Vegas Woes Continue as MGM Mirage Sued By CityCenter Partner

The credit crunch has caused more than a few hiccups for hotel and casino projects across the country, and Las Vegas has been especially hard-hit. The latest snag in Vegas is the lawsuit against MGM Mirage, developer of the behemoth $8.8 billion CityCenter mixed-use project, which was sued by its joint venture partner, Dubai-headquartered Infinity World, due to financial worries over both the development and MGM Mirage itself. As per a press release from Infinity, the initiation of the lawsuit in Delaware Chancery Court constitutes the company’s effort to protect its rights and the best interests of the CityCenter project that it is developing as part of the City Center Holdings L.L.C. joint venture it owns equally with MGM. Infinity is seeking from the court a declaratory judgment that would release the company from its commitments under the joint venture agreement. It was MGM’s annual report, filed with the U.S. Securities and Exchange Commission on March 17, that ultimately prompted Infinity’s decision to pursue legal action against its partner. In the document, MGM expresses, among other concerns, doubts regarding the feasibility of sustaining itself as a company. At the close of 2008, MGM had approximately $13.5 billion of long-term debt, coupled with misgivings about the ability to borrow under its credit facility. With that information and those confirmed doubts, Infinity decided its only option was to sue to protect what has turned out to be a $4.3 billion investment in CityCenter. The funding is well above the amount Infinity originally consented to provide, a problem that Infinity parent company Dubai World attributes in a press release to MGM’s mismanagement of the CityCenter development. However, in its SEC filing, MGM notes that financing for CityCenter was impeded last year by the unfriendly credit market conditions, which forced MGM to request additional funds from its joint venture partner. Situated between the Bellagio and Monte Carlo resorts on 67 acres along the Las Vegas Strip, CityCenter is being designed to qualify for LEED certification and will encompass multiple facets totaling 18 million square feet. Among the development’s offerings will be the 61-story Aria, which will provide 4,000 guestrooms, 150,000 square feet of gaming space and a choice of restaurants; the 400-room Mandarin Oriental Hotel & Residences with 400 guestrooms and 227 residential units; the 1,495-room Vdara condo-hotel; the 670-residence Veer Towers; and the 500,000-square-foot Crystals retail and entertainment district. The highly anticipated opening of the gargantuan development is scheduled for December 2009. What won’t be on the property, however, is the 200-room residential segment of The Harmon Hotel & Spa. The joint venture announced in January that The Harmon Hotel would not debut until late 2010 with the planned 400 guestrooms, and revealed that the condominiums had been scrapped altogether. Eighty-eight of those residences were already under contract, leaving buyers with the option to have their deposits returned or applied to the acquisition of units in one of the other CityCenter residential projects. Despite the lawsuit, Infinity claims it is dedicated to working with MGM and lenders to resolve issues, and for its part, MGM is making every effort to diminish its financial woes. The company recently announced it had attained a two-month extension from banks on its $7 billion loan facility. Also, MGM has made moves to increase liquidity. The company announced on March 20 that it had wrapped up the $775 million sale of the 2,885-room Treasure Island Hotel & Casino, located on the Strip, to Ruffin Acquisition L.L.C.; and by postponing the completion of The Harmon Hotel, MGM is able to defer the $200 million in construction fees necessary to finish the building’s interior outfit. Additionally, CityCenter could end up providing a big boon to MGM, despite the dour state of the gaming market. “I think the tremendous amount of buzz that will be generated should, hopefully, attract the amount of people needed to make the project a success,” Michael Parks, first vice president with CB Richard Ellis Global Gaming Group, told CPN. “The buzz will be tremendous on a worldwide level, just because of the sheer magnitude and all its components.” CityCenter has what it takes to stand out in a crowd, and it will need that prominence. “There’s no doubt that the market is definitely challenged right now,” Parks said. “Las Vegas is suffering from the general economic slowdown being experienced by the rest of the country.” CityCenter’s big competition will come in the form of projects like the new $2.9 billion Fontainebleau Las Vegas and the $750 million Hard Rock Hotel & Casino expansion, which are still scheduled to deliver within the next several months. “It will take a while for new products coming online this year to be absorbed, but after that, we don’t anticipate any new projects getting off the ground for three of four years, or longer.”