Many Las Vegans have watched this project from groundbreaking to verticle construction, or from intrigue to awe. For those who are out of town, its hard to describe the size and coolness factor of this project. The following article was a real treat today.

MGM MIRAGE, Dubai World and CityCenter's Lenders Reach Agreement for Completion of CityCenter
    
Project Receives Approval for Full Financing

Dubai World Dismisses Lawsuit Against MGM MIRAGE

LAS VEGAS and DUBAI, United Arab Emirates, April 29 /PRNewswire-FirstCall/ -- MGM MIRAGE (NYSE: MGM) and Dubai World through subsidiary Infinity World, 50/50 joint venture partners in the CityCenter project, today announced that the companies have reached an agreement on a revised joint venture agreement and also reached an agreement with CityCenter's lenders on a comprehensive plan to fully fund the completion of CityCenter for its scheduled opening later this year.

Under the plan, Dubai World and MGM MIRAGE will fund their remaining equity contributions to CityCenter through letters of credit. In addition, CityCenter's lenders will immediately fund the full $1.8 billion senior secured credit facility. Additionally, Dubai World will dismiss its lawsuit filed against MGM MIRAGE in Delaware Chancery Court on March 22, 2009, and Dubai World and MGM MIRAGE will exchange mutual releases.

"We are pleased that MGM MIRAGE and Dubai World, with the strong support of CityCenter's lenders, have agreed to a comprehensive plan for the financing and completion of CityCenter," said Jim Murren, Chairman and CEO of MGM MIRAGE and Chris O'Donnell, Dubai World's Director of the CityCenter joint venture. "CityCenter is now fully funded and on track to open in December 2009," they said.

"CityCenter will be unlike anything anyone has seen in Las Vegas or anywhere else. We are confident in the potential of CityCenter to contribute significantly to our cash flow," said Mr. Murren. "CityCenter is a powerful engine for growth and employment in Las Vegas and Nevada. With all funding in place, we will focus, along with our partner, on planning for an exciting opening in December and continuing to book rooms and conventions. We appreciate greatly the strong support of our lenders, who share our vision as to the importance of this project to the Las Vegas community and the entire state of Nevada."

Mr O'Donnell said, "This agreement provides a stable financial framework for one of the most exciting destination resort development projects ever to be constructed. MGM MIRAGE is the industry's premier luxury hotel, resort and casino developer and operator. We believe CityCenter has a bright future and will benefit both the partners and the local economy, and we look forward to working with MGM management to realize that potential."

Key terms of the various agreements include:

• MGM MIRAGE will be responsible for completion costs to the extent net condominium proceeds are less than $243 million and for completion costs in excess of the current budget of $8.5 billion.
• Dubai World has agreed to fully fund its original sponsor contributions to CityCenter, including $135 million in payments previously funded by MGM MIRAGE on Dubai World's behalf. Dubai World is relieved of all completion guarantees.
• Until the completion of CityCenter, MGM MIRAGE's obligations with respect to additional construction costs, if any, will be supported by the assets of Circus Circus Las Vegas and certain adjacent land through a completion guarantee.
• The CityCenter credit facility has been amended as part of the global financing plan. Such amendments include:
  -The facility will mature on June 30, 2012.
  -The interest rate margin was increased by 2.00%, though such amount is "pay in kind" through September 2010, with additional periodic margin increases through the term of the facility.
  -Condominium proceeds of up to $250 million may be used to pay for construction costs; 30% of net condominium proceeds in excess of $250 million will be applied to reduce outstanding borrowings under the credit facility, with the remaining 70% available as distributable cash upon CityCenter satisfying certain performance criteria.                                                                                                                                                               -Certain financial covenants were modified to provide CityCenter with greater flexibility during its first 18 months of operations. Evercore Partners served as financial advisor to MGM MIRAGE and Moelis & Company and Perella Weinberg Partners served as financial advisors to Dubai World. Glaser, Weil, Fink, Jacobs, Howard & Shapiro, LLP and Morrison & Foerster served as legal advisors to MGM MIRAGE and Paul, Hastings, Janofsky & Walker LLP and Quinn Emanuel Urquhart, Oliver & Hedges served as legal advisors to Dubai World.

Statements in this release which are not historical facts are "forward looking" statements and "safe harbor statements" under the Private Securities Litigation Reform Act of 1995 that involve risks and/or uncertainties, including risks and/or uncertainties as described in the company's public filings with the Securities and Exchange Commission.

About MGM MIRAGE

MGM MIRAGE (NYSE: MGM), one of the world's leading and most respected companies with significant holdings in gaming, hospitality and entertainment, owns and operates 16 properties located in Nevada, Mississippi and Michigan, and has 50% investments in four other properties in Nevada, New Jersey, Illinois and Macau. CityCenter, an unprecedented urban metropolis on the Las Vegas Strip scheduled to open in late 2009, is a joint venture between MGM MIRAGE and Infinity World Development Corp, a subsidiary of Dubai World. MGM MIRAGE Hospitality has entered into management agreements for future casino and non-casino resorts in the People's Republic of China, Abu Dhabi, U.A.E. and Vietnam. MGM MIRAGE supports responsible gaming and has implemented the American Gaming Association's Code of Conduct for Responsible Gaming at its properties. MGM MIRAGE has received numerous awards and recognitions for its industry-leading Diversity Initiative and its community philanthropy programs. For more information about MGM MIRAGE, please visit the company's website at http://www.mgmmirage.com.

About Dubai World

Dubai World is a leading global corporation focused on five strategic growth areas: Transport & Logistics, Drydocks & Maritime, Urban Development, Investment & Financial Services, and Energy & Natural Resources.

Its portfolio comprises some of the world's best known companies, including DP World, Drydocks World & Dubai Maritime City, Economic Zones World, Nakheel, Leisurecorp, and Istithmar World.

Dubai World's strategy is driven by a combination of pragmatic acquisitions and prudent investments and its corporate philosophy is based on strong fundamentals, best ethical practices and integrity.

Just released a couple of days ago, a NAHB/Metlife study on baby boomers and the 55+ housing market. Interestingly, the study finds that while a lot of boomers are staying in place, often near family and freinds, the share of individuals desiring a community to fit their needs is increasing from 2.2% in 2001 to 3% in 2007 (data reporting is lagged).

Using census data, researchers also found that age restricted home size increased from an average of 1,800 sq.ft to 2,300 sq.ft, although their was no indication that this is what active adults wanted. We have observed this square footage increase in several market segments ourselves. We believe the trend in multi-family will return to smaller square footages and this is highly possible in detached housing as well.

So what causes 55+ folks to move? Often it is for family reasons, but the characteristics of the community, the design of the home and the quality are chief considerations reported in the study. Some builders have done a good job of determining what their buyers want, either through surveys, meetings, absorption or the amount of referred transactions they've done. Currently, mobility has been effected by the current financial landscape and very little new construction is present. This gives builders a breather so that efforts can be concentrated in the next cycle of what to build. Housing stock is durable so mistakes in design have lasting effects. The era of just building anything is over so the new thoughtful designs that will come from the research side should be a positive.

With the apparent re-ignition in sales over recent months and interest in how the work-outs in the condominium supply is and will occur in the Las Vegas Valley, we would like to point to a couple reference places for Fannie Mae guidelines.

Fannie Mae produces a list of approved projects. These are projects that meet Fannie Mae's criteria for compliance. The list of approved projects can be found here:

https://www.efanniemae.com/sf/refmaterials/approvedprojects/index.jsp?from=hp

The core URL, www.efanniemae.com also contains useful info such as loan limits, rates, credit provider and other loan related info. Particularly, you may want to take a look at some of their reference materials fount at:

https://www.efanniemae.com/sf/refmaterials/

Check out this valuable article from the National Association of Homebuilders on the tax benefits of homeownership.  With affordability in the Las Vegas market increasing daily, more and more first time buyers will continue to pursue ownership.  For real estate professionals and potential home buyers, the following offers some great advice and additional resources (click on the links).

 

Home builders can use new research from NAHB economists as a source of information for their prospective customers on the tax benefits of homeownership.

“Purchasing a home is typically the largest purchase and among the most important financial decisions a family makes,” said Robert Dietz, NAHB’s director of tax issues. “There are numerous factors that influence the home buying decision, and among the most important are the tax benefits that help offset some of the cost of homeownership.”

A March 27 article by Dietz — “The Tax Benefits of Homeownership” — examines how the tax benefits reduce the cost of homeownership for individual home owners and buyers for certain mortgage amounts and income levels.

Those benefits include deductions for mortgage interest and real estate taxes, the capital gain exclusion for the sale of a principal residence and the newly enacted $8,000 first-time home buyer tax credit.

For example, a new home-buying married couple with an annual $80,000 income and initial mortgage of $250,000 can save more than $11,000 in the first five years of homeownership from their mortgage interest and real estate tax deductions.

Assuming the couple resides in the home for 12 years, which is the average period of ownership, these tax savings grow to more than $25,000 for the period they have owned the home. Combined with the capital gains exclusion, the estimated total savings associated with homeownership exceed $52,000 over that span of time.

The research findings have been summarized in an “Opportunity Knocks for Home Buyers” brochure that can be a useful selling tool for builders and marketing professionals in the real estate industry.

Click here for further information on the NAHB Web site on the tax advantages of homeownership.

Consumers can find comprehensive information on the $8,000 first-time home buyer tax credit — available for qualified purchases this year before Dec. 1 — at www.federalhousingtaxcredit.com.

Derivatives (in the financial sense, not like the simple power rule in calculus) can be esoteric, disturbingly complex devices. Some observers blame at least some of the past years financial market chaos on financial derivatives, mostly mortgage related. Warren Buffet described them as something akin to a financial time bomb. We now have an idea of what he meant. However, derivatives are often used to hedge risk (see our February posting "Hedging Home Prices with Futures Contracts". Farmers have been using futures contracts for centuries and airlines like Southwest have been very successful in hedging the risk of fuel price increases. Many of these instruments are not particularly complicated and are easier to value, especially since many are traded on large transparent exchanges (in contrast to the CDO's).

This positive feature of a futures contract was the imputes for the Case-Shiller futures product of the Chicago Mercantile Exchange.  Other voices are now recommending a thoughtful approach to using such instruments in the future. The latest I've seen comes from the UK, where Professor Susan Smith notes there possible use which may enhance market stability as well as liquidity.

Directly excerpted from the article "Housing Expert calls for new system of homeownership."

"Such instruments could be used to:

• Reduce the costs of entry to the housing market, enabling first-time buyers to take out smaller loans at a low rate of interest;
• Insure home equity against slumping prices;
• Allow people in arrears to swap future price appreciation for a lump sum to reduce their loan (and perhaps stave off repossession);
• Help home owners balance their investments
• Provide renters with an opportunity to buy into future house price appreciation if they want to."

Click Here for Source Article

That sounds like a lot of great coverage. Is it possible? At some levels it may be. In a very traditional sense, derivatives could reduce risk of slumping prices and this may be attractive to lenders which could result in a lower opportunity cost of loaning money. Homes are not nearly as liquid as other assets such as stocks, bonds or even gold. In the past, a home equity loan or reverse mortgage was about the only way to liquefy all or part of that asset while still occupying your home. New instruments may help make freeing up equity possible.

Not being an advocate but a researcher, this may be an interesting subject to pursue further and suspect that the entry of many new instruments will be delayed for some time. It took years of development to achieve the Case-Shiller index and associated contracts.

 

As a reminder to our blog readers, the Southern Nevada Economy and Housing Market report that we publish is out. It's pretty action packed, detailing local economic trends such as employment, gaming, construction, wages and sales. It also details the Southern Nevada housing market composition and trends. A short analysis of national variables are also included. A lot of these variables take a whole quarter to audit, hence Q4. Largely for investors or banks looking into the Las Vegas Valley, this publication is part of our subscription services and a sample can be found on our subscription page. click here.

A lot of folks in the Las Vegas Valley have been talking about when the commercial real estate sector is going to see more foreclosures and transactions. We've seen retail, office and industrial vacancies increase fairly steadily for the past couple of years and have heard the chatter about when the real skaking out will occur. There are a lot of investors that have just been waiting to pounce on some of these workout deals so we will continue to track the commercial market closely. While we've had clients become very comfortable with a lot of the housing valuations, commercial properties are still moving in that direction.

Torto Wheaton research has a nice article on how deleveraging, or the winding down of debt, will effect commercial real estate prices. Employing the NCREIF capitilazation rates, TWR performs an econometric analysis and basing expectations on a constant debt/GDP ratio at Q4 1994 levels, they are able to estimate the effects of deleveraging by looking at how things would have been at these constant values. Nationally, office properties would have been 42% lower than actual, industrial properties would have been 35% lower, multifamily portfolios 30% lower and retail 26% lower (Chervachidze, April 2009). This gives us a perspective of the magnitude of potential declines. The TWR numbers are national, however in Las Vegas, we will have to see substantial adjustments in prices before we really see a significant volume of transactions in the sector.

While home sales volumes are up significantly year-over-year, 2009 might be what 2007-08 was for housing. That means that dealmakers, who are doing a lot of homework now, will be able to do some real business as this deleveraging occurs. For tenants, its been and will continue to be a good time to negotiate.

The TRW study can be found at www.twr.com. The paper is titled, Hit by the Shockwave: The Credit Bubble Burst and Deleveraging's effect on CRE Prices.

Some people are asking about the $8,000 tax credit for first-time homebuyers. This may be usefull to some people. The National Association of Homebuilders has a good website to answer these questions and looks better than a typical government website www.federalhousingtaxcredit.com or if you are a fan of the IRS you can visit their tax credit info directly at www.www.irs.gov/newsroom/article/0,,id=204671,00.html and with many financial matters, I would recommend talking to an accountant about this credit and any further possible deductions.

I met some of the folks from the NAHB Research Center a couple months ago and they supplied some very interesting survey results about people who want to own homes but are on the sidelines.

Noteworthy, qualifiying survery takers state that they want to purchase a home but are waiting for some key things to change. These bullet points are direct from the publication.

• Improved Housing Market 
• Economy becomes more stable
• Personal financial outlook improves

Addressing the first bullet point, I think what this means for a lot of people is that they are expecting prices to go lower. My own perspective is that the housing market is improved (meaning the market is headed back to historical valuations). Home prices and homeownership rates were absurdly high several years back and now, by multiple measures, is in one of the most affordable periods in a decade or more. Interest rates are also low so it really depends on your personal parameters.

Second, a lot of good decisions are made during unstable economic times. A lot of bad decisions are made during boom times but are temporarily covered up as they are bouyed by the whole market. When there are fewer buyers, lots of sellers and a sense of fear, one can really get a deal, but you need to do your homework and have pre-established risk parameters.

This third point is difficult. Getting some cash in reserve is important. Some sellers can work the closing costs into a deal but some short sellers are just plain out of money and can't make a consession. There are plenty of other homes in the Las Vegas Valley that can be had for at or below equivelent rent, so if you are renting a nicer place, you might consider doing some calculations about price per foot and whether or not you could use more space, tax deductions on mortgage interest, property taxes, HOA fees and associated amenity benefits, SID's, the $8,000 first-time home buyer tax credit and the possibility of renting out the extra room. Depending on your personal requirements, buying may result in a net positive benefit. If not, keep your status the same.

This survey was pretty inclusive, so expect more excerpts and commentary later!

 

 

Remember years ago when Las Vegas was the buzz of the housing industry.  Homes were being built at an astonishing rate, prices increased faster than global iPod sales and there were more than 120,000 condominium units being planned that would potentially convert Las Vegas into the west coast version of Manhattan.  Times have certainly changed in the past few years as builders are cautious about building, prices have fallen back to levels not seen since 2002 and those 120,000 condo units…well, as they say on the East coast, “Forget about it.” 

There have been numerous erroneous statements made in the past about the actual number of condos available.  Today, there are less than 2,000 condos completed or under construction and available for sale on The Strip, near The Strip or downtown…considerably less than the approximate 6,000 that has been reported by the media in the past. Defining a condominium correctly and knowing what is available, closed, proposed and cancelled are important factors to consider when compiling the data.  Another surprising statistic is there are only 14 projects where the developer is actively selling condos.  This is a small number for the size of a market the size like Las Vegas.  So how can one really know what is fact and what is fiction when talking about the Las Vegas condominium market?

The following sheds some light on what is happening with condos in Las Vegas:  

1.      Definition of a condo:  We focused on monitoring low, mid and high-rise properties located on the Strip, adjacent to the Strip, downtown and in suburban locations.  Condo-hotels such as Trump Tower, Palms Place, etc. are classified into a separate category because they are a unique product type and have never been considered to be a traditional condominium in any urban market.   Traditional 1 and 2-story walk-up condominiums, primarily condo conversions, which sprouted up everywhere during the boom, are also not included in the definition of a condo. 

2.      Supply:  During the boom, there was an unachievable amount of projects and units planned and we are tracking the current condominium statistics on a monthly basis.  Today, after the dust has settled, there are only approximately 2,000 units completed or under construction and available for sale.  The luxury mid and high-rise market represents a relatively small proportion of Clark Counties housing units. Currently, existing luxury units account for less than 1% of the housing stock.  Compared to other metropolitan markets, this is a small percentage of the overall housing stock.  

3.      Demand:  The current population estimate in Clark County is approx 1.9 million.  Excluding persons in special places such as group quarters we estimate that if the luxury condominium housing stock was fully occupied today it would be home to approximately 9,000 people, or .5% of the Valley’s population.  Currently, we estimate that at a maximum, 4,400 of these units are occupied or no longer available for sale from the developer.  This leaves approximately 2,000 unsold or vacant units on the market.  This amounts to about .2% of the overall housing stock.  While this segment of the market receives interest, it is really a function of the coolness factor of these properties rather than a meaningful part of the overall housing market.

4.      Replacement cost:  Recent data obtained explains that today’s replacement cost, the hard construction costs, not including the cost of land, for a high-rise condo project is approximately $300/sf.  Based on the average selling price for condominiums in March 2009 ($425,000 or $232 per square foot), buyers can expect to pay, on average, an amount equal to or less than this amount.

5.      Lifestyle:  While people may debate what really matters most to homeowners, National Association of Realtors (NAR) research shows that the number one concern for all buyers (62 percent) is quality of the neighborhood and number two is convenience to work (51 percent). It's not surprising that 41 percent of all buyers said commuting costs were very important and another 39 percent said they were somewhat important.  Investing in a condominium for the buyer who chooses to live in the home has always predominantly been based on the quality of life enhancement that a condominium purchase satisfies.  

6.      Investors:  Professional investors are beginning to position themselves to secure condominium opportunities in Las Vegas.  A good rule of thumb is when professional investors, not the speculators that fueled the housing boom in 2004-2006, begin investing in a particular market, it provides confidence to other buyers.

While condo (low, mid and high-rise) sales have likely bottomed in Las Vegas, the real inventory number is at least palatable and the long-term outlook is favorable.   It may take a few years to shed the bulk of the foreclosure and pre-foreclosure inventory inventory and developers will be ready for the next wave of thoughtful communities.  As Las Vegas continues to mature, the lure of condominium living will gain momentum and provide a true urban lifestyle experience.  The best of Vegas is yet to come.  

 Source: NAR, Clark County Comprehensive Planning, Sullivan Group, Coldwell Banker Premier Realty.

 

While we know the Cities we work in extremely well, we also like to note trends in other areas or what may be considered a national trend. Taking a look at the Urban Land Institutes (ULI) emerging trends in Real Estate 2009, I found that we were experiencing similar circumstances.

One asset class that ULI notes as an asset with an upside in this market is apartments in "core urban markets near mass transit" for moderate-income tenants. Our mass transit in Las Vegas tends to be the CAT bus system, so we have looked at apartments near bus stops that had reasonable maintance costs and solid occupancy. These tended to be a mile or two from The Strip and had a large proportion of Strip workers as tenants. The issue for the buyers are, if these properties transacted before the '04-08 period, they are probably not over-leveraged and still cash-flow, so the sellers don't need to sell. The similar situation exists for some condo projects. Under-construction apartment projects in the more suburban areas may tend to struggle for higher occupancies when completed and are harder to finance.

Other suggestions:

• ULI suggests investors look at 24-hour cities, picking up distressed but trophy properties. Las Vegas is one of these 24-hour cities that sees a lot of global traffic.
• "Buy discounted loans." We've seen some of this activity occur.
• "Staff up asset managers, leasing pros and workout specialists." Yes, this is fully necessary and we have been told by major banks that they were adding this type of staff.
• "Buy or hold multi-family; hold office; hold hotels; buy residential building lots, be prepared to hold." Similar scenerio we've been seeing. We've seen recent offers on multi-family, little on large offices (although some leasing continues but at very favorable tenant terms). We have seen Strip hotels change hands (Treasure Island is a major one) but not so much off Strip. We have certainly seen residential land purchases with the intention to hold 3-5 years on lots and possible a decade on larger raw parcels.

 As ULI notes, cash rich buyers can take advantage of this situation. It will also be interesting to see how much pressure banks are actually under to move weak loans off their balance sheets and any process to streamline this because there is still a lot of gunk in the works and one really needs to know principals at these institutions.

 To grab ULI's report, visit ULI.org