Luxe Life Blog

Breaking News: MGM reveals cutbacks, delays in $13 billion CityCenter project

Posted January 7, 2009 • 6:56 a.m.

The $13 billion CityCenter project on the Strip.

Months of rumors of construction problems and excess unsold residential space at MGM’s giant $13 billion CityCenter project have circulated throughout the gaming industry. In fact, Vegas DeLuxe anonymously reported these rumors exclusively early last fall.

Now, just moments ago at 6 a.m., MGM officials finally confirmed that major changes are being implemented. First is a major design change regarding plans for The Light Group’s Harmon Tower, which also will set back its planned opening by nearly 12 months.

Vegas DeLuxe first reported in September that the top eight floors were to be shelved and that structural problems relating to cable support systems would cause another reduction of actual building space.

MGM confirms that it will eliminate a portion of the residential inventory, which lowers the overall cost by at least $200 million. Now the Harmon Tower will consist of 400 hotel rooms and suites. MGM’s management had previously intended to include 200 residential units at the property, of which 88 were in contract for sale. Now those 88 buyers will be offered units in other residential areas of CityCenter or given deposit refunds.

MGM says it will now open the 400-room Harmon Tower in late 2010 -- that’s one year after the planned opening of the remainder of the development. The balance of the project, which consists of the 4,000-room Aria hotel and casino, the 400-room and 227-residential-unit Mandarin Oriental, the 670-residential-unit Veer and the 1,495-room hotel-condo Vdara, is still planned for a December opening this year.

MGM noted this morning that it “remains firm in its attempt to secure additional project financing for CityCenter.” We also hear reliable rumors that negotiations are still continuing with two Chinese government banks to secure as much as $3 billion of financing to complete the massive project.

Still to be addressed, though, are rumors about a lackluster market of residential sales in the “two leaning V towers” of the Veer glass complex. There are said to be “cabling issues,” which Vegas DeLuxe reported back in September. MGM did not make any announcement about that situation at 6 a.m. today, only confirming the Harmon Tower reductions.

The Harmon luxury spa and hotel is operated by mogul Andrew Sassoon, who runs The Light Group here with his Jet and Bank nightclub empires in The Mirage and the Bellagio, along with the restaurants Fix, Stack, Brand, Diablo’s Cantina and Yellowtail, all on the Strip and in the Bellagio, The Mirage and the Monte Carlo.

One of the members of the royal family of Dubai who control the well-heeled Dubai World conglomerate purchased 50 percent of The Light Group last year. Dubai World also is a major partner with MGM in the development of CityCenter.

Wall Street believes the changes will all be a “positive” for MGM’s stock price. Said Joseph Greff, senior gaming industry analyst banker at JP Morgan: “We believe this news will be well received by investors. It eliminates a portion of the residential inventory and lowers the overall cost.”

However, investors didn’t give MGM a thumbs-up immediately on the news. When MGM’s stock opened at 6:30 a.m. Pacific Time on Wall Street, it dropped 5 percent from yesterday’s closing price, to $15.05 -- almost double the year’s low but way off its year's high of $75.08.

"By canceling the Harmon condominium component, we will be able to avoid the need for substantial redesign of the Harmon resulting from contractor construction errors," CityCenter CEO Bobby Baldwin said in the official statement released this morning by MGM.

Yesterday, MGM began a job recruitment fair searching for 12,000 new employees for CityCenter.

Vegas DeLuxe will continue to monitor this story as it develops. Click HERE to read our colleague Las Vegas Sun's story about the structural problems at Harmon Tower.

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