What's it Like to Own a Vegas Hotel Room?

Posted by: Chris Palmeri on April 13, 2009

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The idea of the condo-hotel was a big fad during the housing boom. It was great for real estate developers like Donald Trump because they could get small investors—who were crazy for anything to do with real estate—to pay for the construction of their new hotels. Then the developers rent the rooms out to guests just like any other hotel and split the profits with the investors.

MGM built three big condo-hotel towers adjacent to its MGM Grand hotel on the Vegas strip in 2006. Even the entry-level 500 square foot suites were selling for half a million dollars each. How did the investors do? Well, there have been a series of lawsuits from some who say MGM duped them into believing the room revenues would be huge and the company violated SEC regulations by selling unregistered investments. Personally I remember touring the properties and not hearing any specific references to future room rates or occupancies. You can read about the lawsuits at signaturecondohotellitigation.com.

Many of the units are now for sale, as everything else is in Vegas these days. Local real estate agent Robert Jenson of the Jenson Group was kind enough to send me some info on a typical unit. You can buy a Signature suite now for $175,000. In 2008 the room was rented 226 nights at an average of $101 per night for a total of $22,000 in rental revenue. MGM collected $11,000 in various management and maintenance fees, including replacing the shower moldings. As the building ages, those fees could rise.

Room rates have plummeted recently. MGM has lately been advertising $129 a night packages at the Signature suites. That includes two free breakfasts, two free drinks and $35 in other entertainment credits. In Feb. of 2009 our sample unit was rented for 26 nights, a decent occupancy for a short month, but room revenues were only $70 a night for a profit of $800 to the owner.

That $800 sounds like nice money but remember you still have to cover roughly $300 a month in property taxes and any mortgage you have from that. Realtor Rob Jenson notes that for the same price you can own a nice house in Vegas that you can rent for $1,300 a month. Of course then you can’t use it whenever you want.


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I’m told the Signature suites are a nice place to stay because you’re a bit removed from the casino floor. I’m not crazy about owning a hotel room, though. It’s kind of impersonal. You can’t even leave a photo of your family on the nightstand. Well, since this is Vegas maybe you wouldn’t want to.

MGM’s been in the news lately because it’s been struggling to finance its $8.6 billion City Center project just down the street from the MGM Grand. It involves sales of over 2,500 condos or condo-hotel rooms at prices starting at—you guessed it—$500,000 each. With the track record of the previous buyers down the block, it’s not surprising sales have been slow.


Reader Comments

Gimme a BREAK

April 13, 2009 01:07 PM

ANYONE with just 1 functioning brain cell KNEW these were a developer's DREAM, and a SUCKER'S nightmare! Nothing from Trump, nor anyone in Vegas could temp us into this toxic pit of fees, fees, fees. I would not even touch a Four Season's offering on these hotel/condos - all expenses PAID BY YOU, all NET, to the hotel/developer.

And yes, some folks who were lucky with R.E., thought this was the proverbial 'cat's whiskers' of a deal.....it's wasn't and never will be.

jwk_isthislongenoughnow

April 13, 2009 02:22 PM

Sorry, no sympathy for buyers from me. Here is a sample quote from an 'outraged' buyer;

"It really hurts,” says 58-year-old David, who owns a printing business. “I was only able to buy the unit in the first place because I’d refinanced my own home. I certainly wouldn’t want a $1 million second home. I’m not that kind of rich person. And besides I rarely visit Vegas.”

Wow, just wow. Sorry David you have no right to complain. At all. You refinanced your HOME to spend 1.1M on an investment you never see? Why not just buy random stocks? At least that way you'd only be down 25%. The rest of the 'stories' on the lawsuit website are equally stupid. Let's hope the Nevade court throws this one out...

jwk

April 13, 2009 02:22 PM

Sorry, no sympathy for buyers from me. Here is a sample quote from an 'outraged' buyer;

"It really hurts,” says 58-year-old David, who owns a printing business. “I was only able to buy the unit in the first place because I’d refinanced my own home. I certainly wouldn’t want a $1 million second home. I’m not that kind of rich person. And besides I rarely visit Vegas.”

Wow, just wow. Sorry David you have no right to complain. At all. You refinanced your HOME to spend 1.1M on an investment you never see? Why not just buy random stocks? At least that way you'd only be down 25%. The rest of the 'stories' on the lawsuit website are equally stupid. Let's hope the Nevade court throws this one out...

Mick

April 13, 2009 07:18 PM

I stayed at the Signature in February, 2009 and I must say if I were in the market for a hotel-managed property I would consider buying at $175,000. The place seems to have a mostly upscale clientele, and the security and maintenance were "looking after" the room pretty well I thought. It would be unusual for one of the MGM-managed rooms to be "trashed" I would think.

toron

April 26, 2009 04:30 PM

thinking of buying some suite in cash flowing mgm tower . private deal can be considered too in this falling markets in usa all over !
need to know for $100,000 how muxch cash flow can be expected . if the CEO,S do not eat all !

Roger Downs

January 23, 2010 06:52 AM

So what's they storey now? mgmt can screw you in fees for cleaning, booking, etc., the city taxes you to death, and yet there's no guarantee that the room you own will be rented out on parity with the others who are 'connected'. Sounds like a sucker's investment. More gambling in vega$, and the house wins.

Thank you for your interest. This blog is no longer active.

 

About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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