Friday, January 4, 2008

News Flash: Vegas Real Estate Sucks

The Las Vegas Sun featured an excellent front-page piece today by Liz Benston on a lawsuit by 40 owners of MGM Mirage's Signature condo-hotel units complaining that their rental incomes aren't coming close to covering the huge monthly mortgage payments and condo fees.

It's a fascinating situation because as my dad and I grumble over paying the mortgage each month on our Panorama Towers unit with little evidence that we're close to selling it, we keep looking with envy at these other business models -- Signature, Trump, Cosmopolitan and many of the CityCenter options -- and thinking that at least those people stand a chance to defray their costs while waiting for the miserable real estate climate to recover.

It did seem like a good plan, except that folks in Benston's piece remind us that the casino's motives for filling hotel rooms can be quite different than a landlord or hotelier's. That is, the hotel will rent the rooms for below cost -- sometimes at $99 a night -- just to get the warm bodies into the building to spend money on the other casino amenities. Oh, and MGM Mirage gets about half the revenue from the rental, too.

The lawsuit, I suspect, has little merit. The contracts for all of these things are loaded with disclaimers and the MGM Mirage one, evidently, is no exception. Heck, Panorama Towers was a full year late in delivering our unit and then failed to fix the damaged things we spotted on our walk-thru for longer after our closing than they had promised. And yet there's no murmurs about suing, even though had we gotten our unit on time in the summer of 2006 when real estate was still a strong market, we probably would've done decently.

One of the odd bits in this piece are the owners who complain they were tricked when a salesman claimed that "the value of their units would likely increase as future towers were built and sold." That claim would seem to run contrary to common sense, no? More, newer units would leave older units in the dust, wouldn't they?

One thing the piece does not address is whether this outcome -- the lack of revenue for landlords and the stilted contracts favoring casinos and their owners -- will soften demand
for similar units over at CityCenter. It would seem that soft demand for condo-hotel over there could create a serious cash-flow issue for MGM Mirage. And, even worse, how would this impact the planned second Trump tower?

Incidentally, two loyal readers/listeners, Rob and Suzie from Florida, chatted on "The Strip" on the Dec. 27 episode about their stay at the Signature, rating it better than their experiences at Wynn and Bellagio. It's worth a listen, and their part begins just past the 1-hour mark in the show. As a tourist experience, if not an ownership experience, they really loved it.


gregoryzephyr said...

The salesperson's comment about rising values with new ones being built was reflective of reality in 2005. While demand was rampant the newer units were being priced higher than the initial ones sold. So, if you bought in the first tower for $450K the same units in the newer towers were priced at $600K and so your "old" unit could be sold much higher than what you paid originally, even if you listed it for a little under the brand new units. Unfortunately, that only held true for a few short years.

David F. said...

The lawsuit I think is just the owners making a public point and embarrassing MGM, IMHO it won’t go any further because you can bet that buried within the contract is a clause saying any dispute has to go to binding arbitration, so it will be dismissed just on that point.

I agree with you on CityCenter, I know there are those who say it will be the new wonder of the world, but it sounds to me a lot like the Emperors New Clothes. The only thing I ponder about the Place is whether Gordon Ramsay will open a Restaurant there.

robertw4771 said...

A few years ago a friend had me check the Trump deal. It didnt look good to me overall. I asked what happens if somebody trashes your unit. They told me that you need to maintain all the same electronics and furnishings and basically they will try and collect from the renter, however you are on your own. The math on the rental thing did not work on paper to make a "profit". IMHO the majority of buyers were looking to flip a day after closing. That was/is probably 90% of the buyers.


Turk said...

Bought a unit at tower 3 for 740K, put down 150K, now I can't qualify for the loan because unit appraisal comes up 480K. When I asked Panorama to lower the price so that I can qualify for the load, their lawyer told my face, they rather keep my 150K acording to contract and sell the unit next person for the appraised value and make more money. Isn't this illegal? It was my life savings and this greedy guys confiscated all my money. Anybody has any idea how I can fight with them ?
Thank you

robertw4771 said...

You should have read the contract with a lawyer before you plunked down 150K. You should get some legal advice. By the way at 480K you would probably lose plenty as those units will probably fall another 20-30% in price. I would not want to buy any vegas luxury condo in this market. Maybe you can fight to get the 150 back.