When Killing Condos Can Save Your Project

Last Updated Jan 8, 2009 1:10 PM EST

Killing 200 condominiums atop the Harmon Hotel & Spa was a way to save money, said an executive with the CityCenter project. The 49-story tower will almost be halved, saving $600 million in construction and other costs.
According to the Las Vegas Sun, MGM Mirage chief executive Jim Murren said the move was made after finding structural problems in the tower. Clark County building officials found faulty rebar to be the cause. Faced with rising costs from fixing the problem, Murren shelved the extra stories and decided to let the building stand as is -- at 28 floors. Its opening will also be pushed back until 2010.

The $11.2 billion CityCenter project is a 67-acre joint venture between MGM Mirage and Infinity World Development Corp. wedged between the Bellagio and the Monte Carlo resorts on the Las Vegas Strip. It will also feature the 61-story Aria Resort & Casino, another hotel and more than 2,000 condos. It will also have about 500,000-square-feet of shopping and other entertainment. The project is set to open December 2009, but is still short $1.2 billion to finish the project.
Wall Street analysts said the decision will benefit the project, especially since the Las Vegas condo market is densely saturated. (The housing market in Las Vegas is one of the worst in the nation.) Now developers can send those looking for condos to unsold, existing units on the same property. Only 88 of the 200 planned condos were in contract.

Murren said the decision to cut costs on the project only helped his company financially. "The banks were extremely happy with this development," he said to Bloomberg. "They think it's smart in this environment, and obviously we've got their support."

Murren said he also plans on drastically reducing debt by selling assets, even casinos if it will help their cash position.

"We're going to pull every lever we feel like we should pull to strengthen this company, to not only weather the recession, but come out of it stronger," Murren told Bloomberg.

MGM Mirage sold its Treasure Island Hotel & Casino to mogul Phil Ruffin for $775 million last month.
It will be interesting to see if selling off assets to better MGM Mirage's cash position is really just about ridding itself of debt, or making the company more attractive to lenders. Being short $1.2 billion to finish a gargantuan project makes me think the latter. Selling a couple of casinos will probably bring in the needed money -- one way or another.