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!

MGM City Center Expected to Reduce Prices

MGM CityCenter, MGM Mirage’s 8.5 billion dollar showcase property in the heart of the Las Vegas Strip, announced earlier this month that it was likely they would be adjusting the prices downward on the three residential developments in the mixed use project: Veer, Vdara and The Mandarin Oriental. Reductions are being considered in the wake of the world’s economic recession and the local Las Vegas real estate market depreciation of up to 50% on residential properties.

MGM opened sales at the CityCenter in January 2007, when the Las Vegas real estate market was red hot. Original purchasers have been seeking price reductions on the condominiums and condo hotel units they purchased two years ago, during the height of the Las Vegas boom. According to Bob Hamrick, CityCenter’s Sales Manager, “CityCenter remains a unique product that can’t be touched by anything else in Las Vegas. But there are some realities we recognize, and we have to respond.” Any announced price reductions would be offered to original contract holders and to buyers purchasing between now and when the official price reductions are announced in early September of 2009. Rumors are flying that reductions could be anywhere between 20% and 40%.

MGM is also trying to find sources of private financing to help buyers close on their condos. With tighter federal guidelines and banks struggling under a glut of foreclosures, high rise and condo hotel loan programs from Las Vegas mortgage lenders have all but vanished, The few that remain are requiring 50% to 60% down payments and higher interest rates. The Mandarin Hotel is expected to start closing on luxury residential units in December of 2009. Units at Veer, the twin residential towers fronting the CityCenter complex, are expected to begin closing in January of 2010, and condo hotel units at Vdara are expected begin closing if February of 2009.

The next big question is not only how much of a reduction will be offered to MGM CityCenter buyers, but also how the reductions will affect the future of the Cosmopolitan Hotel and Casino next door. The Cosmopolitan, a condo hotel and hotel casino project, was taken over through foreclosure by Deutsche Bank last year, and sales were suspended. There are almost 2,000 current contract holders in the Cosmopolitan that are waiting to hear if the project will move forward with the proposed condo hotel program, or if the contracts will be voided and the units absorbed into the hotel room inventory. Sales in the Cosmopolitan commenced on February 14th in 2005, with over 900 units being reserved the first day in a record breaking frenzy.

Elsewhere on the Las Vegas Strip, real estate investors are snapping up units at fire sale prices in the beleaguered MGM Signature project. Owners of condo hotel units that originally sold from $400k to over $1M have become part of the Las Vegas foreclosures statistics due to high mortgage payments, declining values, and rental incomes below expectations. Current purchasers are taking advantage of prices starting in the mid $100s, or 33 cents on the dollar. Trump Tower is experiencing the same hardship, and there are some real bargains to be had on resale units. The Palms Place luxury condo hotel units, on the other hand, have fared much better due to high occupancy rates in the popular boutique venue. And in general, Las Vegas homes for sale inventories are way down from the same time last year as first time buyers and investors are drawn back into the market by affordable pricing.