Friday, Nov. 13, 2009 | 3 a.m.
The 30 percent drop in condo prices at CityCenter is going to cost Realtors in commissions.
Bob Hamrick, CityCenter’s broker, met with about 70 preferred agents (those who have had a sale) Nov. 6 at the development to inform them about the new commission strategy and give them a tour.
Hamrick previously had told In Business Las Vegas that commission cuts were on the table.
When CityCenter cut its prices by a half-billion dollars to help buyers close on the condos, Hamrick says it was only natural that commissions be cut as well.
Over the past two years, CityCenter had paid Realtors unheard of advances on their 3 percent commissions when they made a sale. That was 100 percent for Vdara, the condo hotel, and 75 percent each for Veer Towers, Mandarin Oriental and the Harmon, whose condo component was eventually canceled.
Agents were paid out of a pool of the 20 percent deposit buyers paid for their units, Hamrick says. None of the agents had to give back commissions, but they made out well because the money they received after the price cuts are equivalent to a 5 percent overpayment, he says.
At the same time, CityCenter has given agents incentive to keep selling by offering these preferred agents 4 percent commissions instead of 3 percent on future sales, Hamrick says. That goes until March, he says.
Hamrick says the agents have been understanding about the cuts because of the financial hit that MGM Mirage and Dubai World have taken by reducing prices.
Hamrick called it untraditional to give commissions in advance, but says it was the correct strategy when implemented in 2007. A lot of developers were going out of business and deposits had to be refunded to buyers, Hamrick says. Realtors were reluctant to push condos because of the environment.
CityCenter has paid $11 million in commission so far, and Realtors can earn another $12 million on the units left, Hamrick says.
High-rise Realtor Bruce Hiatt says he has mixed feelings about the cuts. He says some agents are upset because they were counting on the extra money and don’t like the rules changing midstream.
Hiatt says it will be fair if there is not a big gap between what Realtors were already paid and what they will make with the new prices.
Agents made commissions on sales that won’t close with the cancellation of the condo portion of the Harmon, Hiatt says.
“They have been pretty fair to the Realtor community when you consider all that has happened,” Hiatt says.
So far, 95 percent of the 227 units at Mandarin Oriental have been sold. Two-thirds of the 670 units at Veer have been sold and just under 50 percent of the 1,543 units at Vdara have been sold, Hamrick says.
Closings tentatively start Jan. 1 at Mandarin Oriental, Feb. 1 at Veer and March 1 at Vdara.
The drop in prices has attracted more buyers and prompted some already buying units to buy another one or to increase the size of the one they already bought, Hamrick says.
Despite the price drop, an attorney representing some prospective buyers says the cuts don’t “reflect market realities,” and they are unwilling to accept that offer and want even more cuts. He also says CityCenter is requiring buyers to give up legal rights despite the construction problems that plagued the project.
“Given the realities of the market, and issues with this project specifically,” MGM’s offer to reduce prices by 30 percent is woefully inadequate,” says Mark Cannot, an attorney with Hutchison & Steffen. “MGM has recently taken a write-down of well over 30 percent of the value of its interest in CityCenter, yet has only offered a 30 percent reductions to purchasers of condos in CityCenter.”
CityCenter officials say there is nothing like the project in Las Vegas and that distinction puts it in a different category when it comes to value even though some local condo prices have fallen by larger amounts.
Land acquisitions of home lots by builders, developers and investment groups are picking up.
Developer SunCal Cos. has purchased the lots owned by Kimball Hill Homes as part of its liquidation. SunCal acquired 639 finished lots and 433 partially finished lots in 11 communities in Las Vegas and Henderson.
The total value of the transaction was $20.07 million, says Michael Stuart, senior vice president of the land division of Colliers International. It was a cash deal financed through D.E. Shaw Group, he says.
Kimball Hill Homes filed for Chapter 11 bankruptcy protection in 2008.
Tivoli Village work resumes
Tivoli Village at Queensridge reports that its construction has resumed and is preparing to open in late 2010 in time for the holidays. Tivoli Village slowed construction to a crawl in December 2008 in response to concerns from prospective tenants about the economy. It had been working three shifts at the time.
The project was slated to open this fall, but restaurants and other retailers agreed that it was best to wait until the economy improves, says Patrick Done, executive vice president of Tivoli Village.
The plan for this phase had called for 200,000 square feet of office and 500,000 square feet of retail space, but that has been cut to a combined 370,000 square feet, 140,000 for office and 230,000 for retail, restaurants and entertainment, Done says.
Tivoli Village is being developed through a partnership with IDB Development Corp., Israel’s largest diversified business group, and Great Wash Park LLC. It is self-financed, which means it doesn’t have to rely on lenders, Done says.
The decision to proceed was an easy one because the west side of the valley is underserved from a retail standpoint, Done says.
Although retail sales have been down, Done says that will change and should pick up by the time the project opens.
“We think it is great timing,” Done says. “We know there is not a great deal of retail development moving forward in our market or any market. We view it as the stars being aligned from a market perspective and our ability to get it done.”
Done says he realizes that in 2010 his project may be the most significant development under construction in Las Vegas and may be one of the last major projects until 2012 because the difficulty developers have in obtaining capital because of the oversaturated market.
“We have to see some job growth before we see other development, and it is going to take a couple of years for that to happen,” Done says.
The slowdown in commercial real estate will pave the way for the next round of projects because land has become more affordable, he says.
In other news
• Marnell Properties, a commercial real estate development and management company, reports ground has been broken on the Marnell Air Cargo Center, a 200,928-square-foot airfreight logistics center at McCarran International Airport’s new Terminal 3. The $29 million project on 19 acres will house the freight and mail-sorting operations of FedEx, Southwest Airlines, Worldwide Flight Services, Allegiant Air, UPS and others. The project, which is financed through Mutual of Omaha Bank, is expected to be completed in the fourth quarter of 2010. R&O Construction is the general contractor. Marnell Architecture is the executive architect.
• NAIOP, the Commercial Real Estate Development Association of Southern Nevada, has announced its board members for 2010-11. Current members Sallie Doebler of United Construction, Suzette LaGrange of Colliers International, Chris Larsen of Dekker / Perich / Sabatini, Ralph Murphy of Circle M Development and John Restrepo of Restrepo Consulting were elected to two-year terms. Patty Nooney of CB Richard Ellis was elected for the first time.
Brian Wargo covers real estate and law for In Business Las Vegas and its sister publication, the Las Vegas Sun. He can be reached at 259-4011 or at [email protected].