WSJ Article

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.

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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.

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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 tammy.audi@wsj.com