The last time I reported on the MGM Signature Towers was in late April when new low comps were established for both Studio and 1 Bedroom units at the close of the MGM auction. I wanted to take a moment to update my readers as prices continue to drop on these properties here in Las Vegas.
I have been following the MGM Signature Towers project since its inception in 2003 and 2004 and have stayed as far away as possible until recently as purchasing made no sense from a cash flow perspective. But as you know, things change quickly in Las Vegas and this investment is beginning to look a lot more lucrative. I will explain.
If you are unfamiliar with the hotel condo concept, it is quite simply explained as follows: You the investor buy and own the actual condo with all of its luxury furnishings, and the condo is put into a rental program and managed by a
management company (in this case as part of the MGM Hotel and Casino). There are a lot of calculations that lead to how much revenue owners will make (or not make) from their condo hotel but a reasonably accurate estimate in the case of the Signature Towers would call for the owner to end up with about 40% of the gross revenues from the rental of the room. In simple math, if a condo hotel room is rented for $100 per night, the owner will net about $40. Of course there are some perks to ownership of the unit as the owner can use it themselves (with a reservation) or the room does not have to be in the rental program at all. If someone wished to live in their luxury condo unit they could choose to do so. The home owner’s association fees are quite high, at near $400 for the studio unit and $900 for the one bedroom unit. These fees pay for the luxury resort amenities which are separate from, yet still attached to, the MGM Hotel. The Signature Towers resort features two exercise rooms, valet parking, guest services, coffee shop, lounge, deli, several pools, high speed internet service throughout and a gift shop.
The hotel condo project was sold in three stages with tower 1 (145 East Harmon) completed in 2005. This building is closest to the MGM hotel and was the first building of the three to be finished. Units in this building sold for between
$300,000-$600,000 for the smaller studio units (520 square feet) and $500,000 - $1,000,000 for the 1 bedroom units. The second tower was the 135 East Harmon tower which was completed in 2006. Studio units sold for a little higher, in the
$400,000 to $700,000 range, and 1 bedroom units remained the same at $500,000 to $1,000,000. The last tower to be built, 125 East Harmon, sold for even higher prices. It was completed in 2006 with studio units selling for $500,000 to
$800,000 and 1 bedroom units fetching prices from $700,000 to over $1 million.
Note that because tower one was sold at lower prices there have been less foreclosures coming on the market from this tower (145). As investors grossly overpaid for units in all buildings, but especially buildings two and three, we are
now seeing a high rate of foreclosures begin to hit the market. I believe that as early investors begin to see how far upside down they are we may see even more people letting their units go as their equity or perceived equity is non-existent.
Over the last year there have been 92 re-sales as a combined total from all three buildings. As of April 2009 the lowest priced 1 bedroom unit had sold for $274,000 and the lowest priced studio unit had sold for $174,000. This was, of course, well below the original sales prices of just a few years earlier. Then in late April of this year, an auction took place at the MGM and 20 units were sold off in about 2 hours time. I reported on this auction in my blog as a new low of $202,000 for one bedrooms and $160,000 for studios were established.
It was about this time that I stepped in and began to educate my database of investors about these units as I could see that the prices were beginning to move closer to the point where they could hit bottom and actually begin to make
sense as an investment for those looking to keep them in the rental program.
When looking at units from these high rise towers, each investor will want to be concerned with the price of the unit, its “rentability” potential, the profitability of the investment, and the future appreciation potential of the property.
I have identified 7 items that have a direct effect on these factors. These 7 items include the following:
1. Odd/Even address numbers: Odd = strip side views and Even = mountain views.
2. One bedroom unit (874 or 847 sq. ft) or studio unit (520 square feet)?
3. Handicapped unit or regular unit?
4. Does the unit have a balcony or not?
5. Is the unit located on a high floor or a low floor?
6. How is the View (strip/mountain/airport/pool)?
7. Is it a penthouse floor (29 to 33)? (Comes with a higher ceiling.)
Since April I have been working with several investors and fighting to get the lowest price possible for them on the units they are looking to take down. All this hard work paid o this past Friday the 17th as one of my investors closed on a lower oor studio unit at only $99,000. This new low blew away the previous low comp of $140,000 for a studio from only a couple of months back.
The very next day, Saturday July 18th, I attended the second auction for the MGM Signature Towers with cashiers check in hand ready to pounce on a 1 bedroom unit for another client. And as I predicted, a new low was achieved when the 1 bedroom sold at auction for $180,000 ($22,000 less than the previous low). The unit was in tower 1 ( first building), 7th floor, with a balcony and a nice pool view on the mountain side (even number). The unit sold originally for $540,000 and made for a nice deal at 33 cents on the dollar from the original high. This lower comp should help motivate the banks to continue pushing prices down into a range that will produce more investors traffic as people look to scarf up these luxurious condo hotels.
As of this writing, there are 155 units listed for sale in the entire MGM Signature Towers project. There are only 22 that are REO/bank owned foreclosures and 68 short sales. The remaining 65 units listed for sale are upside down owners who will not be able to resell their units at their asking prices for many, many years.
Anyone seriously interested in taking down a unit at today’s new lower prices should contact me as soon as possible as inventory is very light at this time. I am not sure how low the prices will go but I truly believe a studio at $100k and a one bedroom unit at $150k are very good deals.
This Friday the 24th of July there will be a third (silent) auction that will be taking place on 10 units at the MGM Signature Towers. You must be registered in advance in order to bid online. The highest bidder’s o er will be presented to the bank. If the bank accepts the bid, you will get the condo at your winning bid price. If the minimum (unpublished reserve bid) is not met, the deal will be renegotiated or you can walk away. There is no earnest money required for the silent auction. Call or email me for details to register.
Tuesday, July 21, 2009
Friday, July 10, 2009
False Bottoms - Or When the Tail Wags the Dog
For the last 18 months real estate investors, market analysts and other experts have speculated as to when the long awaited bottom for the beleaguered real estate market would finally arrive. Rather than offering guesses as to how long the down market would last, I have tried to focus on identifying the signs of a bottom approaching, so that myself and my investors would be able to identify this buying opportunity as it arrived.
If you have followed my articles and blog posts, you have noted that I consistently advocate using a three step process to identify the coming of the real estate market “bottom” and the possible beginnings of a recovery. This process involves analyzing three sets of variables: First, the standing inventory of homes for sale; second, the volume of existing home sales; and third, the median home price for a particular area. A few weeks ago, I confidently announced the arrival of the real estate market “bottom” in my local area: Las Vegas. I cited as evidence for this claim data from each of the three areas listed above.
First, the inventory of available single family homes in Las Vegas has decreased rapidly in the last few months after remaining relatively stable at around 22,000 homes through much of 2008. This inventory is now at a level of just under 12,000 homes. Inventory is nearly ½ of its 2008 levels. Homes under $200,000 have less than 4 months standing inventory. Homes under $100,000 have less than 3 months inventory. A normal healthy inventory is considered a 6 month supply of homes. This decrease in standing inventory was our first indicator that the Las Vegas real estate market was bottoming.
Second, the volume of existing home sales has exploded in Las Vegas in the last few months. In fact, sales of residential homes reached record highs in June. According to data published by the Greater Las Vegas Association of Realtors, sales of single-family homes and condos rose 87 percent in June from a year ago…to a total of 4,702 sales. This total breaks the previous record high set in June of 2004, during the peak of the housing bubble.
Finally, we must also consider median home prices, which after falling for over a year and a half in the Las Vegas valley have finally stabilized near $140K in the last three months.
I used all of this data to arrive at the conclusion that we have hit bottom in Las Vegas (and many other areas of the country as well.) And I stand by that assertion. However, unfortunately for many American home owners, we are beginning to witness the fact that real estate markets may create bubbles, but they don’t operate within them.
Two years ago, home prices cooled across the United States and as the real estate bubble began to burst it triggered the freezing of the credit markets, which in turn brought on the greatest recession this country has seen since the Great Depression. Since then, the general economic downturn has rolled on independently of the struggling housing markets. It has grown to encompass the stock market, the job market, the banking industry, and all other major economic areas. All the while, there has been no doubt that the catalyst which provoked this whole mess was the rapid decline of housing prices, accelerating foreclosures, bad loans and the accompanying problems surrounding the burst of the real estate bubble. Unfortunately, the cause cannot now bring the remedy.
In fact, the general economic malaise now threatens, in fact almost promises, to thwart the recovery of the housing market. Economists warn that rising unemployment rates will bring a fresh round of foreclosures as home owners, even those not burdened by questionable loans or upside down property values, lose the ability to stay in their homes. Also, to spite consistently low interest rates and government incentive programs for new home buyers, banks still seem reluctant to loan money. Instead of thawing, credit markets continue to tighten in many areas as banks raise rates and cut limits on unsecured credit lines and charge cards…even to good customers with perfect payment records.
These factors conspire to throw a bucket of cold water on the hot housing market that we are now observing. As the economy continues to decline, I would not be surprised to see our newly found real estate bottom begin to give way once again. Although I do not think that we will see declines that come anywhere close to the plummeting prices of a year ago, I do believe that rising unemployment and the continuing credit crunch may prompt home prices to begin another, more gradual, downward slide.
This doesn’t mean that the current market is not still a great time for investors to begin loading up on properties. Cash flow is always king when it comes to real estate investments, and the cash flow opportunities in Las Vegas and across the country are more promising than they have been in decades. But, as always, investors should proceed with caution and look to purchase for the long term. Naked appreciation plays are risky under the best of conditions, and they have no place what-so-ever in a volatile market such as this.
If you have followed my articles and blog posts, you have noted that I consistently advocate using a three step process to identify the coming of the real estate market “bottom” and the possible beginnings of a recovery. This process involves analyzing three sets of variables: First, the standing inventory of homes for sale; second, the volume of existing home sales; and third, the median home price for a particular area. A few weeks ago, I confidently announced the arrival of the real estate market “bottom” in my local area: Las Vegas. I cited as evidence for this claim data from each of the three areas listed above.
First, the inventory of available single family homes in Las Vegas has decreased rapidly in the last few months after remaining relatively stable at around 22,000 homes through much of 2008. This inventory is now at a level of just under 12,000 homes. Inventory is nearly ½ of its 2008 levels. Homes under $200,000 have less than 4 months standing inventory. Homes under $100,000 have less than 3 months inventory. A normal healthy inventory is considered a 6 month supply of homes. This decrease in standing inventory was our first indicator that the Las Vegas real estate market was bottoming.
Second, the volume of existing home sales has exploded in Las Vegas in the last few months. In fact, sales of residential homes reached record highs in June. According to data published by the Greater Las Vegas Association of Realtors, sales of single-family homes and condos rose 87 percent in June from a year ago…to a total of 4,702 sales. This total breaks the previous record high set in June of 2004, during the peak of the housing bubble.
Finally, we must also consider median home prices, which after falling for over a year and a half in the Las Vegas valley have finally stabilized near $140K in the last three months.
I used all of this data to arrive at the conclusion that we have hit bottom in Las Vegas (and many other areas of the country as well.) And I stand by that assertion. However, unfortunately for many American home owners, we are beginning to witness the fact that real estate markets may create bubbles, but they don’t operate within them.
Two years ago, home prices cooled across the United States and as the real estate bubble began to burst it triggered the freezing of the credit markets, which in turn brought on the greatest recession this country has seen since the Great Depression. Since then, the general economic downturn has rolled on independently of the struggling housing markets. It has grown to encompass the stock market, the job market, the banking industry, and all other major economic areas. All the while, there has been no doubt that the catalyst which provoked this whole mess was the rapid decline of housing prices, accelerating foreclosures, bad loans and the accompanying problems surrounding the burst of the real estate bubble. Unfortunately, the cause cannot now bring the remedy.
In fact, the general economic malaise now threatens, in fact almost promises, to thwart the recovery of the housing market. Economists warn that rising unemployment rates will bring a fresh round of foreclosures as home owners, even those not burdened by questionable loans or upside down property values, lose the ability to stay in their homes. Also, to spite consistently low interest rates and government incentive programs for new home buyers, banks still seem reluctant to loan money. Instead of thawing, credit markets continue to tighten in many areas as banks raise rates and cut limits on unsecured credit lines and charge cards…even to good customers with perfect payment records.
These factors conspire to throw a bucket of cold water on the hot housing market that we are now observing. As the economy continues to decline, I would not be surprised to see our newly found real estate bottom begin to give way once again. Although I do not think that we will see declines that come anywhere close to the plummeting prices of a year ago, I do believe that rising unemployment and the continuing credit crunch may prompt home prices to begin another, more gradual, downward slide.
This doesn’t mean that the current market is not still a great time for investors to begin loading up on properties. Cash flow is always king when it comes to real estate investments, and the cash flow opportunities in Las Vegas and across the country are more promising than they have been in decades. But, as always, investors should proceed with caution and look to purchase for the long term. Naked appreciation plays are risky under the best of conditions, and they have no place what-so-ever in a volatile market such as this.
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