Cosmopolitan to refund portion of condo deposits

Friday, April 9, 2010 | 2:01 a.m.

The Cosmopolitan has given new hope to real estate investors desperate to get refunds on deposits for overpriced condos on the Strip.

In the first class action lawsuit settlement of its kind on the Strip, the long-delayed 2,995-room megaresort now projected to open in December is giving major refunds to people who had signed up to buy 1,495 of its condo-hotel units. They’re getting roughly 62 percent of their deposit money back, an average of more than $120,000 for each unit after attorney fees are paid.

The settlement has drawn the attention of a swarm of condo and condo-hotel buyers as well as real estate agents, attorneys and industry experts because lawsuits against other condo developers are in the works. Investors say they were misled by zealous sales pitches during the pre-recession years of real estate euphoria in Las Vegas.

The Cosmopolitan settlements — higher than some recent offers extended to frustrated CityCenter buyers — could establish a precedent in Las Vegas, real estate experts say. Attorneys representing about 150 buyers of residential units at CityCenter say the settlements have given their clients hope that their laundry list of concerns will be addressed by the resort’s managing partner, MGM Mirage.

The settlements, the last of which were approved this week, come as MGM Mirage begins closing escrow on condos at Mandarin Oriental and Vdara. The closing process for Veer, twin condo towers at CityCenter’s core, is expected to begin next month.

In recent days, some CityCenter buyers have received letters from MGM Mirage offering to let them out of their contracts and to return 25 percent of their deposit money.

One man who signed a purchase contract for a $1 million condo-hotel unit at Vdara in 2006 told the Sun he plans to reject MGM’s offer and fight the company for the entirety of his nearly $200,000 deposit.

He alleges MGM Mirage didn’t deliver residential amenities, such as grocery stores, dry cleaners and pharmacies, within the resort complex.

“The whole idea of what I was sold has changed radically,” says Eric, who would not give his last name. “This is not a city within a city, with the normal amenities you would expect. You can’t just walk down from your unit and buy a bag of groceries.”

He said he would probably accept a deal similar to what Cosmopolitan buyers received, however.

“Given the economy and the way things have gone for (MGM Mirage) and us, that seems a fair alternative, from my perspective.”

Many purchase contracts for high-rise projects across Las Vegas note that developers aren’t liable for representations made by salespeople and that details of the developments are subject to change. Some of them, including those at CityCenter, also limit the scope of their influence to the condo units up for sale.

“Buyers signed a very detailed contract spelling out the obligation of both parties,” MGM Mirage spokesman Alan Feldman says. “We are fully in compliance with each and every term of those contracts.”

But these contracts don’t absolve developers of all liability, attorney Mark Connot contends.

“When you make numerous representations that you don’t hold to, there are going to be problems,” he says.

Connot and another lawyer, Cami Perkins, are representing the buyers of Mandarin, Vdara and Veer units at CityCenter.

Although those CityCenter condo buyers’ motives may be similar to those of their Cosmopolitan peers, their grievances are different. The Cosmopolitan buyers’ main complaint was the length of time needed to finish the project, according to the lawsuit they filed last year.

Connot says many of his clients are citing concerns about construction defects uncovered at the Harmon and Veer towers. The company has rebuffed buyers’ requests for a document testifying to the safety of CityCenter buildings, Connot says.

Their concerns have been magnified by last month’s lawsuit filed by CityCenter’s general contractor, Perini Building Co., against CityCenter for money the contractor says is owed in the wake of a multitude of design changes that caused the resort to go billions over budget. MGM Mirage is expected to countersue over construction problems at CityCenter’s Harmon, a hotel tower that was shortened by half and that remains unfinished after inspectors found that the upper floors were structurally flawed.

Feldman says construction problems at Veer have been resolved, and flaws at the Harmon, which remains unoccupied, are being addressed. He dismissed the other criticisms of CityCenter as disingenuous claims fueled by “law firms trolling for business.”

“CityCenter is an extraordinary development. We believe the value is exceptional,” he says. “We’re in regular touch with our buyers and are providing options so they can close.”

Closing of the purchases at Mandarin began in January, and the closing process at Vdara began less than a month ago.

As of Thursday afternoon, 31 of Vdara’s 1,495 units had closed escrow at prices ranging from $370,000 to $871,000, according to Clark County recorder records. At Mandarin, 24 of 225 units have sold at prices ranging from $1.05 million to $7 million.

People who put down deposits but have not closed at CityCenter have various demands that will only be cured by money, their attorneys say. Several clients are willing to close on their units but at deeper discounts than the 30 percent price cut offered in the fall, Connot says. Others want out of their contracts and want their deposits back.

The Cosmopolitan settlement is not the only reason CityCenter is finding it difficult to get many takers for its 30 percent discount, however. Condo prices continue to drop.

An investor report by Union Gaming Group in January stated that the average square-foot price of recently built condo units in high-rise and mid-rise towers in Las Vegas is down 58 percent from the market peak and down 45 percent from when the units first began to close. Square-foot prices at condo-hotel towers, a product of the real estate bubble, are down 71 percent from the market peak and down 56 percent from when closings first began, the report says.

So even with a 30 percent discount, CityCenter condo buyers would still be paying 172 percent to 344 percent of average market prices in Las Vegas, according to the report.

MGM Mirage executives counter that CityCenter — a unique development with a high-end collection of hotel and retail brands — commands a premium price.

And so the fight continues.

Perkins says her firm, Hutchison & Steffen, first contacted MGM Mirage’s attorneys in January when Mandarin buyers received letters notifying them of closing dates for their units. The law firm, Perkins says, told the company that buyers were not obligated to close their units because MGM Mirage did not deliver them as promised.

More than two months later, MGM Mirage has sent default letters to some Mandarin condo purchasers. Some of the buyers, Connot says, are people who refuse to close on their units in the hope of getting either their deposits back or a price discount closer to 50 percent.