CityCenter condos may outperform market

February 05, 2010 - CityCenter is starting to finalize sales of condominiums, which coincides with already difficult conditions in the Las Vegas high-rise condo market, analysts said.

Although many expect CityCenter to do much better than the high-rise market as a whole, the condominium market remains in tough shape.

The inclusion of CityCenter brings the number of high-rise units in Las Vegas to more than 11,000 and prices will probably slide more because the bottom may not have been reached, said Grant Govertsen, an analyst for Union Gaming Group, a firm that analyzes the gaming industry.

By its calculations, of the 8,700 high-rise units, excluding CityCenter, 36 percent have not been sold, 10 percent are in default and 1 percent are owned by banks, it said.

The projects that opened last are struggling the most, Union Gaming reported. Only 12 projects have sold 90 percent or more of their inventory.

SalesTraq, a housing research firm, reports 46 percent of high-rise units have been sales finalized. By its count, 4,926 units have sales finalized since 2005, including only 215 in 2009.

At that rate, it could take five to 10 years to absorb that inventory, SalesTraq President Larry Murphy said.

Union Gaming said more than 100 units closed in 2009’s fourth quarter compared with 33 in the first quarter. It will take five years to sell all inventory, including CityCenter, at that rate, it said.

“At the current inventory (excluding CityCenter), the number of available units that need to clear the market is alarming,” Govertsen said. “This does not include currently owned units that are actively listed or what we believe could be a large number of owners who would prefer to sell, but simply won’t given current market conditions.”

CityCenter will get its initial surge in sales, but Murphy said that won’t affect the market because nothing else is selling anyway. He cited One Queensridge Place, where he lives, which hasn’t had a sale in a year and others that had just two or three sales in the past year.

“It means a longer absorption period, but the market is in the toilet anyway, so it (CityCenter) is not a bone-crushing blow,” Murphy said. “There is a big supply and right now the demand is very low.”

Brian Gordon, a principal at research firm Applied Analysis, said the boom in the condo market was driven by excess consumption and an expectation that prices would continue to appreciate. Clearly, that hasn’t happened because of the recession and prices have declined as fewer people want those units, he said.

High-rise condos depreciated at the fastest rate of all housing in 2009 at 44 percent; the average price for residential real estate fell 23 percent, according to SalesTraq.

Union Gaming reported the average price per square foot for condos is $252, down 58 percent from the peak for each project. The average price per square foot of $309 for condo hotels is down 71 percent from the peak of each project.

CityCenter is in a better position than other projects because of its distinctiveness and because the owner — a joint venture of MGM Mirage and Dubai World — is offering financing to buyers after dropping prices by 30 percent last fall because of the market conditions, analysts said. But Murphy said CityCenter closings won’t come easy.

“The proof will be in the pudding,” Murphy said. “CityCenter was making the claim at one point that it was 50 percent sold out. I doubt that will be true when it comes to closings. If it has 25 percent sold, I think that would be fairly normal and healthy.”

Gordon said CityCenter has some challenges in this environment, and the price reduction has a lot of buyers intrigued.

“But today is a different world, and we will have to see how those sales play out over the next several months,” Gordon said. “It depends on the national economy and people’s willingness to invest in second, third and fourth homes.”

Tony Dennis, MGM Mirage executive vice president of residential sales, said a handful of units have closed at Mandarin Oriental — where 205 of the 227 condos have been sold since the sales started in January.

Closings at Veer Towers and Vdara aren’t expected to begin until mid-March, slightly behind the schedule announced last year, Dennis said. At Veer, 480 of the 670 units have been sold and 698 of 1,543 units at Vdara have been sold, he said.

It’s taking time to ramp up closings because CityCenter co-owners didn’t launch a new program to provide financing to buyers until December. So far, 500 buyers have submitted applications for financing and they take about two months to process, Dennis said.