*Massive Las Vegas building project faces funding crunch
*Work continues but Dubai backers not happy
*Soaring construction costs pushed up price tag
By Damon Hodge
LAS VEGAS, (Reuters) - It was conceived as the
centerpiece of a thriving Las Vegas -- one of the world's most
expensive building projects that would bring back glamour to the
Strip and cap an unprecedented three-year economic boom.
Instead the $9 billion development named CityCenter -- touted
as the city's most ambitious endeavor -- has come to symbolize a
global retail and leisure slump and the city's struggles to come
to grips with crushing unemployment and dwindling casino revenue.
Partners MGM Mirage -- struggling to bankroll the
project's ballooning cost -- and Dubai World had
pondered placing the development under bankruptcy, thrusting
its future into question, sources say.
Things appear to be buzzing along at the 67-acre glass and
steel mini-metropolis of envisioned condominiums, hotels, shops
and casinos in the middle of the Strip, dwarfing MGM Mirage's own
sprawling Bellagio and Harrah's Caesar's Palace.
The complex is scheduled to open in phases starting late this
year, although analysts say it's unclear if that target will be
Motorists and pedestrians slow to gawk at buildings
glittering in the desert sun, while workers in white hard-hats
and orange vests throng the site.
But trouble is brewing beneath the surface. In March, Dubai
World, the development arm of the United Arab Emirates, sued MGM
Mirage, claiming mismanagement and wanting out of further
financial commitments. The U.S. company hired bankruptcy counsel,
setting off alarms about solvency. And the company was forced to
inject an emergency $200 million to keep construction going.
"The events of the last six months have been our Pearl
Harbor, economically," said Bill Thompson, gaming expert and
professor of public administration at the University of Nevada,
Las Vegas. "CityCenter might be too big to fail. If it opens,
it's a dramatic gesture that says we're winning, we're not
defeated, we're on the way back."
"If it fails, it would be like a second Pearl Harbor."
It now needs $800 million more to access a $1.8 billion
credit facility to let it complete the project, but funding
prospects look bleak in a global recession
Hope hovers on the horizon. MGM Mirage, which a source said
had hired Morgan Stanley to advise on selling its other
casinos, is in discussions with Colony Capital LLC about
investing in CityCenter, sources say. Australia's Crown Ltd
has denied speculation it too was considering sinking
money into the project.
Investors fled as the recession killed a three-year boom.
MGM Mirage's shares have plunged 95 percent in the past year.
CityCenter's financial woes are the latest in a string of
setbacks for a project that promised to change how people think
of Vegas and was called the nation's most expensive, privately
financed construction when it was announced in November 2004.
MGM Mirage enlisted a coterie of renowned architects
including Cesar Pelli and Norman Foster to design what ex-CEO
Terry Lanni called a "paradigm-shifting project."
Cost overruns, delays and construction snags since prompted
MGM Mirage in January to halve the 49-story Harmon tower hotel.
Soaring building-material costs nearly doubled CityCenter's
initial price of $5 billion, at a time tourism is plunging amid
the slowest growth in gaming revenues in 25 years.
"The initial price was based on analysts' projections," said
Alan Feldman, an official with MGM Mirage. "The spiraling cost of
concrete, steel and labor pushed us to $9 billion."
Late last year, the company spent months repairing
buildings after government inspectors demanded proof that all
six of its towers were structurally sound. Company spokesman
Gordon Absher said the company fixed the problems.
In June, inspectors from the Occupation and Safety and
Health Administration visited the project after workers walked
off to protest unsafe conditions. Six workers have died.
Absher declined comment on the worker deaths.
For Las Vegas itself, more than 8,500 construction jobs and
10,000 permanent jobs are at stake, experts say.
"This project has far-reaching effects on the city as a
whole," said Steve Redlinger, spokesman for the Southern Nevada
Building and Construction Trades Council. "Nobody ever thought
construction would ground to a halt," he said. "There is no
next project. A lot of workers are scared. I'm scared."
Managed right, a Chapter 11 filing or a pre-packaged
bankruptcy could allow MGM Mirage to restructure debt and
finish CityCenter, said Nancy Rappaport, bankruptcy expert and
a law professor at the University of Nevada, Las Vegas.
"There's a ripple effect whenever a company files for
bankruptcy. Enron's filing devastated a lot of businesses in
Houston," she said.
Government won't intervene, said Rory Reid, who chairs the
7-member Clark County Commission, which regulates the Strip.
"We have a ($2.3 billion) state budget deficit to deal
with. I don't think we have legislative authority to make
investments in private interests," Reid said.
Nearly 60 percent of that budget comes from sales taxes.
"CityCenter is the central focus of what's happening in Las
Vegas," said Randy Lavigne, executive director of the Nevada
and Las Vegas chapter of the American Institute of Architects.
"It's the largest project in the world right now."
(Editing by Edwin Chan and Cynthia Osterman)
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