LAS blog VEGAS

I have actively been working in the Las Vegas Cay Club with several sellers since early 2007 trying to sell their units for them. I have become somewhat of an expert on the happenings in this complex over the past year. I can tell you I have never seen a complex as “Messed-up” as this one in the ten years I have been a licensed Realtor. I would like to explain some of the challenges and potential problems that stand before us in this complex.

This complex consists of 360 condo units. They were converted to condos from apartments by the Cay Club. Cay Club was a Florida based company that was developing several resort style properties in many “Vacation Destinations” around the country. Buying into one of their projects was like purchasing at a country club with multiple geographical locations, and promised use privileges at all of their resorts. Most of their projects were in Florida, they had this one in Las Vegas and I believe they were in some stage of planning or development in at least two other states. They sold to friends, family and investor groups with big promises of “A Distinctive Lifestyle. A Prestigious Address.” & “Unrivaled amenities, unsurpassed service, and four luxurious floorplans aim to please the most discriminating of residents.” They were selling a “Dream” with promises of delivering a world class resort, complete with spas, restaurants, and gaming. In doing this they sold property and received appraisals based on a finished product. At a time in our market when similar property was selling between $100 & $200 per square foot Cay Club owners paid $300 to $450 per square foot. They even had written representation that future units to be built on site would sell at preconstruction pricing of $900 to $1200 per square foot. In addition to being sold on the huge upside in appreciation, the developer offered to lease the unit back from them starting the day after closing for two years at a rate of 15% of their purchase price. I believe this was never disclosed to the lenders at the time and never showed up on the closing HUD. This amount is equal to at least twice what market rents would have been. This allowed the Cay Club time to do the conversion and improvements as they were not compete at the time of closing with the buyers on any unit. This is when things started to go south, many owners did not receive, or only received partial amounts of this lease back money. The “Resort” is now nothing more than an apartment with granite counter tops. They did not deliver the “Dream” and now over 300 owners are faced with their worst nightmare!

One other problem that this complex if facing is the Home Owners Association “Mess.” The developer did not turn the Association over to the owners as was required by the governing documents. In mid June of 2008 the association was turned over to the owners, they went through the process of electing a board but they will be faced with many challenges. First the CC&R’s need to be revised if not almost rewritten, a huge portion of the document references the “Country Club” type of shared use between this and other properties, all of which is non existent. They will need to coordinate and install mail boxes on site as Cay Clubs removed all of them to make room for an exercise room in the Club House. They will also be forced to fix, improve and maintain the half-finished project they are left with. The excessively high fees will lower the borrowing potential of future buyers and cause even larger decreases in value. The fees are up to $550 per month and are the single biggest reason buyers are not purchasing in this complex today.

During the conversion to Condos the developer kept all of the common area and the club house for them to use and develop as they see fit in the future. They have wide ranging power to make these changes and the association has little or no voice in this. The unit owners are however required to pay for the taxes, care and upkeep while only having an easement for use over the common area. This 900 lb. gorilla is not a good bed partner for this association and I see it as causing problems with value in the future. They have even been distributing misinformation in an attempt to gain control of as many units as possible for their nightly rental pool.

Fraud! You can smell it around every corner in this project. There are current investigations I have been told about with the SEC, FBI and many Investigative News Agencies. There are allegations that the developer was involved in some coercion with the loan officers and appraisers that were working in this complex all to falsely set an above market value. The fraud is being investigated in several states and by several law firms, in Florida I have heard we are starting to see arrests being made.

Let me explain where some of the “Simple” loan problems occurred. Many of the loans were 100% second home loans but from day one there was a tenant, the developer, in place. If nothing else all of the loans should have been investor loans. The project was also sold as a “Condo-Hotel” style property while the loans were being done as a true condo style loan. Meaning the buyers were qualifying with little or no down when a Condo-Hotel loan would have required 20-30% down. Buyers were directed to use “In-house” lenders to receive the “Deals” they were getting. Part of the purchase price/loan amount included a full furniture package that was said to have been worth $25,000. Many times the loan also included Equity Membership Fees for the Cay Clubs “Country-Club” style amenities; everyone paid a different amount for this fee anywhere from zero to $15,000. Somehow close to $40,000 of non-real-property fees were financed and the appraisals showed enough value to cover this. In a market that was flat at best the Cay Club’s pricing increased by 30% in a short 12 months. I have been told that one appraiser did most if not all of the appraisals for this project, I’m sure this is also under investigation. Cay Clubs only furnished about 30% of the total units and at this time the “Cay Club/Country Club” is non existent.

Let’s talk about zoning. If it is a “Condo-Hotel” why hasn’t it shown up as needing to be that type of loan? The reason, it is still zoned for multi family. Then how are they operating as a nightly rental basis? (They are by the way) Last summer, 2007, Cay Clubs successfully received a special use permit from the Clark County Planning Commission to operate as a Time Share. Under this permit they are operating as a “Hotel,” the signs say “Hotel” and the on site security says “Hotel Security” prior to entering any room. I’m not even sure it the permit really gives them the permission to operate in this fashion. The strange thing is that the CC&R’s say that Time Share is not allowed. See the problems?!?!? In the future I think we will see the complex need to change zoning or stop operating as a hotel. Either option has a potential for a huge negative impact on the values.

When Cay Clubs left in November of 2007 the projects operations were taken over by a company called Desert Tides. Desert Tides did not assume any of the “Developer” responsibilities or liabilities. I have been told that a man by the name of David Band loaned $25,000,000 to Cay Clubs secured by the common area and the club house. When the Cay Clubs shut down David Band took the common area and 18 units in lieu of payment and formed Desert Tides. I however can’t confirm that these amounts are true or accurate as there is not a parcel number for the common area with recorded documents that I have found that show this. As far as I can tell this was a transaction that was 100% completed inside of an LLC. There is speculation that the old Cay Club principals may somehow still have ties to this property. I think there is good reason to believe this, for one, the General Manager was a former Cay Club employee. Desert Tides has also been having owners sign a property management contract that was put together by a former Cay Club attorney. It would seem to me that if they were indeed a separate entity that the attorney would have a conflict and would not be able to represent them?!?!

Future owners are going to be faced with some very challenging purchasing options and I believe that loans in any form are problematic. There is not one unit that is owner occupied, there is potential litigation at every turn, the HOA is in turmoil and most owners have never made a HOA payment. As soon as a new lender gets wind of “Condo-Hotel” or “Time Share” the conversation is over in our current lending conditions. I believe that cash purchases are the most likely to close on these units any time in the near future.

In conclusion, it is hard to believe that we are going to see units drop in sales price from $460,000 to well under $100,000 in less than 12 months. How could it be; banks, appraisers and BPO’s aren’t going to understand the amount of organized fraud that has transpired in this community and will have a hard time lowering the price to where it needs to be to sell. All of the circumstances that I have outlined here create a community that may not be saleable to anyone other than a cash buyer and even then the HOA/common area problems may keep the cash buyers away if Desert Tides is found to be involved in dishonest business practices.

I am attaching some back up documentation to support some of the issues. Click on this link Las Vegas Cay Club back up documentation

This entry was posted on Thursday, September 18th, 2008 at 7:54 pm and is filed under Las Vegas Real Estate, Las Vegas Cay Club. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.