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.
From the Print Edition:
Arnon Milchan, September/October 2008
The recent history of Las Vegas real estate is littered with alluring monikers: Aqua Blue, Krystal Sands, Opus, Icon, Las Ramblas. Those are just several among dozens of poetically named high-rise projects that failed to see the light of day in a city that thrives on optimism and is built on the backs of shot-takers.
Once-gilded projects have been aligned with headline grabbing names such as Michael Jordan, Ivana Trump and George Clooney. Who could blame them for desiring a piece of the Strip-side action? Not so long ago it seemed as if Sin City could do no wrong, and its real estate was an odds-on favorite. Investors literally became affluent overnight, parlaying their bets, rolling the bones, winning again and leveraging themselves into exponentially larger positions. But as every gambler should know, sooner or later negative variance hits, and that is when everything gets wiped off the table.
Real estate in Vegas became so overheated that a comedown was inevitable. Few people—including Kirk Kerkorian, who sold off a chunk of his multibillion-dollar CityCenter project before the bottom dropped out—expected the market to unravel as quickly and as violently as it did. But maybe, considering that gambling is deeply ingrained in the Vegas culture, that shouldn't be a huge surprise. The big question now is, how low can it go? And when is the time to plow back in, to take advantage of the battered prices and walk away with a steal or at least a deal? Astute shoppers in this market are not unlike sharp sports bettors who obsessively watch the NCAA lines, wait for sucker money to drive point spreads in one direction or the other, and then calculatedly jump in.
The consensus seems to be that prices are at a bottom or else pretty close. This story is being reported in the spring of 2008; by the time you read it, numbers are expected to be suitably alluring for people with cash or the ability to get financing (no easy task at the moment). "I bet you that toward the end of this year, I will be buying again," says Jim Dunn, a real estate investor who did well on the rise, strapped in for the plunge and now seems ready for more. "It's definitely a buyer's market right now."
As prices dip to 2003 levels, and owners who bought high—often intending to flip their units or rent them—get crunched, the downward pressure is a plus for anyone eyeing a second-home, high-rise condo in Las Vegas. "In Panorama Towers [a ritzy example, situated off of the Strip] there was a two-bedroom, two-bath, 12th-floor unit available for rent at $2,100," recounts Dunn. "But no one will rent it at that price. And it sits empty. How long can that go on? How much of a loss can the unit's owner take? It's all about diminishing returns." With no sorrow in his voice, he adds, "Guys like that will be distressed sellers."
Las Vegas's high-rise condo boom blasted off in 1999 with the development of Park Towers. Located a couple blocks east of the Strip, the luxurious condo was built by moguls Irwin Molasky and Steve Wynn. Only 84 units exist and they start at 2,100 square feet. The building boasts a screening room, wine cellar, catering facility and a tennis court. Well-connected concierges arrange hotel-like amenities ranging from unlikely dinner deliveries to sold-out show tickets. With spectacular views, stratospheric prices and celebrated developers, the building became a magnet for the moneyed crowd.
Naturally, the success of Park Towers inspired other developers to build luxe high-rises. Turnberry Towers (complete with a private club, restaurant and cigar lounge) opened in 2007 as did Panorama Towers, an ambitious project put together by Laurence Hallier, who made his money by marketing bubble ads on top of Vegas taxis, and nightclub impresario Andrew Sasson. Lacking a great location—it's off the Strip, near a highway—Panorama does boast gorgeous loft-like apartments, with walls of windows and top-notch appliances. Nevertheless, Sasson, who seems to have a brilliant knack for timing, sold out to his partner as the third tower was getting under way. He managed to escape just before real estate costs soared and the market in Vegas began to sour. Now he's developing The Harmon Hotel, Spa and Residences, in CityCenter, and branching beyond that with the help of deep-pocketed backers from Dubai.
Others weren't as lucky. This past March, Nevada's foreclosure rate rose 220 percent from a year earlier; that's one foreclosure for every 183 households. Leading the charge is Las Vegas, where speculation fever has turned to reneging fever. Last year in Clark County one out of every 30 homes was on the road to shutdown. "Fortunate for the buyer, unfortunate for the seller, there are a lot of really good deals out there," says Jim Brooks, a broker who specializes in high-rise condos and invests in them as well.
Those deals have metamorphosed in a way that is very Vegas. As recently as 2005, the market was so hot that people couldn't enter quickly enough. If you wanted to buy into a new development, you often needed to arrive before dawn and wait on a long line with other prospective buyers. But the hassle was worth it: units sold and prices literally went up overnight. In at least one instance, a developer raised the sale price by $20,000 every time five units were spoken for. So the 16th person in line paid $560,000 for a house that he expected to purchase for $500,000. Among greed-crazed buyers, the heavy-handed move was easy to overlook. Housing was hot, prices were soaring, and putting down 20 percent in nonrefundable earnest money virtually ensured profits.
Such was the common wisdom four years ago, on the day that the developers of a seemingly can't-miss project called Cosmopolitan, the first high-rise hotel/condo/casino that would open on the Strip, began accepting pre-construction deposit money. Jim Brooks was there at 4:30 in the morning. He had 13 deposit checks—one for himself and 12 for clients. "They sold 1,000 to 1,200 units in one day," Brooks remembers. "The reps there weren't sales agents; they were order takers. People threw checks at them. It was crazy. But you knew that if you could get earnest money down on something, you could make a profit. We won't ever see it again like that in Las Vegas." (Incidentally, Cosmpolitan was sued this June for trademark infringement by The Hearst Corp., owner of the magazine of the same name.)
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