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?
This post has been republished from Tim Iacono's blog, The Mess That Greenspan Made.