Friday, January 27, 2006

Relative Related Company of Related Grand Avenue Developer Cancels Las Vegas Project!

I suspect the cancellation of two major condo towers in Las Vegas by a partnership of two branches of the Related Empire (a combination different than the make-up of the Related building our local projects) will become big news in LA.

Both tea leaves and entrails will likely be carefully read by local pundits.

But - first, our good news - then... other people's... bad news.

The good news is that the Las Vegas condo boom was... insane - just as the Miami condo boom is - still - insane. Both markets thrived on the selling and reselling of unbuilt units by speculators and far, far more units were built per capita than in Los Angeles (and also New York).

In LA we are still seriously under built compared to demand and sales downtown are still strong even with the comparative lack of nightlife - or even day life. However, as all the new amenities start to appear in the next few months, and once the hundreds - yes - hundreds - of new shops, restaurants, bars, clubs, theaters, art galleries, museums and many other amenities being built open, the demand for downtown will become far stronger than it is now.

Downtown is about to become a unique environment unlike any that has ever existed in this city.

Secondary good news is that with first the China, then Vegas - and soon Miami markets start to slow - materials and labor costs should - hopefully - peak and then start to decline, making it cheaper - again, hopefully - to build in the future than now.

Now as for the bad news... if you are a Las Vegas condo owner or builder....

The Disappearing Las Vegas Condos


THREE weeks ago, Eli Verdnikov, an engineer in Los Gatos, Calif., received a letter saying that the apartment building he planned to retire to — Icon Las Vegas — would not be built. In the envelope was a check for $73,672.81, the 10 percent deposit Mr. Verdnikov had paid, plus interest.

The developer of the building, Related Las Vegas, a partnership between two large and well-known companies, expected Mr. Verdnikov to accept the refund as payment in full. (Its letter explained that, by depositing the check, Mr. Verdnikov would be waiving any further rights.)

But Mr. Verdnikov wants more than the $73,672.81. Since he agreed in May 2005 to buy the 1,400-square-foot, two-bedroom apartment near the Las Vegas Strip for $728,900, its value, he says, has increased. "To purchase something similar, we would need to pay $200,000 more," said Mr. Verdnikov, who has been looking for a new apartment with his girlfriend, Gitty Stone.

So Mr. Verdnikov is suing for the gain he would have realized if the apartment had been built. "He deserves to get the benefit of the bargain," said Will Kemp, a lawyer with Harrison, Kemp & Jones in Las Vegas, who is representing Mr. Verdnikov and a dozen other Icon buyers.

As the market for high-end condos levels off, more and more people may find themselves in Mr. Verdnikov's position: with contracts to buy condos that will never be built. And some hope to recover the profits they believe they would have made.

In Las Vegas alone, developers have canceled at least four other buildings in the last year, including one called Aqua Blue that was to contain a
Michael Jordan health club. Dozens of other buildings, in which units have been sold, may never break ground, said Brian Gordon, a principal at Applied Analysis, a Las Vegas consulting firm. Mr. Gordon said there are 97 condo projects in the works in greater Las Vegas, representing more than 52,000 units.

"I don't think anyone would expect that all these projects will move forward," Mr. Gordon said. He predicted that fewer than half of them would be built in the next five years. Of course, if the market cools enough, some buyers may be happy to get their deposits back.

The pitfalls for condo buyers may be particularly deep in and around Las Vegas, where construction prices have been skyrocketing. Mr. Gordon says some of his clients who are developers have reported a 30 percent increase in the cost of labor and materials in the last year alone. That means that developers who pre-sell apartments may find construction costs wiping out profits even before they break ground.

In the letter to Mr. Variationsov and the other buyers, Related Las Vegas said that the rise in labor and material costs had affected the viability of the project.

Still, the Icon cancellation came as a surprise, in part because its developer is a partnership of two giants: the Related Group of
Florida, which calls itself the nation's leading condo developer, headed by Jorge Perez, and the Related Companies, headed by Stephen M. Ross, the developer of the Time Warner Center in Manhattan. Icon's two 48-story towers were expected to be completed in 2007 and 2008.

Mr. Perez was out of the country and could not be reached for comment, a company spokesman said. Reached on his cellphone, Martin Burger, the president of Related Las Vegas, hung up.

In contrast to its current silence, "the company relied heavily on its own reputation in marketing the building," said David Ezra, owner of Ezra International Realty, which sold some 60 units in the building. He added that he thought the excuse of higher construction costs "might work for a first-time developer, but it doesn't work for Related."

Mr. Variationsov, who is 62 and plans to retire just around the time Icon would have been finished, said he walked away from another project to buy from Related. "We switched it because of their very heavy advertising," he said. "They convinced us they were better."

But whether Mr. Variationsov — or any buyer — can receive more than a refund of his deposit depends on a number of factors. Some contracts for unbuilt condos allow the seller to back out if it cannot obtain proper financing (a phrase sometimes so vague as to constitute a get-out-of-deal-free card, lawyers say).

The contracts for Icon Las Vegas contained no such financing contingency. Related did claim the right to back out if it failed to sell at least half of the units in the project. But observers say the company far exceeded the 50 percent goal, and statements made last year by Mr. Burger support that view.

After that... things go downhill... fast.

The rest of article should only be viewed by adults as it qualifies as litigation lawyer porn - of the Triple XXX variety.

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