It looks like City Center, the $11 billion, largest privately funded project in the United States, is on the verge of bankruptcy:
City Center, an $8 billion Las Vegas project owned by MGM Mirage and Dubai World, has hired counsel to advise on a possible bankruptcy filing, the Wall Street Journal reported on Thursday, citing people familiar with the matter.
The casino operator, controlled by billionaire Kirk Kerkorian, and its joint venture partner Dubai World are likely to struggle to pay $220 million due Friday on CityCenter, the newspaper said.
When contacted by Reuters, a spokeswoman for MGM Mirage declined comment.
CityCenter has hired Dewey & LeBoeuf to prepare for a possible Chapter 11 filing as soon as this weekend, depending on the outcome of talks between MGM Mirage, the lenders and Dubai World, the people told the WSJ.
Here’s what I had to say about City Center in March 2007: [Scroll down to comments, #17]
I’m in Las Vegas where I came for some R&R- but I spent most of the morning watching CNBC and mining for links. Then I sat by the pool this afternoon, going over my notes and looking over at the new 75 acre City Center going up next to my hotel and thinking THESE PEOPLE ARE OUT OF THEIR MINDS!
I stand by my 2007 assessment. The project NEVER made sense. The Strip was already glutted by a "build it and they will come" mentality. Too big and too late to the party, City Center was doomed to be a collection of ghost towers gracing the Las Vegas skyline.
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So Twist has upgraded her resume from reporter of doom to prophetess of doom! Good call!
Makes you wonder how the guys & gals on the other side of the construction fence… you know, the ones lending, spending and borrowing the $ 11 BILLION missed it all.
Oh, yeah. It’s different there.
BTW: Is it easier or harder to sweat a $ 220 million deadline than a cell phone bill that’s due in a couple days? I’ve not had that level of experience thus far.
We visit Las Vegas about three times a year (stay in $29 rooms at Stratosphere), and one of the highlights of our visit is watching the City Center project, and taking bets on when it will default. . .actually it has gone on longer than even locals could have imagined. Will the Marines use it for combat training? Will it be “The Museum of American Excess?” Will it be bought for pennies on the dollar and sold off as a public houseing project?
Let’s start a contest here for the best re-use of City Center.
Asset Hunter-
It didn’t take a crystal ball to make this call. Anyone who spends time in Vegas could see that the hotel deals have kept getting better why the traffic on the Strip has gotten lighter.
The developers in LV were convinced that people will gamble no matter what. That might be, but now they are home betting their buddies $10 on whether the Suns are going to win the next game, rather than checking into the Ballagio with a bankroll courtesy of their HELOC.
Mark-
That’s a tough one- the project is unbelievably large. I worry that it will end up being a haunt for the homeless and those who prefer to do their business in dark corners.
I think it would make a marvelous movie set though for some sort of futuristic apocalyptic action film. Maybe they could blow the place up for the final scene.
After that the city fathers could turn it into a park- there are so many condos available, they certainly don’t need these.
Yes Igor, it was all “too much”
IF I could pick one up for $200K, I’d buy one. It’d be nice to be that close to the strip.
Unfortunately, they wanted something like 800K for a basic lower-level model. Insano!
That had to be like a .01% cap rate or something.
I just heard they came up with the money so they can string this thing on longer.
A friend works for a huge plumbing supply source and City Center has been a major client till lately; all he does now is collections.
City Center got all warm & fuzzy just prior to the holidays by doing tons of job interviews, in anticipation of their grand opening. You should have seen the excitement here. It was like everybody getting their period after a week of being late. My thought at the time was “what a tease.” I live here and occasionally drive the Strip, looking UP, to see what’s been happening. Things just aren’t progressing.
Up West in the Red Rock area, a mother-of-all-malls has been abandoned since last year. Like all the other malls, it’s for sale; they’re all for sale. Looks like someone started something on the Moon and bailed.
I think the MGM/Dubai save of today will just become a heartache very soon. Maybe there will be a Dubai Stimulus Grant. It is an eyesore, the same as the mother-of-all-malls.
I have to get out and drive the Strip more. The traffic surely has subsided by now.
I did just drive by at least a dozen homes yesterday that are slated for the 4/11 auction. Mostly lovely homes, obviously vacant. A couple of dogs but mostly very nice.
I don’t want to be perceived as a bull on this thread, but Vegas is (still) a global destination, and I (maybe stupidly) believe that as the value of the dollar approaches toilet paper, all of Southeast Asia will be able to come to Vegas and stay for a week for the cost of a bowl of noodles back home. Clearly MGM Mirage is underwater, but my guess is they will get this thing open through asset sales, and there will be the usual curiosity traffic.
I would be more worried if I was working in dumps like the Tropicana, Excalibur, or Imperial Palace than I would be if I was an MGM Mirage bondholder.
twist -
TWO WORDS say this project will never be underwater … Lake. Mead.
(at least Dubai has some sort of water)
“CityCenter to world: ‘I’m not dead yet!’ “, TheMessThatGreenspanMade, March 27, 2009.
… and anyway, here comes the 99th Street Fed to the rescue!
“Commercial Mortgage Bonds Big Winner In Credit Markets”, by Prabha Nataraja, Wall Street Journal, March 27, 2009.
John M,
b4 I left Vegas I went to city center and visited the new Robb & Stucky store. Not a sole in the store. Very high rent rates. It was a dumb idea all along. Whole Foods was smart pulling our b4 it went downhill. You’re right about the water. Too bad this lunacy has affected all of us
John-
I saw that they came up with this week’s payment, but there’s a long way to go.
Last year I went with my oldest son to the City Center sales center. They made it sound like they were pretty much sold out and there were only a few units left. The agent also said though that her boss was on a plane to Dubai to open a sales office there. I couldn’t help but think that if sales were so great, they wouldn’t bother setting up an office in Dubai.
I also wondered about the cost of jumbos and the resources of some of their buyers. Given the way that portfolios have been hit and unemployment has been rising, I suspect a number of buyers either can’t or won’t come to the table to close. The claim is that a lot of the buyers are Chinese- there are a number of them with declining fortunes as well.
I suppose the government might decide this project is “too big to fail” and bail it out, but finishing it won’t fill it up.
Agnostic-
It’s tough to get the number of new condos for sale in LV, but there are A LOT. There were way too many of them a couple of years ago, and there’s been a lot of inventory added since then.
You might find these Clark County statistics from UNLV’s Center for Business and Economic Research interesting. I think they show pretty well that tourism has gone way down as the number of condos have gone way up.
i don’t want to question the unlv credentials….but how did total unemployed go down by 120K and the unemployment rate go up by 5%??? twist…they are interesting stats…i’m just not sure how accurate any of them are?
Agnostic
I am a very small MGM bond holder (maturing in early 2011) and I am very worried. Do you have any bond holdings of MGM?
I think I may end up owning a new class of shares before maturity of my bonds.
AZSaluki-
It looks like there were 921K employed one year ago and 880K employed this year. Maybe you were looking at it backwards?
I haven’t tracked these guys real closely, but I’ve used their stats from time to time and I believe they are reasonably accurate.
Clearly the foolishness that Strip RE and Vegas in general would grow to the sky was as ludicrous as the notion that 50k incomes can support 500k home prices.
I was in Vegas for the first weekend of the NCAA Basketball tournament a week ago, and it was packed. PACKED. I have been going for that first weekend every year for the past fifteen, and the betting lines have never been as long or the seating areas as full. Now, maybe it was a bunch of twenty-year old kids betting $20 per game and drinking $20 of beer and sleeping 20 to a room, but packed is packed. The Mirage, Bellagio, NYNY, Mandalay, all packed. I think I’m going back for Memorial Day weekend, we’ll see how full it is then. Twist’s economic statistics certainly carry more weight than my empirical BS, but I gotta believe they can make some debt payments after seeing those crowds.
While I was there, I talked with a buddy of mine who has been at the Mirage since the beginning of time. Rumor has it that every property in the stable can be had except for the MGM Grand and Bellagio.
With regard to the MGM Mirage bonds (manfre #14), I think you’re okay if you’re in the senior notes. I am a holder, and I bought recently. The thing with the bonds is (stop me if you’ve heard this one before) kind of a mark-to-market issue. Even after the Treasure Island sale, if you price all the properties for a forced (BK) liquidation, then there’s too much debt, in other words, there could be some downside buying/owning the bonds at $50. I think this is why you see the S&P downgrades. My guess is we may become shareholders, but there will still be some value in post-BK shares, if that’s what happens. Obviously the possibility of a City Center BK has an impact on further MGM Mirage developments (pun slightly intended). But I think MGM Mirage will do whatever they can, including additional considerable asset sales, in order to get CC finished and open.
All the same, as I noted above, I still think Vegas is a worldwide destination as I discussed above. If there is a massive global deflation, sure there are questions, but I still think people with money (oh, I know, everything’s relative) are going to come to Vegas.