Property investors in one of the costliest and highest-profile apartment developments in the US are demanding significant reductions and in some cases their deposits back because of plummeting values.
The 67 acre $8.4 billion City Center project in Las Vegas is due to open in November and includes 5,000 hotel rooms and 2,440 apartments as well as public parks, its own monorail, malls and a theatre.
But some buyers who signed contracts in 2006 and 2007 at the height of the property boom when prices in Las Vegas were rocketing now fear that when they take possession of their apartments they will be worth much less than they agreed to pay. Las Vegas has been badly hit by the property crisis with prices falling 30% in the last 12 months.
They have formed a protest group and hired a law firm to demand significant price reductions of between 30 and 50% from the project’s principal developer, gambling company MGM Mirage.
So far, buyers have put down $313 million in deposits on 1,500 units in the 2,440-unit complex. Some claims that they are probably worth 60 to 70% less than they were at the height of the property boom.
‘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 Las Vegas law firm Hutchinson & Steffen. ‘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,’ he added.
MGM Mirage said it isn’t offering discounts to current buyers, many of whom bought during a special promotion period for ‘friends and family’ of MGM Mirage. A spokesman said it is too early to know how the units are valued in the current market.
But the disgruntled investors claim that MGM Mirage won’t even discuss the matter. ‘We gave them that deposit money with no interest with an implied guarantee that values would not go down. I think they need to work with the people like us who’ve committed to this project in a way that’s fair for both parties,’ said one investor, Steve Mack.
It is unclear how many buyers are demanding discounts but it has serious implications for the city’s real estate market. It may be that the protestors may no longer be able to secure financing and could just decide to walk away, leaving their units empty.
‘City Center is vital to everything we want to see happen in Vegas in the future. It will change the Strip. We don’t want to see thousands of empty condo units sitting there,’ said Dennis Smith, president of Home Builders Research, a consultancy firm in Las Vegas.