February 5th, 2009MGM City Center Ready To Default – Thanks For The Memories
The Geldpress team attended the first Seattle Condo Tour last year, where desperate high rise condo developers showcase their unsold properties for lavish prices. From my perspective, it was just a futile attempt to lure in the last batch of rich Seattle morons. And for the morons that didn’t have the $800,000+ for those tiny studio and 1 bedroom condos (still under construction), there was no problem. The developers would happily etch another notch in the “Sold” list for just a tiny deposit or even a signature. But those “Sold” condominiums often come right back on the market as cancelled sales when the “buyers” don’t get approved financing, or back out due to massive price declines ahead of completion.
If you don’t believe that developers would list properties as “Sold” without a down payment, take a look at MGM’s project – Las Vegas City Center.
According to this Forbes article:
In a note to clients, Daswani said MGM has sold 55 percent of the condo units to date, but has received only 20 percent of the deposits. The analyst cautioned that if the units’ prices fall about 15 percent to 20 percent from current levels that the project will turn out to be a loss for MGM.
Geldpress comment: Consider it done! 15-20% price declines are absolutely going to happen at a MINIMUM. For a gambling metropolis that thrives on minimum wage incomes, it’s impossible to justify the insane pricing at City Center. Also note that they reported selling 55 percent of the condos, and 80% of those reported “sales” were based on nothing more than a signature and a handshake!
The article also notes:
MGM Mirage may see a default rate of 20 percent to 30 percent on its CityCenter condominium units and faces the possibility of some asset sales, an analyst said Tuesday as he started the casino operator with a “Sell” rating.
Geldpress comment: MGM is toast in the likes of “Countrywide toast”, “Bear Sterns Toast”, “Lehman Brothers Toast”, and “Rye Toast”. And despite future desperate pleas from the mayor of Las Vegas and governor of Nevada, MGM will NOT be declared “To big to fail”. As for trading MGM, it’s to late. The easy money was shorting MGM when it dipped below $40 last summer, and then dipped below $30 last Fall. At these levels ($6.12 at last glance), there are no shares to borrow for shorting, and the options premium on the PUT side is to exorbitant to even bother. Good Bye MGM. Thanks for the memories!
Disclosure: No current position on MGM.