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Bottom-Feeding in a High-Rise Market

In a city built on the backs of shot-takers, many condo investors have failed to rake in the dough and their apartments sit empty. But as with everything else in Vegas, their losses can be profitable for somebody else.
Michael Kaplan
From the Print Edition:
Arnon Milchan, September/October 2008

(continued from page 2)

Others spin it differently: one owner complains about getting $10 to $30 per night after fees and splits with wholesalers are accounted for. The disgruntled owner points out, "You don't want to have your $500,000 or $1 million investment getting trashed for $20 per night." That is one reason why he and others are taking matters into their own hands and marketing the rooms independently, often with gussied-up amenities.

Hit hardest are those who bought in the third tower, which was the last one to have been built. As has been the custom with these projects, each new tower sold for more than the previous one. "A studio that went for $400,000 in Tower 1 went for $575,000 in Tower 3," explains Brooks, who bought in Tower 1. "Now that the builders' units are sold out, the prices reset"—meaning that the price is now what the general market will bear, not the asking price for the new tower. "People in Tower 1 can drop down to $400,000; the people in Tower 3 cannot [if they want to sell without sustaining a loss]. Right now there are 100 very distressed owners."

For those with cash or excellent credit, these unfortunate few are the sellers of choice. Sheets printed out from the brokers' multiple listings service boast discounted units in most of the high-rises around town. Sellers are becoming increasingly motivated.

"If you have had [a unit] on the market for 12 months and are chasing the market down, going from $500,000 to $350,000, you see what is really happening," says Brooks. "There is a decent amount of activity on all undervalued units."

Coming into this market cannot be easy. But Donald Trump and George Maloof, of Palms fame, both face the unenviable task of needing to navigate these choppy waters. They each have brand new condotels that need to start closing. In both cases, earnest money was collected when the market was strong and people were optimistic. Now, would-be buyers are having trouble honoring commitments that they made a few years ago, when real estate seemed to be on an endlessly upward trajectory.

At Trump, where the rooms are nicely furnished and outfitted with high-end appliances but, aesthetically, are middle of the road, the name still has appeal for some buyers, but prices are already coming down. Giving me a tour of the marble-and-crystal festooned property, Sivek confides, "I can get you [a one-bedroom], under special circumstances for $783,000." He is referring to a unit that has been priced in the $1.2 million range. "Studios are in the 700,000s, but I have one in the 400s." Ignoring that yesterday he seemed steadfast about sticking close to the original prices, Sivek tells me, "Due to our position, we have some killer deals from people who put down money in 2004 and since then they can't close."

Meanwhile, over at Palms Place, the latest condotel to come to market, the story and the circumstances are a bit different. The units there are the swankiest in town, with Jacuzzi-jetted tubs in the bedrooms, sleekly contoured sofas, wood paneling, low-slung coffee tables and an overall space-age bachelor pad vibe, by way of Palm Springs. These studios, one-bedrooms and penthouses seem to have been built and designed for seduction. George Maloof—whose brother Gavin will be occupying one of the sprawling penthouses, as will pop star Jessica Simpson—maintains that he went way over budget and produces a detailed prospectus to show that no corners have been cut. He challenges me to uncover something that he neglected to include in one of the rooms; as usual, the house wins. "Construction costs just didn't pencil out for us," he says, explaining that, like everyone in town, he was a victim of spiraling expenses. "I sucked it up, wrote checks, finished the project as promised. For me it was personal; everything had to be done right. And I'm happy to say that the comments from our customers is that the finished units look better than the pictures—and the pictures looked great."

Maloof expresses no desire to lower his prices; one-bedrooms have gone for as much as $1.3 million and studios for $769,000. He insists that any buyers who back out will lose their earnest money, but the units will not come to market at a discount—at least not so long as he's the one doing the selling; in a year's time, if original buyers opt to sell their units, there is no telling where the prices will go. For now, however, with the majority of the apartments closed, Maloof says that he'll hang on to those that remain, put them into the Palms' rental pool, keep 100 percent of the revenue for the time being and sell them when the going is good.

Of course, he's in a particularly advantageous position to do this. The Palms is a hot place. Anything he might have to eat on the units, he'll more than make up for in his casino, restaurants, spa and hammam (the only one in Vegas); the Trump property, on the other hand, has no casino (by design) and only two restaurants. The ancillary potential is a lot less. "The condo-hotel, for the [casino-based] developer is a genius idea," says Jim Brooks, referring specifically to Palms Place with its 599 rooms and a hipster clientele clamoring to stay there. "People help to pay the costs for upkeep and to run it. And they're adding another 600 high-end clients into retail, gaming and restaurants."

Whether you can get a good deal on a spot in Palms Place has yet to be seen. That will depend entirely on the Vegas real estate market and the owners' collective stomach for hanging in there as it goes through what is hoped to be a final set of gyrations. Regardless, to hear the locals tell it, it's not a matter of if the Vegas high-rise condo market will turn around, but when. "When things do turn around, Las Vegas will still be the entertainment capital of the world; it will still be a great place for dining, shopping and gambling," says Brooks, not needing to mention that money lost may never be recovered and that bargains are there for the taking. "I believe that the values of properties currently listed at the bottom of the market will double in seven to 10 years." He doesn't go so far as to say he would bet on it, but one can assume that he already has. v

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