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Best of Liz Benston

Gaming Guru

Liz Benston

The Harmon isn't Strip's only troubled condo

12 January 2009

LAS VEGAS, Nevada -- The discovery of structural problems at CityCenter's The Harmon, which led developers last week to scale down the hotel and scrap plans for about 200 condominium units, might be viewed as an unfortunate incident that turned into a lucky break for partner MGM Mirage.

Luxury, high-rise condominiums, much like super-sized megaresort complexes such as CityCenter, were an outgrowth of the credit boom. Easy access to loans enabled developers to build to new heights across Las Vegas and allowed condo purchasers to finance their units.

When credit dried up, so did prospects for thousands of condo apartments across town, leaving some smaller projects abandoned or delayed in the hope that banks will loosen up some cash.

Excluding The Harmon, the Strip boasts about 1,300 residential condominium units that are built or under way. Of those, about 900 are under construction in three buildings: CityCenter's Residences at Mandarin Oriental and Veer Towers, two buildings that lean into each other and front CityCenter. Another 3,000 or so residential condominium units are close to, but not on, Las Vegas Boulevard, in buildings such Allure, Panorama, Turnberry Place and Turnberry Towers.

These are intended as full- or part-time residences. Then there are the condo-hotel units — hotel rooms that a management company rents to visitors, splitting the proceeds with owners. These are primarily investors who spend little time in their units and hope to offset their expenses with rent.

They were hot during the real estate boom but have flopped in this economy, with banks reluctant to lend to speculators.

About 8,400 condo-hotel units are built or under construction on and near the Strip. More than half have opened.

All told, those figures are lower than numbers in official and semi-official reports suggesting that Las Vegas would be flooded with more than 10,000 condo units over the next few years. In fact, some of these reports have included speculative, remote or low-rise buildings that aren't in the same competitive category, much less neighborhood, as Strip high-rises.

Many real estate agents in Las Vegas believe that such overblown numbers have hurt demand by giving the impression there is a glut of high-rise condos when in fact there are relatively few for a city the size of Las Vegas and with its appeal as a tourist destination.

Under-construction condos have become a tough sell. And many analysts expect a hiatus on condo construction for several years, until banks free up cash.

"With the aging of the boomer population, there's going to be growing demand for attached housing like condos and town homes," said John Restrepo, a local economic and real estate consultant. "But that doesn't necessarily mean there will be huge demand for million-dollar-plus condos."

Demand for luxury condos will return, though on a smaller scale, Restrepo predicts. The go-go days of the early millennium, with condo signs seemingly cropping up on every corner, are likely gone for a very long time, if not forever.

"So much of the real estate market was driven by easy credit and I don't think we're going to see that for a long time," he said.

With casino companies curtailing development, the need for condo-hotels — which presented a method of financing multibillion-dollar resorts, through purchase contracts on units — has also abated.

High-rise condos, which are second homes for many people, are the ultimate discretionary purchase, like $400 bottles of vodka and $200 show tickets. What this ultimately means for the Las Vegas business model, which is based on discretionary income, is unknown.

But it's likely that MGM Mirage, which can now focus on selling the handful of remaining condos at Mandarin Oriental and the more than 200 units left for sale at Veer, can now breathe easier.