Strip’s vaunted condo-hotels losing their luster

By Liz Benston

Tuesday, May 20, 2008 | 2 a.m.

Like some Vegas act that landed with big expectations but is struggling to gain traction, condo-hotels are having a tough time on the Strip.

When they made their appearance here, these hotel-affiliated condominiums that can be rented by their owners as hotel rooms were pitched as a way for mom and pop investors to own a piece of the Strip and for developers to use those purchases to help finance their high-rises.

Everyone was going to be a winner as the value of Strip real estate soared.

But the bloom is off. The market has chilled, buyers are largely evaporating, banks are reluctant to finance the purchases or lend money for new projects because of slackening demand, and developers are questioning the wisdom of the condo hotel concept.

They remain attractive today mostly to a small segment of the real estate market — wealthy vacationers who want a more upscale version of a time share and long-term equity. Why stay at a noisy, congested hotel if you can live in a quiet, fully equipped Strip-front condo — and rent it out when you’re not in town?

But many condo-hotel investors have packed up and gone home, leaving behind deposits or foreclosed units, dissatisfied that they’re not making more money by renting the units and frustrated by the cost of maintaining them.

That disillusionment, coupled with the real estate bust, has killed plans for tens of thousands of condo-hotel units across town, including ones proposed by speculative developers who jumped on the condo boom. Less than 8,000 units have been built or are under construction, concentrated around the Strip, including Platinum, Palms Place, Signature at MGM Grand, Vdara at CityCenter, Cosmopolitan and Fontainebleau Las Vegas.

The condo-hotel trend sprang from markets such as South Florida and found a home here because of Las Vegas’ status as a vacation destination. Developers knew all about them and just had to sell buyers on the idea.

The idea of owning a condo and making money renting it out much of the year sounded good to buyers who had not taken into account hefty fees for management, marketing and upkeep — costs that developers don’t need to disclose.

To avoid sharing big commissions with the developer’s rental office, some owners have created their own rental Web sites and toll-free numbers, or are placing advertisements on condo booking sites and Craigslist.

After trying to maintain his own Internet booking site, which he said turned into a full-time job, Las Vegas businessman Michael Wilson enlisted a local brokerage to manage rentals of his 30th-floor studio at Signature.

The broker took a smaller commission, and charged less than MGM Mirage to clean the place by using an outside crew that had to be approved by the hotel giant.

And it beat keeping a vacuum in the guest closet and personally cleaning up after guests, Wilson said.

MGM Mirage recently started referring condo owners to a company that will both rent the units and clean up after renters, for less than what the hotel charges.

(At the new Trump International Hotel & Tower, a third-party management company, in the settlement of a lawsuit, has won the right to rent units on behalf of condo owners.)

Signature condo owner Michael Linares said he would have been glad to pay for just MGM Mirage’s housekeeping services — but was told he couldn’t after he decided to rent his unit on his own instead of through the hotel’s rental office.

“Management is making life difficult for owners who aren’t giving them a piece of the pie,” Linares said.

And then there’s the question that every condo-hotel unit owner would ask: Was he getting all that he could for the place when renting it to strangers?

Rental income, inevitably, is a moving target.

“There are programs that are supposed to (book rooms) with no favoritism, but in practice you’re going to have discrepancies and people are going to be upset,” said Scott Butera, president of Tropicana Entertainment and former chief operating officer of the under-construction Cosmopolitan Resort and Casino.

“If someone books my unit, especially if it’s a group, they might have received a discount. So one night I might be chatting over a drink with my neighbor and find out that someone is making $100 on their room and someone else is making a lot more.”

Among the disgruntled is Los Angeles contractor Alex Mandoyan, already upset about paying more than $1,000 a month to own his unit at Signature.

Some owners might receive $700 in rental income for a month — while similar units fetch $1,200, Mandoyan said.

Welcome to the world of hotels, says MGM Mirage spokesman Alan Feldman.

Discrepancies in price are “very much part of running a hotel,” Feldman said. “Some owners made some fairly wild assumptions about how this was going to work.”

Some developers have decided they don’t want to get tangled up in the condo-hotel business. Executives at Las Vegas Sands have told investors they were attaching condominiums rather than condo-hotel units at their new Palazzo resort on the Strip. The reason: They didn’t want to be saddled with the fiduciary responsibility of helping condo owners maximize rental profit when they were busy trying to fill their Palazzo and Venetian hotels.

Still, condo-hotels have their fans, including Portland attorney Rich Gatti, who enjoys showing off his view of the Strip while entertaining friends at his one-bedroom unit at Trump Tower.

The unit is already worth less than what he paid for it, he says. And that’s OK.

“I bought a condo with a Times Square view in the heart of what’s probably the biggest tourist attraction in this country and at a price per square foot that’s not that bad,” said Gatti, who travels to Las Vegas several times a year. “This is not the best investment,” he said. “It’s more of a lifestyle.”