityCenter doesn’t sit on a different planet.”
DISCUSSION: 16 comments so far…
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"So far, 432 condo and condo-hotel units have sold at Veer."
I thought Veer was strictly residential, when did it become a condo-hotel as well?
"In a way that's fair for both parties." Good luck, Mr. Mack.
You're not dealing here with Mother Theresa. Google "medieval dictatorship" and "slave society" to see how City Center's real owner, Sheik Mohammed, runs things at home. Don't expect anything different over here.
And don't expect any sympathy over here, either, for anyone who would contract with MGM-Dubai-Stanley/Pansy Ho.
New Jersey investigators have now concluded that the State should have nothing to do with an organization that includes Stanley/Pansy Ho and their connections to organized crime. They have yet even to review the Dubai dictatorship part of the triumvirate, which IS organized crime.
Someone once said that MGM was sleeping with the devil, but couldn't say who was on top. Or on the bottom or in the middle.
So why do Nevada regulators look the other way when it's obvious that Pansy Ho is just a front-woman for her daddy who, she admits, is putting up the money?
Because they're pansies and hos.
Either lower prices or end up @ auction!
Hubris of the management will send this company to bankruptcy..soon there will be no one left to bail out management mistakes.
As they say -
New car.....
New Condo....
......-PAWN SHOP !!!!
we just got more bad economic news today. while yes, less people are getting laid off, it's taking longer and longer for them to find new jobs.
vegas lives off of tourism. i think people that live here tend to forget that because we just go about or daily lives, but look...people aren't coming here like they used to.
why WOULD anyone buy a unit there now? is there going to be some magic switch that gets flipped that will make these things go up in value?
Whos is paying the monthly maintenance fees on all of those unsold condos?
Feldman says this is a case where 2 plus 2 equals 10.
Oh, Alan. Don't ever forget: the math always wins. You can try to fudge it, you can try to spin it, but the math always wins.
If MGM Mirage wants to sell those condos, they had better get rid of the CityCemetary premium pretty quick.
It sounds like CityCementary is going to be a ghost project right from the start. Who's going to go there to gamble? The place looks way too forbidding and intimidating for most tourists.
By the way, MGM Mirage somehow found enough money to "finish" the project, but who knows what sort of corners are going to be cut. And what happens after the place opens and the gaming/occupancy revenues are below projections? Who's going to provide all the operating funds for a white elephant?
This is going to end badly.
I don't feel sorry for those that had to be first and signed an agreement at those prices.
If the market hadn't bottomed out and prices kept rising, how many would have then sold for a tidy profit. They overestimated the market, I do not feel any pain for them.
2+2 = 10 !!!!!! Feldman, have you lost your mind????!!!!!
These guys forgot how to do math!!!
That is the kind of idiot math that got this country into this whole mess and allowed Citycenter / MGM to convince its employees and customers to plunk down ridiculous sums of money for investments that make no sense.
Take a look at who the buyers are for these things:
(1) MGM Customers - MGM sent its employees out to convince its best customers to buy these things at 2-3x what they are worth!! Im a bellagio customer with a $500K credit line. My casino host at Bellagio convinced me to buy one of these disasters at the Mandarin. Unless MGM is willing to reduce my price to market value, you can bet I wont be gambling there any more and I am not the only one.
(2) MGM Employees - But, I actually feel worse for my casino host who bought one of these units and cant afford it. I understand that dozens and dozens of MGM employees bought these condos. These poor people have seen their stock options become worth nothing as the company stock went from 110 to 3 dollars. Now they are stuck with units that are lucky to be worth 50% of what they are going to be forced to pay for them.
MGM, STOP DOING FUZZY MATH AND TRY TO CONVINCE THE WORLD THAT 2+2= 10!!!!!!!
A second grader can tell you that 2+2=4. It always has and it always will. No amount of spin, fuzzy math, hype, and marketing can change fundamental laws of science. Its time to put the Kool Aid down and start embracing reality.
If you are a City Center Condo Buyer, please check out the website
http://www.citycentercondodepositgroup.b...
Register to be informed about any major issues that concern buyers.
This is a group formed and run by buyers (not lawyers looking for a fee), for the purpose of keeping each other informed and better using the leverage we have as a group, to make sure that MGM treats us fairly.
There will be no solicitiations, spams, etc, although we may decide that if MGM is not being responsive to us as a group that we may wish to pursue legal action as a group.
This is going to be fun to watch.
ohh, i can't wait to see this yahoo nightmare of excess go belly up! kill the rich!!!
Sheckyvegas, why so jealous?
as the condo sponsor, whatever entity MGM Mirage has setup would be responible for common charges for the unsold units once the properties open up and the owners start moving in. i'm not sure how the rules work out there, but in NY a condo board would be set up.