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November 27, 2014

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Unfinished Summerlin mall a monument to recession

Optimism takes a back seat as project managers look for answers

Image

Sam Morris

Work on the Shops at Summerlin Centre, which was to resemble a pricey New England village, was halted more than a year ago.

Shops at Summerlin Centre

In the shadow of Red Rock Resort in Summerlin, the steel and concrete shell of the Shops at Summerlin Centre sits immobilized. Launch slideshow »

Shops at Summerlin Centre

Neil Opfer can see the recession from his window.

Opfer is a professor of engineering and construction management at UNLV and lives in Summerlin, not far from the half-finished construction site of the once and future Shops at Summerlin Centre.

The site went silent on Halloween 2008, and no one knows when, or even if, work will resume.

“I can look out my house and see the steel girders,” Opfer says.

For now, the Shops at Summerlin Centre is a hulking steel and concrete shell, like the work of sculptor Sol LeWitt. A “Hard Hat Required” sign is faded by the sun.

Aside from perhaps the unfinished Echelon project on the Strip, there may be no more apt symbol of the grim power of this recession than the unfinished Summerlin mall, which was to have one million square feet of shopping, including high-end retailers Nordstrom’s and Macy’s, as well as office and residential development. It was to be like a pricey New England village.

Its story embodies some of the traits of this Great Recession: Optimism that in retrospect seems reckless; debt; crisis; and now, waste.

By all accounts, the project was a promising one and, at the time of its conception a decade ago, made sense.

“Summerlin has one of the strongest demographics of any part of the valley. It was fast growing, with above-average income and housing values. That pointed to strong consumer demand,” said Brian Gordon, a principal of the consulting firm Applied Analysis. (The firm was never involved in the project.)

“The fundamentals of the market at that time were as strong as they’ve ever been,” Gordon said.

John Restrepo, whose firm consulted on the office portion of the project, said all the data pointed to the project’s soundness.

The spot is adjacent to the Las Vegas Beltway as well as Red Rock Resort, and Summerlin was growing like a prolific, upscale weed right out of the desert.

Although there is plenty of retail in Summerlin, there is no mall with the kind of panache that the development would offer. The Meadows Mall is 10 miles from the Summerlin site and lacks the urban-village feel.

In 2003, Howard Hughes Corp., developer of Summerlin, transferred 106 acres to Summerlin Centre LLC; the grading permit was issued by the county in April 2007 and work began.

There were trouble signs, however.

In 2004, General Growth Properties, a massive, Chicago-based real estate developer, bought Howard Hughes’ parent company for $11.3 billion.

The company, like the consumers it served in its malls all across the country, was on a debt binge. All told, the company would take on $27 billion in debt, just shy of the total gross domestic product of Uzbekistan.

The construction permit was issued in April 2008. By that point, the Las Vegas economy’s structural weaknesses had become glaring: Too many homeowners who couldn’t afford their homes, overcapacity of just about everything — Strip resorts, locals casinos, retail, industrial, office and housing.

Now the future of the project, which is 40 percent complete, according to a recent court filing, is uncertain.

General Growth filed for bankruptcy protection last year. An agreement to emerge from bankruptcy has been approved by a judge, but the plan does not include the Summerlin property. Eventually it will come out of bankruptcy, but even when that happens, times have changed.

“At the time that was going on, the construction industry was going up like a rocket,” Opfer said. “Today, don’t talk about a recession. Talk about a depression.”

Gordon of Applied Analysis said, “During the past 18 months, market conditions have changed dramatically — not as many rooftops.”

Meanwhile, the project’s contractors and subcontractors want to get paid.

Construction manager Vratsinas Construction filed a motion last month in the bankruptcy case asking for permission to foreclose on liens valued at $28.3 million.

Also intervening in the bankruptcy case in hopes of getting paid are subcontractors Precision Concrete of North Las Vegas, owed $2.8 million, and Clark Pacific of Sacramento, owed $2.4 million.

Most disturbing, the filing raised the specter of corrosion damage destroying the whole project: “At this time the project consists of a partially completed steel superstructure with exposed rebar and other metal girders and parts. Although the project was demobilized, constant exposure to weather and other environmental elements will likely cause the exposed steel superstructure to erode,” Vratsinas said in its filing.

“Based upon experience with other suspended projects, there is a significant likelihood that local construction inspectors may require the entire exposed steel superstructure to be demolished and rebuilt if the construction project is ever restarted.”

Opfer said this is likely scare mongering, as the dry desert air prevents the corrosion that is common with shuttered projects in other environments.

Jim Graham, a spokesman for General Growth, answered a series of questions about the company and the project via e-mail.

He said the company is consulting with engineers to preserve the structural integrity of the steel. “We always want to protect our investment,” he said. General Growth hopes the rest of its holdings will emerge from bankruptcy soon and arrive at a fair settlement of its debts, including to the contractors of the Summerlin project.

Graham said the company would make a decision about the mall’s future “as market conditions improve, and we gain a better understanding of changes in the local marketplace, including shifts in consumer demand.”

He said the company has no intention of selling the property, but would not rule out the possibility. What’s not said is that the whole vision of the mall could change if the company, or some entity that buys it, believes Las Vegas will be a poorer city with more tightfisted consumers in the years to come.

Still, Graham said, “We are confident that this is an outstanding location for future retail and other development.” Also, “We know that people who live in the area are eager for us to create something great.”

As for the bankruptcy filing, company CEO Adam Metz said at the time: “The collapse of the credit markets has made it impossible for us to refinance maturing debt outside of Chapter 11.”

Unable to restructure its debt because of the credit crisis, and unable to sell assets for a reasonable price, the company was forced into the bankruptcy filing.

Graham added: “In retrospect we can see today that it is true we had too much debt. But almost no one anticipated the global financial collapse that caused banks to freeze lending.”

Sun photographer Sam Morris contributed to this story.

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