As market gets tougher, CityCenter to sell in Dubai

Steve Marcus

Construction continues on MGM Mirage’s $7.8 billion CityCenter project between the Monte Carlo and the Bellagio on the Las Vegas Strip. Executives say they are not sweating the roughly 1,300 condo units yet to be sold, largely because of the strong market for international tourism, which they plan to tap with a sales office in the United Arab Emirates.

By Liz Benston (contact)

Thursday, Jan. 24, 2008 | 2 a.m.

Six months ago, Dubai’s government-owned conglomerate -- hot to invest on the Las Vegas Strip and enthralled by MGM Mirage’s CityCenter development -- came knocking with an offer to buy a half-interest in the project and acquire a 9.5 percent stake in the gaming giant.

MGM Mirage jumped at the $5 billion cash infusion, which would strengthen the company’s financial position and allow it to afford a major multiyear growth plan in Las Vegas even before there was much of a whisper about a softening economy.

The unexpected deal has turned into one of MGM Mirage’s most fortuitous opportunities.

It has allowed the company to go knocking in wealthy Dubai, winning permission from the Arab emirate to open a condominium sales office in the Persian Gulf state.

Don’t underestimate the value of a condo showroom in an investor-rich foreign country.

The Dubai partnership allows MGM Mirage to pitch its high-end Strip condos to a wide international audience at a time when much of the world is trembling with economic anxieties and investors worry about overhyped demand for Strip condos.

Dubai seems the perfect marketplace for MGM Mirage to pitch real estate investment opportunities.

While the $7.8 billion CityCenter development may be the most ambitious project in the country, and more than $30 billion in hotel and condo projects will be built on the Strip over the next several years, Dubai is plowing as much as $50 billion into commercial projects by 2010 an unprecedented growth rate for any tourism destination in the world.

And while investors see souring demand for thousands of condominiums yet to be completed in Las Vegas, Dubai plans hundreds of thousands of resort homes and tens of thousands of condos.

The region’s business-friendly outlook, rather than oil industry profits which make up but a small part of Dubai’s wealth has fueled its tourism-based economy.

This may explain why Tony Dennis, executive vice president of CityCenter’s residential division, isn’t sweating much about the prospect of selling more than 1,300 remaining condo units before the end of 2009, when CityCenter’s hotels and condo towers open their doors.

“Take what’s happening in Las Vegas and add a few more zeros to that,” said Dennis, who hopped a plane for his third trip to Dubai last week.

MGM Mirage is just beginning the process of selling Las Vegas condos to a globe-trotting crowd already familiar with the Arab emirate.

The company’s timing couldn’t be better.

A soaring trade deficit has weakened the U.S. dollar, which makes a Las Vegas condo a relative bargain compared with residences in other countries and in top cities such as New York.

“International buyers see an opportunity” with the dollar at its lowest point in at least a decade, Dennis said.

MGM Mirage forged the Middle East connection last year when Dubai World, a government-owned conglomerate, agreed to acquire a 50 percent stake in CityCenter as well as a significant amount of MGM Mirage stock. Last week, both parties agreed to enrich the deal. Dubai World expects to buy 6.5 million shares at $80 a share and MGM Mirage viewing its stock as undervalued given the demand for international tourism agreed to purchase 8.5 million shares at the same price.

Some wonder whether CityCenter, which has more condos than any other Las Vegas project, will be able to sell its remaining 1,300 or so units.

Condo buyers in other developments, skittish about the slumping housing market, are attempting to back out of their contracts. Buyers have reported problems securing mortgages from lenders that have tightened requirements, and speculators who helped fuel the spectacular rise in condo prices two years ago are trying to dump units worth less than what they paid for them.

Dennis said CityCenter is “outperforming” the competition because it is a unique project that appeals to wealthy buyers.

The company has sold about half of its condo units at CityCenter, with about 1,000 of those units bought by the company’s “friends and family” network. At least 10 percent of buyers are foreigners.

The marketing effort to non-MGM Mirage customers, especially foreigners, hasn’t yet begun in earnest, he said.

That’s where the Dubai sales office for CityCenter condos will come in handy.

“The marketing opportunity is truly unlimited” because of the concentration of wealth in Dubai, which attracts investors from Europe, Australia, India and the Middle East, Dennis said.

Las Vegas-based condo broker Bruce Hiatt, who spent some time in the Middle East for his former employer, Exxon Mobil, said Dubai is a desirable resort destination sought by rich investors outside of the United States, including in Britain and Canada.

Americans, for the most part, aren’t clued in to Dubai’s growth, he said.

While surpassing Las Vegas in construction volume, Dubai is also exploding with award-winning architecture at a higher overall level of quality than offerings in Las Vegas, he added.

“Las Vegas could learn a lot from Dubai in this regard.”