Saturday, August 15, 2009
August 15, 2009
CityCenter gives condominium buyers hope for price cuts
CityCenter gives condominium buyers hope for price cuts
Soft condo market: A recent view of MGM Mirage’s CityCenter along the Las Vegas Strip.
By Liz Benston (contact)
Saturday, Aug. 15, 2009 2 a.m.
Real Estate in Crisis
More stories about business and the economy
Buyers of CityCenter condos, grumbling about the drop in real estate values and other concerns, say MGM Mirage officials who were previously reluctant to discuss the issues are now reaching out to them. Buyers say they hope the talks lead to price reductions on existing sales contracts, which is their primary goal.
MGM Mirage officials, worried that some buyers will not want to close on their units, are also inviting customers to discuss their concerns about construction problems uncovered at CityCenter in recent months, potential discrepancies between the advertised and actual square footage of condo units as well as MGM Mirage’s plan to open some CityCenter amenities months after owners occupy their units, the owners say.
Buyers say MGM Mirage wants to fend off potential lawsuits by buyers attempting to back out of their contracts.
The escrow closing process will start in December and spill into next year. In response to word about polls and focus groups involving the buyers, MGM Mirage spokeswoman Yvette Monet would only say that the company “regularly communicates with CityCenter owners.”
Some buyers have sought price discounts from MGM Mirage on condos they purchased two years ago, when Las Vegas was booming. Others want out of their contracts, saying they can no longer afford to buy the units because of the poor economy and the lack of available financing.
During a conference call last week to discuss the company’s second quarter performance, CityCenter CEO Bobby Baldwin said the company is considering discounting condo prices and is mobilizing various financing tools to enable buyers to close.
Baldwin said the roughly 950 condo buyers at CityCenter are regularly polled about their attitudes toward the project.
“Most are very excited about what it is that we have developed there and look forward to purchase these units in some fashion,” Baldwin said. “Of course it’s all subject to financing and being treated properly as it relates to price.”
CityCenter broker Bob Hamrick said MGM Mirage and Dubai World, its partner in the project, will announce any readjusted prices by early September.
“We remain in the process of recalibrating prices to make it fair for existing owners and to make it compelling for further purchasers to buy,” Hamrick said.
CityCenter started selling units in January 2007, when the market was hot.
But the situation has changed, Hamrick said. “CityCenter remains a unique product that can’t be touched by anything else in Las Vegas,” he said, “but there are some realities we recognize, and we have to respond.”
Las Vegas attorney Mark Connot, who is representing some CityCenter condo buyers, said he’s glad MGM Mirage has recognized the decline in the price of real estate.
“I think a fair number of people have looked at this and say unless they get down to market value or close to it, people may walk,” Connot said.
Buyers say MGM Mirage’s more conciliatory approach stands in contrast with its stance in previous months, when efforts to seek price discounts were rebuffed by sales agents who refused to discuss the issue. Some buyers are seeking reductions of 30 percent to 50 percent.
Condo buyers have a Web site, citycentercondodepositgroup.blogspot.com/, to share information that could be used in future lawsuits and other complaints.
A similar Web site created by owners of condo units at MGM Mirage’s Signature towers has become a gathering place for unhappy Signature buyers, who have used information on the site to file or join lawsuits against the project and file complaints with law enforcement agencies.
Lowering condo prices could significantly reduce CityCenter’s return on investment from initial projections. The company’s revised $8.5 billion budget for CityCenter, which had peaked at $9 billion before the recession, assumes the company will collect only $250 million in condo sales proceeds on top of the $313 million in condo deposits collected from prospective buyers. MGM Mirage hoped to collect as much as $2.6 billion from condo sales. The company has sold about 55 percent of CityCenter’s roughly 2,440 condo and condo-hotel units. Based on contracted prices, the company has sold about $1.6 billion worth of condos.
Buyers will start closing on the units in December, beginning with the Mandarin hotel and condo tower, which opens Dec. 3, MGM Mirage’s Baldwin said last week. Units at Veer, the twin leaning towers fronting the CityCenter complex, are expected to begin the escrow process in January. Units at Vdara, the only condo-hotel tower on the site, are expected to begin that process in February, he said.
Some buyers say that although discussions with MGM Mirage are a positive sign, they are leery about having to sign confidentiality agreements or make concessions in exchange for a potential price cut.
Owners and real estate watchers say these meetings might become confidential, case-by-case settlements that pre-empt arbitration proceedings that are typically required to resolve disputes over real estate purchases.
Some observers say MGM Mirage might cancel sales of condo-hotel units at Vdara, where owners can receive rental income on their condos by putting them into a rental pool, because of weak demand for condo-hotels and the unwillingness of banks to finance them. Most condo-hotel towers in Las Vegas have been hit with lawsuits by owners who are disappointed at the revenue they are earning from their units, in part because of high management and upkeep costs that they contend were not disclosed in advance.
The depressed economy and competition from other condo-hotels such as Signature, Trump and Palms Place may force MGM Mirage to convert Vdara into a resort hotel and consider condo sales down the road, real estate experts say. MGM Mirage could divert Vdara buyers to Veer, for example, they said.
Hamrick called any suggestions of Vdara being converted into a hotel just a rumor.
In Business Las Vegas reporter Brian Wargo contributed to this story.
Thursday, July 9, 2009
I have to imagine that MGM Mirage (NYSE: MGM) investors are hoping the Force is not with a group of CityCenter condo buyers rebelling over the state of the Las Vegas condo market.
MGM has enough on its plate as it is. It made Herculean efforts to ensure that the massive CityCenter project would be completed at all, and the company has had to work closely with banks such as Bank of America (NYSE: BAC) and JPMorgan Chase (NYSE: JPM) to keep its head above the swirling torrent of its debt load.
And that's not to mention the underlying tough conditions in the Las Vegas gaming market, nor stiff competition from the likes of Wynn (Nasdaq: WYNN) and Las Vegas Sands (NYSE: LVS).
But this most recent fracas, which The Wall Street Journal picked up on, is really about that good old feeling of buyer's remorse, which is not surprisingly magnified by the nosedive that the Vegas real estate market has taken.
In short, folks who agreed to pay top dollar for condos in the 67-acre CityCenter project are now grousing about the fact that the properties that they're going to take possession of will be worth a whole heck of a lot less than what they paid.
Vegas residents (like myself) have seen real estate prices valleywide take a major tumble over the past few years, so it's probably not hard for them to commiserate with the CityCenter condo buyers. At the same time, it's hard to root for these high rollers, since we know that we wouldn't be hearing a peep if market prices had doubled or tripled from where they made their purchase.
Of course it's a little more complicated for MGM than just saying, "Go suck an egg" to these disgruntled buyers. Many of the contracts signed in 2006 and 2007 were "friends and family" of MGM, which includes some of the whales that throw down big bucks in the MGM casinos. Ticking off those heavy hitters isn't in MGM's best interest, long term.
Additionally, with all of the hullabaloo surrounding CityCenter, having a building full of empty condos at launch time wouldn't be ideal, either.
In the end, the issue is probably more akin to a handful of dyspeptic Ewoks than a real threat to MGM. Long term, I'm far less concerned about MGM appeasing some angry condo customers and far more concerned about seeing the company take steps to stay on target ... stay on target ...
Buyer's Remorse Hits Vegas Project
City Center Development Resists Requests to Renegotiate Prices of Condos Sold in Boom
By TAMARA AUDI
One of the costliest and highest-profile condominium developments in the country -- the $8.4 billion City Center project in Las Vegas -- is facing a revolt from some early buyers.
Some buyers who signed contracts are demanding significant price reductions, and have hired a law firm to take their grievances to the project's principal developer, gambling company MGM Mirage. Others want their deposits back. Some are using a Web site, citycentercondodepositgroup.blogspot.com, to air their grievances.
So far, buyers have put down $313 million in deposits on 1,500 units in the 2,440-unit complex. Those who agreed to buy early on now fear they will take possession of condos whose market values are far below what they agreed to pay. Many of the contracts were signed in 2006 and 2007, when Vegas was booming.
The City Center project under construction in Las Vegas.
"It is simply not possible by any stretch of the imagination to close on the units at the contracted price," said Mark Connot, a partner with Hutchinson & Steffen, a Las Vegas law firm hired to represent a handful of buyers demanding price reductions. "Our position is they need to adjust the price to market value. And until that's done I don't think they will find any buyers."
MGM Mirage said it isn't offering discounts to current buyers, many of whom bought during a special promotion period for "friends and family" of MGM Mirage. A spokesman said it is too early to know how the units are valued in the current market. In Las Vegas, home-sale prices are down more than 30% from a year earlier.
The rising discontent is the latest sign of trouble to hit City Center, the colossus owned by MGM Mirage and Dubai World, the investment arm of the Persian Gulf state. The project narrowly avoided bankruptcy earlier this year, and the partners only recently resolved an internal legal feud.
The 67-acre project, due to open in November, includes 5,000 hotel rooms and 2,440 condos rising in sleek towers over the Las Vegas Strip. The development will have a public parks system, its own monorail, fire department, mall and theater.
"What we're doing is evaluating the market," said MGM Mirage Chief Executive Jim Murren, who put deposits down on two City Center condos. He added that he understands buyers "want clarity in an environment of uncertainty. In fact, that's what I want as an owner."
The City Center condos range in price from $600,000 for a smaller studio unit to more than $9 million for an expansive penthouse suite built atop of the Mandarin Oriental hotel. So far, the most expensive unit under contract is a 3,910-square-foot suite at the Mandarin for $9.4 million, or $2,392 per square foot.
It is unclear how many buyers are agitating for better deals or for deposit refunds, but real-estate analysts in the area have raised fears that a good portion of them may no longer be able to secure financing and could just decide to walk away, leaving their units empty.
How the dispute plays out has serious implications for the Las Vegas real-estate market.
"City Center is vital to everything we want to see happen in Vegas in the future," said Dennis Smith, president of Home Builders Research Inc., a consultancy firm in Las Vegas. "It will change the Strip. We don't want to see thousands of empty condo units sitting there."
The City Center units are the most expensive of the 7,000 luxury condos for sale or under construction in the Las Vegas area.
Complicating matters, many of the first to sign contracts were the company's biggest spending gamblers and its own executives who were enticed by the project's "friends and family" promotion. In addition to Mr. Murren, MGM Mirage shareholder Kirk Kerkorian is among the early condo buyers.
"You have 1,500 condo buyers right now who wish they'd never put this thing into contract and most of them have some kind of relationship with MGM Mirage," said one buyer who put a $600,000 deposit on a $3 million unit, and would like to get his deposit back. "It's tricky for MGM Mirage. You make your best customers angry."
Write to Tamara Audi at firstname.lastname@example.org