LAS VEGAS, NV - The ravages of the recession are visible in this gambling city, but one of the largest privately financed developments in the United States, an $8.5 billion city within a city called CityCenter, claims to be on schedule to open this year. The 67-acre development on the Strip consists of six towers with 2,392 apartments, as many as 5,900 hotel rooms, a casino, and a shopping center and entertainment complex. Some of the world's renowned architects have designed buildings for the project. Envisioned as a self-contained community, it will have its own fire department and power plant.
CityCenter is seen as highly significant to Las Vegas's image as an entertainment mecca. But the city's swagger was shaken this year when the project's owners — MGM Mirage, the publicly held casino operator, and Dubai World, an investment arm of the Dubai government — ran into a legion of problems. As of this month, however, they said that those wrinkles have been ironed out.
Because of the credit crisis, CityCenter's owners found themselves in September 2008 unable to obtain several billion dollars that they had anticipated in loans from a consortium led by Bank of America. Though a $1.8 billion loan was eventually offered, the owners had to finance much of the project with their own cash. They had almost finished five towers when new problems erupted in February.
Building inspectors discovered technical problems in the half-built sixth tower — the Harmon Hotel, Spa and Residences — and the developers decided to cut off construction at 25 floors, instead of the planned 47 stories, almost halving the tower and killing plans for 200 condominiums. The Harmon, designed by the prominent architect Norman Foster, will now be only a hotel with 400 rooms.
Although seen as a major embarrassment, the decision may have been a blessing in disguise, since condo prices are in a free fall in Las Vegas. (They are currently down about 30 percent from their peak.)
Then MGM Mirage, with some $14 billion in debt, said in March that it was contemplating bankruptcy. Dubai World, which had put $4.3 billion into the project since forming the partnership in August 2007, filed a lawsuit against MGM Mirage seeking relief from its obligations.
"Dubai World is a sophisticated investor, and as such we actively monitor and seek to enhance and protect our investments wherever they are," said William Grounds, president of the Infinity World Development Corporation, the Dubai World subsidiary that is investing in CityCenter.
But the two partners worked out an agreement on April 29 that is intended to allow the project to continue whether or not MGM Mirage files for bankruptcy protection, those involved in negotiations said.
The agreement ensured that $1.8 billion in loans from lenders will flow — though at an interest rate that is 2 percent higher than originally negotiated. Also, if project costs exceed $8.5 billion, MGM Mirage will be responsible for the excess. Its CircusCircus casino and adjacent land are being used as collateral.
The $8.5 billion does not include money to complete the Harmon, estimated to be a $200 million, to be paid by both partners under a separate agreement, said Alan Feldman, a spokesman for MGM Mirage.
Mr. Feldman said the company did not expect cost overruns on CityCenter. "We're very confident in the budget at $8.5 billion," he said. "Generally speaking, the big-ticket parts of this project's budget have been coming down in price over these last few months," like labor and some material costs.
The other moving piece in the agreement is condominium sales. If condo revenue is less than $243 million, then MGM Mirage has to put the amount of the shortfall into construction financing though Mr. Feldman said he doubted that would happen.
"We have $1.5 billion in condominiums under contract," he said. Although some prospective buyers may eventually back out, Mr. Feldman said reaching $243 million in sales is "a fairly modest bar to have to get beyond." Closings will most likely begin as early as October.
In mid-May, 432 of the 670 residences at Veer Towers, two slanted 37-story residential high-rises designed by Helmut Jahn, were under contract, while 206 of 227 condos were under contract at the Residences at Mandarin Oriental, designed by Kohn Pedersen Fox. (The Mandarin, which scheduled to open on Dec. 3, will also have 400 hotel rooms.)
A 57-story semicircular tower called Vdara, designed by RV Architecture, led by Rafael Viñoly, has 1,495 residences, of which 698 had been sold as of mid-May. At the same time, Vdara, a condo-hotel, has booked 54,000 nights at rates of $159 to $2,000 a night.
Mr. Feldman said that once owners close on their Vdara residences, they will be able to participate in a rental program that, beginning Oct. 1, leases their condos as hotel rooms when they are not residing there. For the hotel nights already booked, travelers will be put up in unsold condominiums.
Aria, CityCenter's 61-story 4,004-room hotel-casino, designed by Pelli Clarke Pelli Architects as several multilevel interlocking slices, is to open on Dec. 16. As of mid-May, Aria had booked 105,000 nights at room rates ranging from $179 to $799, and suites ranging from $500 to $7,500 a night. Aria will feature restaurants with award-winning chefs, and a theater for Cirque du Soleil's new Elvis-themed show.
The oval-shaped Harmon hotel is not expected to open until late 2010.
A 500,000-square-foot shopping, restaurant and entertainment complex with quartzlike jagged edges called the Crystals will open on Dec. 3. Designed by Studio Daniel Libeskind with interiors by David Rockwell, the Crystals fronts the Strip. Retailers that have leased space include Louis Vuitton, Tiffany & Company, Tourbillon and Ermenegildo Zegna; Wolfgang Puck will open two restaurants there.
Faith Hope Consolo, a New York-based retail broker with Prudential Douglas Elliman Real Estate, was in Las Vegas in mid-May for a conference and toured the Crystals. She said she is encouraging her retail clients to consider the shopping center.
The overall retail situation in Las Vegas has been rather bleak, with some properties struggling. General Growth Properties, which has about 200 malls nationwide, is restructuring its debt and had sought at one time to sell three properties in the city: Fashion Show, Grand Canal Shoppes at the Venetian and the Shoppes at the Palazzo.
High-end retailing is not the only area in which CityCenter is significantly increasing the city's supply. When the development is fully open, the number of upscale hotel rooms in Las Vegas will increase by about 15 percent, said Michael Mixer, a senior vice president with Colliers International Las Vegas who sells land for hotel-casinos and has assisted with evaluation of CityCenter's holdings. Between the jump in supply and the recession, MGM Mirage will have to worry about cannibalizing its own casinos and hotels, he said.
"But that will be a blip — a short-term issue," Mr. Mixer said. "About 85 percent of Americans have yet to come to Las Vegas, and as the economy comes back, the CityCenter project will in fact expand the market."
Mr. Mixer said Las Vegas residents breathed a collective sigh of relief when the partners in CityCenter worked out their disputes. The project will create 12,000 permanent jobs.
"At this stage, it would be such a shame to see a project of that magnitude falter, almost at the two-yard line," he said. "This project is the shining star of Las Vegas."
Source: NYtimes.com