Sunday, October 25, 2009

Cosmopolitan Class Action Heats Up in Las Vegas

The Cosmopolitan Resort Hotel and Casino first opened its Las Vegas condo sales on February 14th, 2009 and over 900 condo hotel units were reserved the very first day, making it Las Vegas' hottest selling property in history. Ultimately over 1800 units were placed under contract before the original developer, Bruce Eichner, was forced to relinquish control to the current owner, Deutsche Bank. Deutsche Bank continued construction, but placed further sales on hold pending management decisions on how to continue with the project.

Originally the development was slated for completion in late 2007 or early 2008, but delays in construction and developer financing had put it way behind. When Deutsche Bank assumed control they also decided to do some interior remodeling on the units, putting the project even further behind schedule. Currently the anticipated completion date is set for mid to late 2010.

But in the meantime with the fall of the global real estate market and the Las Vegas real estate market in particular, condo hotel financing dried up, leaving hundreds of Cosmopolitan contract owners in a panic about the value of their units and how they were going to finance their purchases at closing. Next door the MGM City Center announced in late September 2009 that they were reducing prices 30% across the board to more accurately reflect today's values, and they extended that reduction to existing contract holders.

It is unknown at this time whether Deutsche Bank will open the project as a condo hotel as originally planned, or if they will convert all or part of the condo hotel towers into regular hotel suites. Several class action suits have been filed on behalf of Cosmopolitan contract owners hit hard by the financial crisis trying to recover all or part of their deposits prior to completion. On October 21st Marquis & Aurbach got a preliminary settlement approved subject to final approval by the court sometime in December. As I understand this settlement agreement, contract holders would receive back 74.4% of their total deposits less approximately 13.5% for attorney's fees and costs. That is the equivalent of about 61%, which would be returned to contract owners in late December of 2009. Please refer to the actual settlement documents for exact details and consult with a personal attorney for a precise interpretation. Marquis & Aurbach can be contacted directly at: (702) 382-0711.

A second group is pursuing a separate class action suit to recover a greater share of the deposits held by Deutsche Bank. This group, including Robin Leach, is being represented by Girardi/Keese who can be contacted at: (213) 977-0211.

As a contract holder myself, my own personal guess is that Deutsche Bank intends to turn the west tower units into hotel suites, but may keep the east tower as a condo hotel. Contract holders in the east tower were NOT included in the settlement agreement negotiated with Marquis & Aurbach. If I am correct in my guess, Deutsche Bank is now mitigating the amounts they might be forced to return by $25.6% if the west tower is not completed as a condo hotel building, a hefty chunk of change. Again, this is only speculation on my part based on the actions of the parties involved. I do NOT have any inside knowledge, and these speculations should not be relied upon to determine a personal course of action. Please consult an attorney to discuss your own options if you are a current Cosmopolitan purchaser. But it will be interesting to see what lies in the future and if my predictions are in any way accurate.

I am also predicting that local residential real estate may have hit rock bottom. Currently there is only a three month supply of Las Vegas homes for sale on the market and sales volume is up. Two weeks ago I had to place offers on 14 different homes to get an offer accepted for my own son. Almost all the properties were Las Vegas foreclosures and all had multiple offers on them!