Las Vegas City Center Saga: Disgruntled Buyers Demand Bailout

Having visited Las Vegas last fall as financial markets were crashing, it was odd to see how remarkably cheery the City Center sales staff were in peddling condos for what will probably rival the construction boom in Dubai as the great White Elephant of a now bygone era.
In fact, when asked about plunging real estate prices and global financial markets that were following suit back in late-September, the sales staff almost appeared to be living in some parallel universe where asset prices only go in one direction - UP.

The response to this query was either a "deer-in-the-headlights" look or a brief moment of agitation before a well-honed sales instinct could wrest control back from what was clearly a more emotional (and more genuine) reaction.

Well, apparently, those who signed on the bottom line for condos a couple years ago (with move in dates this fall rapidly approaching) are all too aware of what's been happening in the local real estate market and they're none-too-happy about it.

According to the latest data from the Case-Shiller Home Price Index, Las Vegas property values are down some 33 percent from a year ago and a stunning 52 percent below the peak in 2006, around the time that many of the City Center sales were made.

The Wall Street Journal provides the following update on the project and the plight of the soon to be none-too-proud owners of some of these condos.

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.

"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."

It's funny how contract law is seemingly being ignored these days and how those who are clearly not "too big to fail" think they're entitled to be bailed out somehow.

Well, maybe funny isn't the right word there.

Perhaps disturbing would be a better one.

While the group of disgruntled owners may be able to negotiate from a position of collective power, they seem like a rather sad lot in the process. Most people who put down $100,000 on a million dollar condo that might now be worth only about $500,000 would surely just walk away and chalk that $100K up to experience.

What surviving mortgage company would lend $900,000 against that condo anyway?

Then again, what do the buyers really have to lose at this point?

Their entire downpayments have surely been sucked into the asset deflation abyss already, along with another $10 trillion or so of supposed "wealth" around the world, and if they walk away now, they may never get to ride the monorail.

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.
...
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.
...
"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."

This should be interesting to watch this fall.

Any word on how Donald Trump is doing these days?

Comments

[herbert hoover:]

I'm sure that anyone who was sinancing would have had a mortgage contingency clause inserted in the contract. Most of these people will find it impossible to secure a mortgage and get their deposits back.

Jul 06 04:09 PM

[Mad Hedge F...:]

Expect to hear more bad news. One can’t help but be overwhelmed by a sense of history walking by the Las Vegas Strip’s City Center; unquestionably one of the worst commercial real estate disasters ever. The glitzy, ultra modern, Cesar Pelli designed. 63 acre complex occupies the quarter mile between the Bellagio and the Monte Carlo Hotels and will become one of the wonders of the world if it is ever finished. Nearly completed are the Mandarin Oriental, Aria, Veer, Harmon, and Vdara Hotels, offering 4,000 rooms and 2,600 condos. They will be adorned by two casinos, a convention center, a new theater for the Cirque du Soleil, an enormous shopping mall, and parking for 7,500. The finished project will employ 12,000. But strikes and overruns sent costs soaring to $8.5 billion, and the project is now hopelessly behind schedule. I saw a total of one worker in a cherry picker working on the building with a screwdriver. The other guy going up in an elevator turned out to be a lender contemplating a jump off the top. Kirk Kerkorian wanted to build the ultimate Sin City destination resort when his MGM-Mirage partnered with Dubai World years ago. The relationship has soured, with Dubai World filing suit against its partner for negligence and mismanagement, which it later withdrew. The bigger question is who is going to stay in these rooms? Those who financed trips to Las Vegas with home equity loans or subprime credit cards definitely are not coming back. If the project files for bankruptcy, it will leave a gigantic eyesore at the heart of the tourist area as a monument to excess, in a city of excesses. Unfortunately, what happens in Vegas doesn’t always stay in Vegas, as a financial collapse would send shivers through the industry globally.

Jul 06 06:54 PM

[D. McHattie:]

I can't think of a reason why anyone would actually close on one of these units.

There is no way the project can survive. And it will take the whole of Las Vegas down with it.

Vegas is a cesspool populated by desperate people with empty souls and broken spirits.

Good riddance.

Jul 06 07:46 PM

[RatWatcher:]

"Vegas is a cesspool populated by desperate people with empty souls and broken spirits.

Good riddance."

An unnecessary and incorrect judgment. The vast majority of permanent Las Vegas residents are hard-working lower-middle-class types. They are the people making the beds, serving the drinks, dealing the cards, etc. Just a little off the Strip either east or west, a 3-br home rents for about $1K/month, a basic apartment about $600. Outside the tourist areas and recent McMansion developments, there is surprisingly little luxury at all. The main school is UNLV with a payable tuition for state residents. And regardless of how down-and-out any specific individual might be, they will almost to a person wish you 'good luck' at the end of a conversation.

Jul 07 01:17 AM

[CuriousMonkey5:]

Are you short MGM?


On Jul 06 06:54 PM Mad Hedge Fund Trader wrote:

> Expect to hear more bad news. One can’t help but be overwhelmed by
> a sense of history walking by the Las Vegas Strip’s City Center;
> unquestionably one of the worst commercial real estate disasters
> ever. The glitzy, ultra modern, Cesar Pelli designed. 63 acre complex
> occupies the quarter mile between the Bellagio and the Monte Carlo
> Hotels and will become one of the wonders of the world if it is ever
> finished. Nearly completed are the Mandarin Oriental, Aria, Veer,
> Harmon, and Vdara Hotels, offering 4,000 rooms and 2,600 condos.
> They will be adorned by two casinos, a convention center, a new theater
> for the Cirque du Soleil, an enormous shopping mall, and parking
> for 7,500. The finished project will employ 12,000. But strikes and
> overruns sent costs soaring to $8.5 billion, and the project is now
> hopelessly behind schedule. I saw a total of one worker in a cherry
> picker working on the building with a screwdriver. The other guy
> going up in an elevator turned out to be a lender contemplating a
> jump off the top. Kirk Kerkorian wanted to build the ultimate Sin
> City destination resort when his MGM-Mirage partnered with Dubai
> World years ago. The relationship has soured, with Dubai World filing
> suit against its partner for negligence and mismanagement, which
> it later withdrew. The bigger question is who is going to stay in
> these rooms? Those who financed trips to Las Vegas with home equity
> loans or subprime credit cards definitely are not coming back. If
> the project files for bankruptcy, it will leave a gigantic eyesore
> at the heart of the tourist area as a monument to excess, in a city
> of excesses. Unfortunately, what happens in Vegas doesn’t always
> stay in Vegas, as a financial collapse would send shivers through
> the industry globally.

Jul 07 03:01 AM

[Ferdinand E...:]

Is LV really a cesspool? There was a time when everywhere I went in Asia I met people who wanted to live in Las Vegas. Once the global economic turnaround begins, it must be true that a couple of thousand condos will go in a hurry.

Jul 07 10:17 AM

[billddrummer:]

Vegas bashing has become more popular since the President said to curtail junkets there, but RatWatcher is correct. Las Vegas is home to over 3 million Average Americans.

Jul 07 11:14 AM

[Tim Plaehn:]

Vegas has a history of someone putting up an overly expensive resort and going bankrupt. The next owner picks it up at a fraction of the construction cost and is able to make a financial go of it. This was happening long before the recent financial troubles.

Jul 07 11:30 AM

[Mark54:]

It would have been sweet... damn you Greenspan, Cayne, Fuld and Greenberg.


On Jul 07 10:17 AM Ferdinand E. Banks wrote:

> Is LV really a cesspool? There was a time when everywhere I went
> in Asia I met people who wanted to live in Las Vegas. Once the global
> economic turnaround begins, it must be true that a couple of thousand
> condos will go in a hurry.

Jul 07 02:19 PM

[D. McHattie:]

Ferdinand may be right, that Asians wanted to live in Vegas the last time he was there.

But it wasn't to move to the Vegas that RatWatcher describes, the unostentatious, unremarkable Vegas that is like most every other suburb in America.

The Asians (and others) who wanted to move to Vegas, and those who did, were attracted to the illusion of Vegas, the myth. Vegas is sold in movies, books, music as a crazy, fun-filled, decadent adult theme-park that is well worth the price of admission.

But the advertising is false. And the strip is populated and frequented by that special brand of vain, self-absorbed, instant-gratification junky that never saw this bubble coming and still, tragically, thinks it's a temporary blip.

There is no substance to Vegas. The whole Las Vegas strip is, and was, fake. Fake Paris, fake New York city, fake Venice.

The cocktail waitresses and prostitutes all have fake breasts, fake tans. It takes a shallow personality and an empty soul to invest so much in something so superficial.

The money on which the latest Vegas was built is also fake. The money that customers spent was the fake equity in their bubble homes and the temporary profits in the businesses that served the housing bubble economy.

The money that the hotels and casinos borrowed to built their plastic palaces was also fake - printed out of thin air by a financial system bereft of judgment and acumen.

I feel sorry for Ferdinand's Asian friends - they clearly do not know the difference between the real and the purely illusory.

Jul 07 07:21 PM