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.
