Lawsuit filed against CityCenter over Vdara condo-hotel units

By Liz Benston

Published Friday, April 16, 2010 | 6:11 p.m.

Updated Friday, April 16, 2010 | 9:02 p.m.

A California man who put down a deposit to buy a condo-hotel unit at Vdara filed a class-action lawsuit Friday against MGM Mirage's CityCenter, alleging developers unlawfully sold the units as securities without providing investors details on what they were buying.

The lawsuit, which was expected and is similar to one filed a few years ago against MGM Mirage's Signature development, comes a month after CityCenter began the process of closing escrow with Vdara buyers. It’s been a slow process, as about 30 Vdara’s 1,495 units had closed escrow as of last week.

Buyer Henry Shahmoradian alleges that CityCenter representatives breached their agreement with buyers by failing to specify in the contract when the project would close in spite of telling buyers that the building would close by the end of 2009.

The building “could not possibly close by the end of 2009 due to delays in construction (and the) undercapitalization of the project,” according to the lawsuit.

The suit highlights a growing stalemate between some Vdara buyers and MGM Mirage, CityCenter’s managing partner, and underscores a primary complaint among investors of condo-hotels, furnished residential units that owners can put in a hotel management pool to rent nightly to visitors.

Disgruntled buyers say they were solicited to buy the units as money-making investments when real estate was hot in Las Vegas and are now facing investments that are more costly than they are worth. Sales reps made pitches that included expected rental income from the units, they say.

Developers like MGM Mirage contend that their companies never made such explicit promises, only that they offered rental programs that would be discussed once buyers took ownership of the units.

“We never told them with the rental program that they would make money. The intent is to put together a rental program that can offset the cost of ownership,” MGM Mirage spokesman Alan Feldman said.

Feldman declined to comment on the specifics of the suit but said the company is “prepared to defend against it aggressively.”

The company has followed all of the terms and conditions in the Vdara contract, which was lengthy and explicit, he said.

The contract does not spell out whether prospective buyers are entitled to receive details of the rental program, only that one exists.

Still, some Vdara buyers are refusing to close escrow because they have not yet received details of the rental program that they say was promised them when they put down 20 percent deposits a few years ago. These buyers, who have sought the advice of attorneys, say they won’t close escrow until they receive a copy of the rental agreement, which is a document that spells out management fees charged for the cost of marketing, renting and maintaining the rooms. Like Shahmoradian, they are seeking as much of their deposit money back as possible.

CityCenter’s scripted sales pitch for Vdara “contained untrue representations of material facts, omitted other facts necessary to make the statements and failed to disclose material facts,” Shahmoradian’s suit contends.

His attorney, Sigal Chattah, is also representing buyers who have sued the Platinum and Cosmopolitan condo-hotel resorts in Las Vegas. Chattah’s Cosmopolitan clients include several Las Vegas VIPs who refused recent settlement offers from the Cosmopolitan that were accepted by 82 percent of eligible buyers. These notable clients, who are pressing for a full refund of their deposit money plus interest, include poker pro Daniel Negreanu and columnist Robin Leach.

Chattah, who has about 40 condo-hotel buyers as clients, also is representing a group of buyers at Platinum who leveled similar allegations against the project’s developer and hotel management company.

Some real estate experts say such lawsuits won’t get very far because the residential purchase contracts at CityCenter and other high-rises in Las Vegas require buyers to waive their right to sue and to arbitrate disputes with a mediator. Such settlements are confidential.

Condo-hotel developers generally have not registered their projects with the Securities and Exchange Commission as investments because it's a laborious process that involves careful disclosures spelled out by law. Instead, developers and brokers say they are careful not to talk up rental programs or investment prospects. Many buyers of high-rise residential units in Las Vegas have disputed this assertion.

Similar lawsuits filed against other condo-hotel projects in Las Vegas and around the country have resulted in confidential settlements, with buyers receiving some undisclosed compensation. The recent Cosmopolitan settlements were unusual in that they were public and required the approval of a judge.

Another group of CityCenter buyers is represented by Hutchison & Steffen, which is holding back on filing a lawsuit in the hope that the firm's clients can receive a healthy settlement in arbitration, attorneys there say.