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Betting on Vegas Comeback
In the heat of the real-estate boom, MGM Resorts International MGM +2.22% and Dubai World made an ill-fated bet that the Las Vegas real-estate and gambling market would stay strong for years to come, launching an $8.5 billion casino resort called City Center soon before the market turned.
Now, after years of struggles, they are betting that the Las Vegas condo market is approaching a bottom.
In an effort to jump-start sales, the owners of City Center are lowering prices of 602 unsold condominium units in two properties. The reduction, set to be announced Wednesday, includes a 10% drop in face price and incentives like monthly condo association fees and a premium concierge service. All combined, it amounts to a 25% discount off the current prices, the company says.
This marks the second price cut for the two properties—a high-end Mandarin Oriental and the twin-angled, 37-story Veer Towers. The lowest-priced units at Veer Towers are down to $315,000 from $500,000 initially sought, not including the added incentives.
Washington Post/Getty Images
The owners of City Center Las Vegas are making an effort to jump-start sales of condos.
City Center's developers say they are making the new discounts now because they believe the property is changing course. Since 2010, sales have been stagnant, but MGM says it believes the condo market in Las Vegas is nearing an end to its five-year fall. "We're on the cusp of a recovery," says Tony Dennis, executive vice president with City Center. "You have to spur the market along—the demand isn't there freely and naturally."
Las Vegas has experienced some of the worst of the housing bust, exacerbated by overbuilding. Home prices in January in the Las Vegas area were down more than 60% since spring 2006, according to the S&P/Case-Shiller Home Price Index, including a 9% drop during 2011. Luxury high-rise condo towers that were constructed on or around the Las Vegas Strip at the height of the development frenzy were particularly affected.
But some hard-hit markets in the U.S. have begun to show signs of recovery. The high-rise condo market in Miami, for instance, has been buoyed by surprisingly strong demand from foreign buyers, and the Phoenix housing market has recently seen a large jump in demand from investors.
While the Las Vegas economy isn't as diverse as better-performing cities, there are some glimmers of improvement. Housing inventory levels are less than half a year ago, according to Applied Analysis, an economic consulting firm in Las Vegas. And gambling revenue on the Las Vegas Strip is up for the past six months through February, while visitation and room rates also have continued to edge up, according to the Las Vegas Visitors and Convention Authority.
The attempt to restart condominium sales at City Center comes about six years after the developers broke ground on the 67-acre project, which, even in a city of extravagance, stood out as grandiose.
Developers said that the project would be a lively mixed-use new urban center on the Las Vegas Strip—complete with condos, gambling, shopping and hotels. But the number of condos was scaled back as the economy cooled and because one of the towers was halted by a construction defect. Between the two components that now have condos—the Veer Towers and Mandarin Oriental—there are nearly 900 condos.
City Center has sold only around 292 units in those projects for $294 million. It hopes that it will take in nearly $600 million by 2017 from the sale of the remaining condos.
MGM has written down around $2.3 billion due to a severe drop in value in its 50% ownership interest in City Center. On top of that, the City Center joint venture has written down more than $700 million from the residential sales.
If sales pick up, Mr. Dennis, of City Center, expects the first buyers will largely be investors who plan to rent out the units while holding them for at least a few years.
Bruce Hiatt, a luxury-condo broker in Las Vegas, says he is seeing more interest in high-rise condo properties near City Center from investors and second-home buyers in the past few months. But he says the discounts may not go far enough.
City Center's prices now start at $463 a square foot in the Veer Towers with the discount, not including additional incentives. Units at the Mandarin Oriental are more than $750 a foot, before the incentives. Buyers largely aren't interested in properties that cost more than $400 a square foot even at a top draw spot, Mr. Hiatt says. The last unit to sell at City Center, in November 2011, went for $578 a square foot, according to Applied Analysis.
"I have buyers who have been keenly watching and waiting for this who will be welcoming the news," Mr. Hiatt says. "They're still very price-sensitive though."
