Saturday, 28 March 2009
Massive City Center Project is in Danger in Las Vegas
Anyone who thought (or is thinking) about investing in Las Vegas know how massive City Center Project is. This project is joint venture between MGM Mirage and Dubai World, Dubai's government investment outlet with project budget of $9.2 billion. This massive mixed use project is made of hotels, condomium, retail and office space.
This project is extremely important for Las Vegas economy as it is suffering from real estate bubble burst, decline in tourism and increasing unemployment.
As Las Vegas economy has been declining, City Center project also faces more troubles. Dubai World sued MGM Mirage for cost over-run. One of condo project has been reduced dramatically.
City Center got huge media attention on March 27th 2009 as it faced deadline for $200 million payment to lenders as Dubai World decline further payment and MGM faces cash shortage. This issue was tentatively solved by MGM paying entire $200 million to get project going.
It is very interesting to see how this project end up. MGS and Dubai World have jointly invested billions in it, walking away from this project is not option for them. However, under current economy, revenue from hotel, office, retail and condo are significantly lower than it was projected.
City Center is very critical in revising Las Vegas economy. One economist forecast that failure of the project will increase unemployment rate to 11.1% from 10.1%.
As you may have seen from my previous posting, Las Vegas economy is seriously stagnant. Number of visitors are down by 11% and room rate is down by 37%. Therefore existing hotels and business are hoping for failure or delay of City Center completion so that they do not lose more business. It is very ironic situation.
Anyhow, City Center projects is symbol of luxury bubble at Las Vegas. Its future somewhat depends on this project. Let's keep eye on how it turns out!