Anyone who pays any attention at all to real estate knows that Las Vegas has been absolutely hammered by the real estate downturn. At or near the top in foreclosures, prices down to pre-boom levels, new home building has ground to a halt. The local economy is reeling with unemployment over 10%, tourism down sharply, major casino properties in bankruptcy or teetering on the brink.
However Las Vegas did have an ace in the hole. There were several very large construction projects that supplied construction and related jobs to the local economy. When these resort properties started coming online in late 2009 there would be thousands of jobs created in the properties and with the companies that supplied various supporting services. The local spin-doctors pointed to these projects and boldly stated that these properties ensured that the recovery of the local economy would be swift and robust.
So Echelon Place bit the dust, we still most expensive private construction project in the history of the world to fall back on. Or did we? MGM Mirage is building City Center, a collection of six high-rise towers containing hotels, hi-rise condos and casinos with an initial price tag of $9.2 billion (since scaled back to $8.7 billion). It an effort to avoid the credit problems that faced other projects, MGM Mirage partnered with Dubai World, the cash-rich investment arm of the Dubai emirate. It seemed like a good idea at the time.
However a funny thing happened on the way to prosperity. At the time the deal was struck MGM Mirage shares were valued at $80. On Friday, March 27th the stock closed at $2.85, a drop of more than 96% from the price Dubai paid. Needless to say, Dubai is not at all pleased. Nevertheless, they were stuck with the City Center deal. Or were they?
The souring of the economy and the cash drain of City Center has left MGM Mirage teetering at the edge of bankruptcy. Local prognosticators were speculating on when, not if, they would file for bankruptcy protection. They avoided it at least temporarily by selling off one of their properties, Treasure Island, for $775 million. It looked like they had improved their balance sheet enough to keep City Center going.
Then Dubai dropped the other shoe. Facing economic troubles of their own, they sued MGM Mirage for breach of contract and mismanagement of the City Center project and refused to make their portion of a $200 million payment that was due. It looked as if the project might be forced to shut down, idling 8,500 construction workers and adding to the area’s economic woes.