Tuesday, March 24, 2009

For sale: $8.6 billion project in the heart of Las Vegas!


CityCenter, the enormous, $8.6 billion mixed-use project along The Las Vegas Strip, is now being imperiled because its Dubai-based partner, Dubai World, is suing to limit its exposure. I'll ask the questions I always ask about these disasters-in-the-making: who did the due diligence on the various uses at CityCenter, what assumptions were made, and were any worst-case scenarios factored into the decision making? From a Wall Street Journal story:

A highly touted real-estate partnership between a major Dubai investor and one of the biggest casino operators in the U.S. is in danger of blowing up amid a plunge in Las Vegas gambling and tourism revenues.

Dubai World, a conglomerate owned by the Dubai government, is suing to limit its exposure to its troubled venture with MGM Mirage to develop the $8.6 billion City Center project on the Las Vegas Strip.

In a lawsuit filed Monday in Delaware Chancery Court, Dubai World asked the court to free it from making future payments and fulfilling other obligations under its partnership deal with MGM Mirage. It also blamed MGM Mirage for massive cost overruns on City Center -- a resort and residential complex rising on nearly 67 acres in the heart of Las Vegas. The project is owned jointly by MGM Mirage and a Dubai World subsidiary called Infinity World.

In a potentially greater blow to the project, Dubai World signaled in the lawsuit that it probably won't make a $100 million payment on the City Center project that is due Friday. That would intensify the financial pressure on the project and on MGM Mirage, both of which are struggling to meet looming debt obligations.

Failure to make the payment could jeopardize City Center's ability to pay its debt and perhaps halt construction of the project, possibly pushing it into bankruptcy proceedings...

City Center is the most ambitious of a series of lavish development projects that Las Vegas casinos have taken on in the past few years. Many of those projects were financed when credit was easy to get. But they have ended up saddling their parent companies with massive debt at a time when the gambling and tourism business in Las Vegas is in a steep decline...

If construction continues as planned, the City Center project is scheduled to open in phases starting at the end of this year. It includes nearly 5,000 hotel rooms in three hotels, a shopping mall, casino and two condo towers.

The complex originally was projected to cost $7.48 billion, but that price tag has jumped to $8.6 billion, even though parts of the project have been scaled back.

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