It was supposed to be the most ambitious and lucrative project ever conceived in Las Vegas.
When construction began in 2006, the $9.1 billion mixed-used 76-acre complex—dubbed CityCenter Las Vegas—in the heart of the Strip symbolized a period of new economic development for the city and the casino industry.
But due to the economic recession, declining Las Vegas properties values, and the financial health of its developers, the project is now in jeopardy.
The relationship of CityCenter’s joint-venture owners, MGM Mirage and Dubai World, has been in called into question after Dubai World sued MGM last month for breach of contract, citing cost overruns, mismanagement, and MGM’s increasingly precarious financial condition.
Instead of taking its place as a beacon of the Las Vegas casino industry, CityCenter may become a symbol for the recent financial recession and a reminder of the real estate excess of our recent past.
“Considering the decrease in scope of certain aspects of the project, [Dubai World] is being asked to pay significantly more for a project that is considerably less than it bargained for,” according to the lawsuit, filed in Delaware’s Chancery Court.
Dubai World asked to be relieved from its obligations under the project.
Two years ago, Dubai World, the investment arm of the Middle Eastern city, spent nearly $6 billion for a 50 percent stake in CityCenter as well as a 9 percent stake in MGM, the nation’s second-largest casino operator.
But MGM ran into financial difficulties amid the economic downturn. Dubai paid nearly $80 per share for MGM stock, which is now trading barely above $5.
The company, controlled by 91-year-old American billionaire investor Kirk Kerkorian, is attempting to sell assets to avoid a default on its more than $13 billion of outstanding debt. MGM hired Morgan Stanley to consult on possible property sales, but its options are dwindling as the recent real estate market collapse has deflated the value of its hotels and casinos.
Last week, talks with private equity firms Colony Capital LLC and Crown Ltd. regarding a direct investment into MGM broke reportedly down.
But according to Bloomberg News, MGM won an extension this weekend from its lenders to pay $70 million on the CityCenter project, originally due on Monday. Reports indicate that Dubai World may be willing to continue making payments to finish the project, if MGM agrees to certain concessions.
MGM had sought approval from banks in order to make payments on the project on behalf of both partners, to keep the CityCenter project out of bankruptcy.
Luxury and Opulence
CityCenter is an urban-themed condo, hotel, casino, and shopping complex nestled between the Bellagio and Monte Carlo Resort & Casino on Las Vegas Boulevard. Vdara, a condo-hotel on the property, is the first portion of the project to open in October of this year.
The ARIA Resort & Casino is CityCenter’s main attraction—a large three-story casino and two 61-story glass towers with the only floor-to-ceiling hotel rooms in the city. Restaurants, nightclubs, shops, and a Cirque du Soleil theater are planned on site.
The complex will also feature a 400-room Mandarin Oriental Las Vegas, a portion of which is allocated to become condominiums.
At $9.1 billion, some analysts consider CityCenter to be the most expensive privately-funded construction project ever, and one that ultimately may not align with current market realities in Las Vegas. But it is important to the city both economically and for the morale of its people and businesses.
“This project has far-reaching effects on the city as a whole,” Steve Redlinger, spokesperson for the Southern Nevada Building and Construction Trades Council, said in a statement. “Nobody ever thought construction would ground to a halt. There is no next project. A lot of workers are scared. I’m scared.”