Cosmopolitan Condo Class Action

The Cosmopolitan of Las Vegas has not had a happy journey, and the class action suit that has been settled in April 2010 is just the latest sign that it may yet live up to the potential of its prime location. The plaintiffs in the Cosmopolitan Class Action had signed up to buy some of the development’s 1,495 condo-hotel units, but are now getting 62% of their deposits repaid in recognition of the project’s delays.

Watching closely are 150 buyers of City Center units who are not happy with the way their transactions have played out. It is said that MGM Mirage has offered 25% of deposits, which falls some way short of Cosmo, however, the issues are quite different for each development.

So far City Center sales have been slow with 31 of the 1,495 Vdara units sold (prices from $370K to $871K) and 24 of the 225 Mandarin Units ($1.05m to $7m).

Of course, the real reason that depositors are up in arms is that values have plummeted since they put their money down. Union Gaming Group estimates that recently built mid-rise and high-rise condos are down 58% from their market peak, with condo-hotels down 71%. Union Gaming’s report, ‘Las Vegas High-Rise Blues II: From bad to worse’ studied 26 residential towers in Las Vegas and noted:

  • There is a current inventory of nearly 8,700 units (pre CityCenter), which includes all relevant projects in the resort corridor, downtown, the south Strip and the suburbs.
  • Of the residential towers, 20 are condos (pure residential) while the remaining six are condo-hotel.
  • Of the current inventory the number of “available” units that need to clear the market is alarming. This does not include currently owned units that are actively listed on the MLS system or what we believe could be a large number of owners who would prefer to sell but simply won’t given current market dynamics.
  • Union Gaming assumed that all units in default will ultimately become available. Of the 4,819 condo units it looked at, 49% are available or soon-to-be available. This includes unsold inventory (38% still held by the developer), units in default (10%) and bank-owned (2%).
  • Of the 3,863 condo-hotel units, 44% are available: unsold (33%), in default (10%), bank-owned (1%).
  • On a combined basis, 36% are unsold, 10% are in default and 1% are bank-owned.

Are Investors Good for the Las Vegas Residential Market?

Investors are blamed for fueling the boom that saw the median Las Vegas house price go from $164,000 in 2003 to $275,000 in 2005, so it is no wonder people are nervous that nearly 50% of houses in Las Vegas are currently being sold to investors. However, the current crop of investors seems smarter, and is buying to hold for rental income, rather than flipping to capture rapid capital appreciation.  So are investors good for the Las Vegas residential market?

There is certainly an over-supply of homes in Las Vegas and these investors are helping stabilize prices. They are also providing rental units for those that are no longer able to secure mortgages.

Investors are being criticized for blocking first time home owners from entering the market as they are often cash buyers and are thus given favorable treatments by the banks. It is difficult for a homeowner buying with financing to compete against cash-rich investors chasing REOs. Also, not all of these investors are long-term as 3.7% of houses sold in February had been sold less than six months prior i.e. they were flipped.


The Interest Rate Threat

Will interest rates be the next big stick that clubs Las Vegas real estate? This week the rate for 30-year home loans jumped to an eight month high of 5.21% versus 4.87% a year ago. If Las Vegas interest rates continue to rise under the weight of America’s debt mountain (where else can they go?) then it will further reduce the purchasing power of potential homeowners, and be a threat to the financial health of those borrowing on variable rates.

Don’t forget that the government stimulus measures are not permanent, and if they are taken away in a high interest rate environment then the pain may only have been postponed, not avoided. Yes Las Vegans more pain. Look beyond the Las Vegas Valley to treasury yields and you will see that they have been climbing in recent week as demand declines.

Further reading:
http://www.lvre.com/las-vegas-real-estate/


Cosmopolitan Vegas Takes Shape

News about the Cosmopolitan Vegas is starting to trickle out as its opening in December gets closer.

John Unwin is the CEO of Cosmopolitan of Las Vegas, and it seems that Deutsche Bank will remain the owner for the foreseeable future as it has not found any other buyers, or secured an operating agreement with any hoteliers. Whilst Unwin has experience as a Caesar’s Palace GM, one thing that will different this time around is that Cosmo is starting with no database of customers. This standing start may be partially offset by the fact the development is the only new Strip casino coming online in 2010, but excitement of the new wasn’t enough to make Planet Hollywood profitable so will it work here? Harrah’s acquired Planet Hollywood because of the value it can generate using its customer database – how long can the Cosmopolitan survive solo?

With its stunning terraced rooms overlooking the Bellagio fountains it is possible that the development will break the mold of multi-casino operator model. In addition to the views, another thing that makes these hotel rooms unique is the kitchenettes. They are more like condos than hotel rooms, as that is what they were originally built to be.

Cosmopolitan of Las Vegas is 8.7 acres of prime Strip property, and Unwin plans to hire 3,600 workers in 2010 to make it a success. The hotel may open with as few as 800 rooms initially, with these increasing as demand dictates (the development has 2,995 rooms in all).


Blue Diamond Hill

On March 31st 200 people gathered to question the proposed plans of developer Jim Rhodes to build a residential community on the former James Hardy Gypsum mine. It would be an amazing location to live right next to Red Rock Canyon, but should it be home to desert reptiles or people? The event was held at the Blue Diamond community center and most attendees were opposed the so called Blue Diamond Hill development.

The land owned by Jim Rhodes borders the Red Rock Canyon National Conservation Area, and is a massive 1,700 acre parcel that extends from the scenic loop down to Blue Diamond. Under legal advice the Clark County Commission introduced a code to allow Jim Rhodes to develop the land as the county wanted to avoid the case going to federal court, but the attendees at the meeting were not convinced that this was the best approach.

Under the agreement Rhodes has the right to apply for 700 acres at a time, and each 700 acres would be reviewed as a major project by the county. Rhodes has agreed to build roads into the subdivision from the east, rather than from the Route 159 which loops through Red Rock Canyon.

Despite the protests of neighboring Blue Diamond residents it looks as though Jim Rhodes may finally be getting somewhere with his project.


Industial Assessed Values Down

The 2010-2011 tax rolls have been published by the Clark County assessor’s office, and they show that Las Vegas industrial space has been the poorest performing category in commercial real estate.

The assessed values for all property in Clark County fell 26 percent from $90.8 billion in 2009-2010 to $67.1 billion, and within this the assessed value of industrial land fell 20.5 percent from $3.1 billion to $2.5 billion. This is a sharper decline that in the commercial sector as a whole (down 15 percent), but it is still less of a decline that that of residential property, which dropped 26 percent from $48.4 billion to $35.7 billion.

Industrial assessed values fell 22.2 percent in Las Vegas, 22.2 percent in North Las Vegas, and 19 percent in Henderson. It is typical for changes in commercial real estate pricing to trail those in the residential sector, whether they will see the same steep declines of Las Vegas residential remains to be seen.


$12.5bn of Appraised Value Wiped Out

The Clark County assessor’s office published a list of the 25 largest taxpayers in Clark County, and it showed that in 2010 these properties have lost $12.5 billion in appraised value. Las Vegas real estate taxes are down. The total appraised value of $41.2 billion includes land and buildings, and is a 23% decline on the $53.7 billion value of last April. These declines in commercial real estate follow the collapse in residential values.

Despite the decline in appraised values local governments are not going to see a decline in values. This is because the taxes on commercial properties were capped at an annual 8% rise back in 2005. Values haven’t dropped so far that the post-2005 taxable base has been eroded. As a result of this legislation newer owners are paying a disproportionately higher amount of tax than those that had large portfolios pre-2005.

  1. MGM Mirage
  2. Harrah’s Entertainment
  3. NV Energy
  4. Las Vegas Sands Corp.
  5. Boyd Gaming
  6. Wynn Resorts
  7. General Growth Properties
  8. Station Casinos
  9. Universal Health Care
  10. Basic Management
  11. World Market Center
  12. McCarran Center
  13. Camden Property Trust
  14. Olympia Group
  15. Greenspun Companies
  16. Treasure Island Ltd.
  17. Harsch Investment Properties
  18. Marnell Corrao Associates
  19. Nevada Property
  20. Hospital Corporation of America
  21. Gaughan South Limited
  22. Olen Properties
  23. Wal-Mart
  24. Goldman Sachs Group
  25. Crescent Real Estate Equities

The MGM Mirage figures are skewed by a couple of factors: the sale of Treasure Island, and City Center coming online. Putting these two factors together MGM’s appraised value of $16.3 billion is a 4 percent increase on 2009’s $15.7 billion. The assessed value, on which taxes are applied, is $5.5 billion. Harrah’s Entertainment also has a significant change – it acquired Planet Hollywood – but despite this its appraised value of $5 billion was still below its $7.3 billion of a year ago.

Some companies have dropped off the Top 25 Las Vegas Real Estate Taxes list altogether. Turnberry Associates were ranked No.10 in 2009, but having lost Fontainebleau Las Vegas have seen its appraised value fall to $257 million. Other disappearing acts include Focus Property Group, Trump International and Triple Five Development.

http://www.lvre.com/summerlin-homes-for-sale/


Cosmopolitan to Open December

After announcing that the Cosmopolitan has now been renamed the Cosmopolitan of Las Vegas it has set December 2010 as its opening date. The mid-December opening will not include around one third of the hotel’s rooms as these will be held back until July 2011.

Critics of the development say that it is another faceless steel tower better suited to New York than Las Vegas. Proponents point to the increasing sophistication of Las Vegas, and note that Cosmo’s high-rise terraces overlooking the Bellagio fountains are a unique asset.

Owners Deutsche Bank will be hoping that the project manages to distinguish itself from its neighbour City Center. Many tourists mistake Cosmopolitan as being part of City Center, but from December it will have an opportunity to show that its 50-story towers, 2,995 hotel rooms and condos, 100,000-square foot casino, and 50,000 square foot spa and fitness center are something special.


Increase in Las Vegas Home Sales

According to the GLVAR there were 3,175 Las Vegas home sales in March, which is a 32.8% increase on February, and a 6.5% increase on March 2009. But before we get over excited it is important to remember that the federal tax credit will expire on 30th April and once the stimulus ends the true market conditions will be exposed. The bulls point to a 9.9% reduction of home inventory from a year ago, but the bears point out that the 20,548 homes for sale have the weight of an unquantified shadow inventory behind them.

One trend that we may see in the market is increasing short sales as a result of Home Affordable Foreclosure Alternative (HAfA), and declining foreclosures. With short sales tending to be more expensive than foreclosures this could put upwards pressure on pricing. The Home Affordable Foreclosure Alternatives (HAFA) Program offers homeowners, their mortgage servicers, and investors an incentive for completing a short sale or deed-in-lieu of foreclosure. With these options, under HAFA, a homeowner leaves their home to transition to more affordable housing and alleviate the mortgage debt they owe.


Is Bad News Pending?

Pending homes sales are those transactions that have been signed, but not closed, and in February they increased by the highest rate since February 2001. One of the main drivers behind this nationwide trend is the rush of first homeowners taking advantage of the first time homebuyer tax credit before it expires. The Las Vegas housing market has also seen a boost from the government scheme.

The ‘Worker, Homeownership, and Business Assistance Act of 2009′ gives a tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence. The tax credit applies to sales occurring on or after January 1, 2009 and on or before April 30, 2010. However, in cases where a binding sales contract is signed by April 30, 2010, a home purchase completed by June 30, 2010 will qualify.

This stimulus saw pending sales increase 8.2% in February, which meant sales are 17.3% higher than the same month a year ago. Once the tax credit expires the true health of the housing market will be exposed. In Las Vegas the sheer volume of foreclosures, with 76% of Las Vegas homeowners upside down on their mortgages, means that the inventory still has some way to go before the supply curve puts any pressure on prices. Unless the stimulus is extended again the Las Vegas housing market may dip further.

http://www.lvre.com/summerlin-homes-for-sale/


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