Company exec says scaling down is most logical move

By Liz Benston (contact)

Thursday, Jan. 8, 2009 | 2 a.m.

MGM Mirage could have built a structurally sound 49-story building, but given the economic climate, the company and its partners decided it wasn’t worth the additional time and money to finish The Harmon as planned, the company’s top executive said Wednesday.

MGM Mirage Chairman and Chief Executive Officer Jim Murren made the comments following an announcement that CityCenter would scale down the hotel and forgo plans for condominiums atop the hotel rooms after uncovering extensive structural problems.

Expediting The Harmon to open with CityCenter’s five other towers in late 2009 would be too difficult and costly to pull off, Murren said.

“The extra money and time needed to fix something while you’re building something, as well as the overtime involved, would have stretched our staff,” he said.

Some Wall Street analysts view the scrapped condominiums as a plus given that sales of new condos have slowed to a crawl in Las Vegas. In a research note to investors Wednesday, Deutsche Bank bond analyst Andrew Zarnett said the move will enable CityCenter to direct buyers to other CityCenter buildings where condos are still available, including Veer, Vdara and Mandarin Oriental.

A shorter, delayed hotel won’t dampen CityCenter’s appeal, Murren said.

CityCenter, the company’s multibillion-dollar joint venture resort complex with Infinity World Development Corp., was originally designed with much shorter buildings in front so it wouldn’t be as imposing to pedestrians, Murren said.

In a departure from the typical casino resort, the main gaming hotel is behind hotel and condominium towers that face the Strip. A shorter hotel is expected to complement CityCenter’s Crystals mall, a low-slung building with boutiques that open to Las Vegas Boulevard, he said.

In time for CityCenter’s grand opening late this year, The Harmon’s exterior will be complete and the building will be lighted as if it is occupied, Murren said. Interior work on the hotel, now expected to debut in late 2010, will begin after the other buildings are up and running.

MGM Mirage is seeking additional financing for CityCenter after securing $1.8 billion from banks last fall. The delay of The Harmon won’t hurt those plans, and the company is more confident about being able to raise money than it was last year, Murren said.

Wall Street banks aren’t making their loans contingent upon sales of CityCenter condos, he said.

“The banks had literally put down their pencils in October and said ‘come back next year,’ which is what they told everybody in corporate America,” Murren said.

“Now that we’re in a new year, the bankers are back at work and there’s far more constructive dialogue going on than there was in December.”

CityCenter’s lenders agreed to a scaled-down version of the building on the assumption it would potentially provide a better return on investment, despite the potential loss of revenue from opening the hotel a year later and the lost condo purchases, Murren said.

That isn’t likely to stop finger-pointing.

Contractors are responsible for paying for fixes that arise as a result of their mistakes, according to building experts. Some negotiations end amicably and others wind up in court, with general contractors making claims against subcontractors that perform the work.

Murren said the postmortem on The Harmon could take years.

“These projects are extremely well-documented,” he said, adding that MGM Mirage’s relationship with contractors Perini Building Co. and Tishman Construction is “tremendously strong” despite the problems unearthed at The Harmon.