Posted 9/19/2011 - 8:00:02 AM
Dennis Nessler, Editor, Hotel Business
When construction began on the enormous CityCenter project in Las Vegas several years ago, there were many naysayers (yes you can include yours truly in that group) who wondered if the city could absorb the added supply of some four hotels and approximately 4,800 hotel rooms and ultimately see a return on this more than $9 billion investment.
Here we are closing in on two years since its opening in December of 2009 and the only real conclusion that can be drawn is that this entire project was a colossal mistake. The most recent development, or lack thereof to be more accurate, is project owner MGM Resorts International’s recommendation to Clark County that CityCenter’s planned quarter of a billion dollar Harmon Hotel and Spa be demolished because it is structurally unsound.
The non-gaming boutique hotel was originally slated to be 49 stories before being cut down to 25 after construction defects were discovered. However, even if MGM gets approval from the Country to demolish the hotel, it still has a fight on its hands in the courts as the lead contractor The Perini Building Company—which contends the building actually is safe at its scaled back size—is claiming design errors were at the root of the problem with the original plan.
Regardless of who is responsible for what and how seriously compromised the building may or may not be, it certainly appears on the surface that MGM is just trying to cut its losses and pull the plug on this costly project and it’s hard to argue. In fact, the company has already publicly stated it is willing to forget about the some $279 million already invested in the Harmon.
To be candid, this project seems to have been doomed since the day the shovels hit the dirt in February of 2007. To start with, six workers were killed during the early construction phases of the project. Then, in response, in June of 2008 workers walked off the site in protest of the poor safety conditions. That was followed in early 2009 by Dubai World’s decision to sue MGM for breach of contract and halt its financing of the project. The two joint partners ultimately ironed out an eleventh-hour deal to “save” the project and while many in Vegas were relieved you have to wonder now if they feel the same way.
Of the existing hotel properties, Aria, Mandarin Oriental and Vdara, the 4,000-room Aria seems to have garnered the most attention for its luxury appeal and cutting-edge technology. However, while occupancy at the hotel has steadily climbed from roughly 63 percent in early 2010 to close to 90 percent in the second quarter of 2011, rate is still hovering around the $200 mark, not nearly where ownership projected it to be when plans were drawn up.
But it is well documented that Las Vegas has been one of the hardest hit markets during the recession. Whether it’s the so-called Obama effect or just part of the natural hotel cycle, demand in Vegas hasn’t come back as quickly as some of the other top hotel markets and that’s the unfortunate reality in 2011.
Over the years, Las Vegas has rolled the dice on some pretty big projects and usually come up a winner but when it comes to CityCenter it’s looking more and more like the city is coming up snake eyes this time.