Wealthy Leaving Las Vegas Mansions as Foreclosure Pain Spreads
By - Apr 25, 2011 11:00 PM CT
Realtor Zar Zanganeh stands in the foyer of a luxury home previously owned by actor Nicolas Cage in Las Vegas. Photographer: Ronda Churchill/Bloomberg
April 26 (Bloomberg) -- A growing number of high-end homes are selling at a loss or facing repossession by lenders in Las Vegas, which already has the highest rate of foreclosure filings among large U.S. cities. The wave of defaults that began with subprime borrowers and the unemployed has spread to upscale homeowners who see no point of staying even if they can afford to. Bloomberg's Monica Bertran reports. (Source: Bloomberg)
The panoramic view from an infinity pool in the backyard of actor Nicolas Cage's forme Las Vegas home. Photographer: Ronda Churchill/Bloomberg
The master bedroom of Nicolas Cage's former home. Cage bought the seven-bedroom house for $8.5 million in 2006. By January 2010, it was in foreclosure. Photographer: Ronda Churchill/Bloomberg
The next owner, who property records show paid $4.2 million, has put the house on the market for $7.9 million -- an “unrealistic” price, according to Zar Zanganeh, the broker handling the listing.
“It’s sad,” Zanganeh said, his high-heeled boots clacking on the marble floor as he gave a tour of the 14,000-square-foot (1,300-square-meter) mansion featuring a six-person steam shower and a closet the size of a small apartment. “There’s a lot of inventory, a lot of homes like this waiting for an owner.”
A growing number of high-end homes are selling at a loss or facing repossession by lenders in Las Vegas, which already has the highest rate of foreclosure filings among large U.S. cities. The wave of defaults that began with subprime borrowers and the unemployed has spread to upscale homeowners who see no point of staying even if they can afford to.
In the 15 months through March, at least 25 houses in the Las Vegas area changed hands for more than $3 million, with at least seven doing so through foreclosure or by selling at a loss, according to the Greater Las Vegas Association of Realtors and Clark County property records. In 2009, 14 homes sold for more than that amount, with one trading at a loss.
‘A Sucker’
In the first quarter, 30 Clark County homes with loans exceeding $1 million were repossessed by banks or bought by third-parties in foreclosure sales, up from 20 homes a year earlier, according to ForeclosureRadar.com, a Discovery Bay, California-based company that tracks defaults. Short sales, in which the bank agrees to accept less than the loan balance, and bank-owned properties accounted for about three-quarters of all home sales, according to the Las Vegas Realtors.“You feel like a sucker if you’re paying a $5 million mortgage on a house that’s worth $2 million,” Zanganeh, 28, said while showing the grounds of an 11-acre Las Vegas estate built by Prince Jefri Bolkiah, brother of the Sultan of Brunei. “These days, there are no traditional sales. They’re all short sales or bank-owned.”
The estate -- with 18 bedrooms, 36 bathrooms, a 20,000- bottle wine cellar, an 11-car garage and air-conditioned stables for 10 horses -- sold for $14 million in 2004 to Eric Petersen, who owned Consumer Credit Services Inc., a Las Vegas-based catalog-merchandising company that closed in 2008. Petersen, 44, said he spent $20 million to make the estate habitable.
Giving Up
It’s back on the block for $25 million -- $9 million less than his investment -- with an offer “for considerably less on the table,” Petersen said in a telephone interview from Las Vegas. He has slashed the listing price four times since October from an initial $37.5 million.“I gave up on Vegas,” Petersen said. “There’s no opportunity for anything in this town that I can see.”
Another listing with Zanganeh’s firm, Luxe Estates Collection, is a never-occupied, bank-owned mansion overlooking a Jack Nicklaus-designed golf course in the gated Ridges community west of Las Vegas. The asking price is $3 million for the 8,550-square-foot house, which was repossessed in 2010 and had a $3.2 million mortgage from the Community Bank of Nevada, a lender seized by regulators in August 2009.
About 100 homes in the county are listed for $3 million or more, according to the Las Vegas Realtors, a five-year supply at the current sales pace.
‘Rolled the Dice’
In Nevada, 23 percent of delinquent borrowers said they “strategically defaulted,” or walked away from their homes by choice rather than necessity, according to a January report by the Nevada Association of Realtors.“It’s folks that feel the hopelessness of it all,” Rob Wigton, chief executive officer of the state association, said in a telephone interview from Reno. “They’ve rolled the dice and lost.”
The population of Clark County, home of Las Vegas, has fallen by about 16,000 from its estimated high of 1.97 million in 2008, according to the government-funded Nevada State Demographer. Almost 15 percent of homes in the county -- 125,000 residences -- were vacant, according to the 2010 Census, following a construction boom in the last decade that peaked with 39,000 housing permits issued in 2005.
Las Vegas home values have plunged 58 percent since the 2006 high-water mark, the most of the 20 metropolitan areas tracked by the S&P/Case-Shiller index. Prices fell 7.4 percent in March from a year earlier to a median $125,950, the Las Vegas Realtors reported April 8.
70% Underwater
Almost 70 percent of Las Vegas-area homeowners with mortgages were underwater at the end of 2010, meaning they owed more than the value of the property, according to CoreLogic Inc. (CLGX), a Santa Ana, California-based real estate information company. Among cities with a population of more than 200,000, Las Vegas has led the nation in the pace of foreclosure actions since November 2009, with one of every 31 homes receiving a filing in the first quarter of this year, RealtyTrac Inc., an information provider in Irvine, California, reported April 14.About 20 percent of Las Vegas homeowners seeking short sales owe at least $750,000, said Jamie Cogburn, a Las Vegas plaintiff’s attorney who said he has handled 350 such sales and is working on 200 more. One client is a doctor with a home now valued at about half of its $1 million mortgage, Cogburn said. The doctor earns enough to save for a 20 percent down payment on his next home within a few months at current prices, he said.
“People with a higher income can go buy another house,” Cogburn said in a telephone interview. “You’ve got to cut your losses at some point, just like with a stock.”
Four Weekends
Cage, who won an Academy Award for 1995’s “Leaving Las Vegas,” in which he portrays an alcoholic who drinks himself to death in the city, stayed in the house now being marketed by Zanganeh for four weekends, according to the broker.The actor sued his manager in October 2009 for placing him in “numerous highly speculative and risky real estate investments, resulting in Cage suffering catastrophic losses,” according to court filings. The manager, Samuel Levin, countersued, saying Cage ignored advice and “set off on a spending binge of epic proportions,” acquiring 15 homes, four yachts, an island in the Bahamas, a Gulfstream jet and millions of dollars of jewelry and art, according to a November 2009 complaint in state court in Los Angeles County. The case was settled out of court in August.
Cage, 47, who also starred in the 1992 film “Honeymoon in Vegas,” “is working and not doing press at this time,” his publicist, Samantha Hill, said in an e-mail. He was arrested in New Orleans on April 16 for domestic abuse and public drunkenness after arguing with his wife about the address of a house they are renting, according to a statement by the city’s police department.
Sales Pick Up
Las Vegas’s economic collapse has made it hard for many executives and business owners who own mansions to keep up with their mortgages, said Brian Gordon, a partner at Applied Analysis LLC, an economic-consulting firm in the city.“People on the lower end were forced out a long time ago,” he said. “People on the high end had a longer staying power. Now they’ve chewed through their resources.”
While high-end homes fall in price, total residential- property sales have accelerated, rising 8.2 percent in March from a year earlier to 4,316 units, the Las Vegas Realtors reported. More than half of this year’s purchases were all-cash transactions, a sign that investors are finding bargains at the low end of the market, said Robert Lang, a professor of sociology at the University of Nevada, Las Vegas.
Making Lemonade
“Prices are below the cost of materials and labor,” said Lang, also a senior fellow at the Brookings Institution in Washington. “If you’re betting the U.S. economy won’t go back to Armageddon, you might see one-third appreciation if you buy now.”Las Vegas’s affordable housing and warm weather will be the theme of a promotional campaign the city plans to use to attract out-of-town investors and potential new residents, Mayor Oscar Goodman said.
“We’re going to make lemonade out of this ‘crisis’ by promoting our foreclosures here,” Goodman, who’s stepping down in July after 12 years in office, said during an April 5 campaign party for his wife, Carolyn Goodman, a candidate to succeed her husband.
The city, he said, will be “showing the opportunities to people who are freezing to death in the middle of the country in the worst winter imaginable -- that they can come out here and buy a home at one-third what it cost five years ago and have a wonderful quality of life.”
To contact the reporter on this story: John Gittelsohn in New York at johngitt@bloomberg.net
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