By Eli Segall | LAS VEGAS SUN
Buying an abandoned real estate project — and there were plenty to choose from in Las Vegas — can seem like a steal, since owners usually sell cheap to get back any money they can from the failed venture.
The trade-off for buyers? It can be a years-long, hair-pulling process to untangle a property’s legal woes, close the sale and prepare to finish construction.
They also are completing the former ManhattanWest, the stylish retail, office and residential complex that sat unfinished for years at Russell Road and the 215 Beltway, one of the most visible casualties of the building bust.
Abandoned developments often are bogged down by lawsuits and liens and frequently get seized by lenders or end up in bankruptcy court. Investors need to determine who owns what, who is owed what, which repairs are needed, if wiring and pipes were stolen, if building permits are still valid, and if anyone can find the blueprints.
“Sometimes we joke among ourselves that we’re like Indiana Jones, trying to reveal the past,” Hagay said.
Despite the headaches, several other investors pounced on mothballed projects in recent years, betting that Las Vegas’ once-battered economy would improve — and that their bargain deals would pump out big profits.
They include Malaysia’s Genting Group, which last year bought the partially built Echelon resort on the Strip with plans for a multibillion-dollar Chinese-themed megaresort. Howard Hughes Corp. in 2010 took control of the Shops at Summerlin Centre — the abandoned retail and office complex near Red Rock Resort — as part of a corporate spin-off, completed construction and opened it Oct. 9 as Downtown Summerlin. Last year, the Pinnacle Family of Cos. bought Vantage Lofts, a partially built luxury condo project in Henderson, and now, having finished it, are charging up to $4,545 a month in rent.
During the downturn, WGH bought a pair of unfinished two-story office buildings off Russell Road east of the Beltway. One building at the Red Rock Business Center, as the property is known, is now fully leased. The other building is empty but Garfinkle said his group is close to signing the first tenant there and is negotiating with several other prospective renters.
WGH also bought failed condo project Milano Residences on Cactus Avenue at Bermuda Road. The original developers defaulted on a $19 million loan and lost the partially built, four-story complex to foreclosure in 2010. Lenders sold it to WGH in 2012 for just $2 million.
The trio resumed construction last November and plan to have the 100-unit property, now called the Lennox, ready for occupancy in mid-December as a high-end rental complex.
Units range from about 850 to 1,800 square feet and will be priced from $1,300 to $2,800 per month. Amenities include stainless steel appliances, granite counter-tops and poolside cabanas.
Meanwhile, WGH also is working with San Francisco developer the Krausz Cos. to finish ManhattanWest, now called the Gramercy. Krausz bought the 20-acre property last year for $20 million from developer Alex Edelstein, who spent around $170 million before he lost his funding and stopped construction during the downturn.
Contractors and lenders are fighting over who gets the sales proceeds, and Edelstein wound up with nothing, Garfinkle said. Edelstein could not be reached for comment.
He reportedly wanted to sell condos there for $200,000 to $1 million each. The property’s 160 units, in two four-story buildings with underground parking, range from 530 to almost 2,100 square feet and are slated to be rented for $950 to $3,500 per month. They will be ready for occupancy in early 2015, Garfinkle said.
The Gramercy also features two office buildings and is expected to have restaurants, outdoor movies, food trucks and other amenities. However, its nine-story residential tower facing the Beltway remains unfinished and might get torn down.
Hagay and Garfinkle recently spoke with VEGAS INC at the Lennox and the Gramercy about those projects. The interview has been edited for clarity and brevity.
You bought the Lennox for $2 million. That’s a huge discount, but not unusual for a mothballed project.
Garfinkle: That issue always comes up — people say, ‘You just stole this asset.’ That’s really not accurate, because the cost to finish these is so high, and the market is so much different today.
Hagay: There was so much work to be done. If you add up the overhead and costs, the architects, engineers, it took three years of work before we even started construction.
What appealed to you about the Lennox?
Hagay: This is an expensive project — this is not a garden-style, stick-frame apartment building. This is a small community, and we are planning to give great amenities.
The rents here, even at the lowest end, are above market average.
Hagay: It’s higher than market average, but it’s a different type of product. You can charge more if you have a different product, if you offer more amenities, if you are a unique.
The owners of the Ogden recently began listing units for sale in the downtown high-rise that had been rented as apartments. Do you foresee doing that at the Lennox?
Garfinkle: Not at this time. I’m a very strong believer in the condo market in town, but the prices are too low to make it work. If we wanted to open the Lennox next week as condos, we’d probably sell them very quickly, but not at prices that justify the transition from for-rent to for-sale.
ManhattanWest was supposed to be a very stylish project but it ended up an eyesore for years. What got you interested in it? Why take it on, even though it had a lot of problems?
Garfinkle: Being on the curve of the Beltway, having such a high-profile project — there’s nothing else like it in this area. It’s such a special project — the design, the architecture, the quality, the size.
You’ve lined up several restaurants for the site. Will there be shopping, too?
Hagay: No. If you look around the area, there are a lot of rooftops and offices, but there is nothing to offer for food. We believe there is a demand here, and we have a captive audience.
Garfinkle: We want to create a destination, to come here, stay in the courtyard, work out in the gym, have coffee, beer, wine.
What’s the status of the tower facing the Beltway? It looks like it hasn’t changed since you bought it. What have you done there, and what are your plans?
Garfinkle: It was vandalized, things were stolen, copper wiring was ripped out. We’ve cleaned it up and obtained permits to restart construction but haven’t done that yet. We’ve finished design work, too, but we’re looking at other options for the land: What would be the highest and best use for the community? Is the tower really the right fit?
Are you considering tearing it down?
I suppose if you don’t do anything with it, the tower could scare people off. It faces the freeway and almost looks like a bomb hit it. It looks pretty bad.
Garfinkle: By the beginning of next year, either the tower will be under construction or the tower will be gone. In the next few months, the final decision will be made that we either go ahead and build it — which is probably not on the top of the list — or don’t. We’re looking at different studies to see what the mix should be — how much more office should be here, how much more residential. We will replace it with something else.
Benjy, you’ve said the ManhattanWest purchase was one of the most complex deals you ever worked on. Can you talk about how difficult it was, and what you had to go through to buy it and gear up to finish it?
Garfinkle: The project never went into foreclosure, but there were legal disputes between the contractors and the bank that predate us and continue today, over who had first lien rights. A local brokerage put out a call for offers, and we were the successful bidder. We paid $20 million, but the lenders and the contractors are still in litigation over who gets that money. It has no effect on the site; we’ve got clear title. But the court took the $20 million, it’s sitting in escrow, and the lenders and contractors are still haggling over it.