Rebel Forces Attack MGM's CityCenter Death Star

By Matt Koppenheffer | More Articles
July 8, 2009 | Comments (2)

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I have to imagine that MGM Mirage (NYSE: MGM ) investors are hoping the Force is not with a group of CityCenter condo buyers rebelling over the state of the Las Vegas condo market.

MGM has enough on its plate as it is. It made Herculean efforts to ensure that the massive CityCenter project would be completed at all, and the company has had to work closely with banks such as Bank of America (NYSE: BAC ) and JPMorgan Chase (NYSE: JPM ) to keep its head above the swirling torrent of its debt load.

And that's not to mention the underlying tough conditions in the Las Vegas gaming market, nor stiff competition from the likes of Wynn (Nasdaq: WYNN ) and Las Vegas Sands (NYSE: LVS ) .

But this most recent fracas, which The Wall Street Journal picked up on, is really about that good old feeling of buyer's remorse, which is not surprisingly magnified by the nosedive that the Vegas real estate market has taken.

In short, folks who agreed to pay top dollar for condos in the 67-acre CityCenter project are now grousing about the fact that the properties that they're going to take possession of will be worth a whole heck of a lot less than what they paid.

Vegas residents (like myself) have seen real estate prices valleywide take a major tumble over the past few years, so it's probably not hard for them to commiserate with the CityCenter condo buyers. At the same time, it's hard to root for these high rollers, since we know that we wouldn't be hearing a peep if market prices had doubled or tripled from where they made their purchase.

Of course it's a little more complicated for MGM than just saying, "Go suck an egg" to these disgruntled buyers. Many of the contracts signed in 2006 and 2007 were "friends and family" of MGM, which includes some of the whales that throw down big bucks in the MGM casinos. Ticking off those heavy hitters isn't in MGM's best interest, long term.

Additionally, with all of the hullabaloo surrounding CityCenter, having a building full of empty condos at launch time wouldn't be ideal, either.

In the end, the issue is probably more akin to a handful of dyspeptic Ewoks than a real threat to MGM. Long term, I'm far less concerned about MGM appeasing some angry condo customers and far more concerned about seeing the company take steps to stay on target ... stay on target ...

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Fool contributor Matt Koppenheffer owns shares of Bank of America, but does not own shares of any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool. The Fool's disclosure policy wears a seat belt when traveling at "ludicrous speed."

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment icon found on every comment.

Report this Comment On July 08, 2009, at 10:27 PM, jake2006 wrote:

Not all buyers at CityCenter were “high rollers”. Some will need financing. A price adjustment to reflect the current market should not be out of the question. At the time of purchase, buyers were comfortable in the ability to secure a loan. Now, it's extremely difficult. Should the buyers be able to receive a loan at the full purchase price, the unit may appraise for far less, creating another wave of home owners who have to make the decision to either pay a mortgage more than what their unit is worth or walk away from their depostis that could potentially cause another real estate lapse in Las Vegas. A price adjustment is beneficial to buyers, MGM Mirage, and lenders. With prices that reflect the current market, buyers can secure loans, MGM can close on units to pay down debt, and lenders have buyers who can make monthly payments. It also helps to start a wave of responsible real estate transactions for the entire city. Since the Vdara is a condo/hotel, MGM will most likely have to provide lending since banks consider condo hotels commercial property and are unwilling to provide financing or turn the Vdara into a hotel and return the buyers deposits.
Report this Comment On July 09, 2009, at 10:28 AM, saradud wrote:

MGM is in big trouble the units are worth 50% less today if you can find financiing. Another property in Vegas had 1200 reservation and has only close about 300. MGM can not survive with its massive debt load. They should try to unload the City center project and take the loss. MGM is going to have a very difficult time filling those rooms. They are just going to take busines from there other properties. Also MGM is going to report earnings next month which will show that they are not making any money

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