|By Arnold M. Knightly, Las Vegas
Review-JournalMcClatchy-Tribune Regional News
Oct. 14, 2008 - Potential buyers are struggling to secure mortgages at two major condominium-hotels as credit has tightened, even for the well-to-do.
Only 21 percent of the 1,284 condos at Trump International Hotel & Tower had closed sales by Sept. 29, while the number at Palms Place is just more than half, a report by Deutsche Bank shows.
"I've never seen anything like it," New York billionaire developer Donald Trump said. "Historically, the banks will call me and beg for end loans. But they don't do that any more because the banks are really out of business."
At Palms Place, 342 of the 599 units, or 57 percent, have closed sales. Both properties began closings in February, during the beginning of the mortgage meltdown.
Brock Davis, founder of U.S. Express Mortgages, said prospective condo-hotel buyers are now facing lenders who want as much as 50 percent down and require borrowers to have exceptional credit. The buyer must be willing to take adjustable-rate mortgages to obtain lower rates.
"The rules have changed on qualifying," said Davis, who has been involved in the area's mortgage industry for 30 years. "They still have to qualify better than normal on income, on credit and showing where your down payment is coming from."
Rates on 30-year fixed-rate mortgages for banks willing to loan on condo-hotel purchases are as high as 8 percent to 9 percent, according to the latest data Davis had seen.
"There's just not the financing available at the interest rate or small down payments there was two years ago," Davis said. "That's the problem."
A few potential buyers have had to walk away from their nonrefundable 20 percent deposits, Trump said.
Palms principal owner George Maloof said no buyers have backed out of deals and forfeited their deposits, but getting credit is taking longer than expected for some buyers.
"People still want their units, and they're trying to get financing," Maloof said. "They're trying whatever they can to close."
However, he said the property did have to take back a few units for resale.
Palms Place condos that have closed range in price from $378,000 to $4.5 million, with 28 units closing at more than $1 million, according to Blockshopper.com, a Chicago-based real estate data service. Information on Trump International prices was unavailable.
Palms Place is a separate condo tower attached to the Palms casino by a walkway. Trump International is a nongaming resort behind the empty lot of the former New Frontier. Both condos also operate as hotels if the unit owner agrees.
However, Maloof said condos that have yet to be sold cannot be used as hotel rooms, leaving approximately 250 rooms out of inventory. The Palms' two hotel-only towers contain a combined 701 rooms, which continue to be filled despite the economy, although at reduced rates, Maloof said.
Although securing mortgages is taking longer, both properties have seen a steady pace in closings since June. Palms Place buyers have closed on 75 units since June 12 while Trump International buyers have secured 77, according to Deutsche Bank.
Trump said the activity has picked up with 11 units closing in the past week, one for $5 million. Some of the buyers have had to pay cash, Trump admitted, saying "The country is in a sad state."
"People are having a hard time all over the country getting financing," Trump said. "It's very sad for the people. There is no bank that gives them money."
Bill Lerner, a Deutsche Bank analyst, wrote in a note to investors that the typical rate of unit closings in a "normal" economic environment would be closer to 100 per month.
Trump said he has stopped trying to sell the remaining 300 units and is now focusing on helping get the contracts closed.
No one seems to know how the struggles of current buyers will carry over to a new series of condo-hotels coming on line in the next few years.
Approximately 2,700 condo units at MGM Mirage's CityCenter are scheduled to begin closing in September. The company opened its Las Vegas sales pavilion, behind New York-New York, in January 2007, and recently opened a pavilion in Dubai.
"A year from now, I don't think there is anybody in this country who isn't hoping the economy is recovering by then," MGM Mirage Vice President of Public Affairs Gordon Absher said. "People are cautiously optimistic in that hope."
MGM Mirage was the first gaming operator to enter the condo-hotel market with The Signature at MGM Grand, a three-tower project containing nearly 575 units each. The third tower, which began closing sales in May 2007, is 85 percent filled.
"Even if the credit crisis was just starting up, Signature was on a roll and had such momentum (from the sales of the other two towers) that we did not feel the impact," Absher said.
Officials at the Cosmopolitan, which has deposits on 1,825 of 2,184 condo units available, said market conditions should improve by the time their buyers begin applying for mortgages in the second quarter of 2010.
Two other projects under construction, Fontainebleau, with 1,018 condo-hotel units, and the 398-unit St. Regis Residence at The Venetian Palazzo, have not begun selling their units. One problem facing potential buyers into condo-hotels is the units are worth less today than when contracts were signed, the Deutsche Bank report shows.
Brock Davis, a mortgage broker in Las Vegas for 30 years, said mortgage loans are given for the current appraised price, not the contract price signed prior to the devaluation of the real estate market.
Davis explains the problem this way: "If somebody agreed to buy a condo two years ago when they started the project, and they agreed to pay $700,000, that thing may only appraise for $500,000 today. But they're still in contract to buy it for $700,000. So the loan you can get is 50 percent of the appraisal."
The question then becomes twofold for the buyers, some of whom are speculators:
-- Finding or funding the difference.
-- Are buyers willing to walk away losing their 20 percent deposit instead of risking the chance that the of the value bouncing back five years or more down the road?
"Are you going to put in more money to lose more money?" Davis wondered. "Now you have people who would have qualified, even in today's market, walking away because they didn't buy them to live in them. They made an investment, it was a bad investment, so they take their loss and the loss is their deposit."
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