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Best of Liz Benston

Gaming Guru

Liz Benston
 

MGM Mirage Plans Massive Strip Project

10 November 2004

MGM Mirage announced plans Tuesday for a multibillion-dollar "urban metropolis" consisting of hotels and condominium towers that will be built at the site of its aging Boardwalk casino on the Strip over the next several years.

"Project CityCenter," with an emphasis on living spaces and other nongambling features, is billed as a departure from the usual adult playground. It will be built in phases starting in 2006 on 66 acres that include the Boardwalk, which sits between the Monte Carlo and Bellagio resorts. The first phase, expected to take 42 months to build and opening in 2010, will consist of a 4,000-room hotel with a casino, three "boutique" hotels, 550,000 square feet of retail shops, dining and entertainment venues, 1,650 units of luxury condos as well as "hotel-condominium" units and "private residence clubs."

The project, crafted with the help of a New York City firm known for developing residential and work areas in New York City's Battery Park and Baltimore's Inner Harbor East district, will be a pedestrian-friendly, mixed-use urban center, executives said.

"We are talking about an environment where people don't simply visit resort after resort on the Las Vegas Strip but an environment where people want to live and work and interact with one another," MGM Mirage President and Chief Financial Officer Jim Murren said.

The Boardwalk property will remain open and operating normally over the next 18 months during which the company will finalize plans for CityCenter.

The 654-room Boardwalk would close sometime after the 18-month mark, in May 2006.

The project is expected to cost roughly $3 billion, not including more than $1 billion in expected proceeds from the sale of residential units, Murren said. The company may spend a few hundred million through 2006, with most of the costs occuring in 2008 and 2009, Murren said. It is expected to be more profitable than a typical megaresort, in part because the money raised from the sale of units will help offset the project's debt, he said.

Murren, who spearheaded the concept, is a former Wall Street analyst with a degree in urban planning and art history.

"This has been a dream of mine for some time," he said. "This is the next evolution of Las Vegas, creating a much more developed urban market."

Murren said the project's size and scope marks "an exciting departure" for Las Vegas and the casino industry.

"We understand that we are the preeminent hotel-casino company in the gaming industry, but we are also developers," he said. "I think we have an opportunity to diversify our development plans with an intense, non-gaming use."

Ever since MGM Grand Inc. merged with Mirage Resorts Inc. in 2000, the company has hinted at developing a major resort on the site of the Boardwalk, the company's smallest and probably most overlooked property on the Strip.

Las Vegas-based resort architect Paul Steelman said the project will benefit tourism and will make the city more appealing to outsiders.

"It shows a maturing of our city and the desirability of Las Vegas to other hoteliers," Steelman said. "It creates another whole scene, another diversion, another reason to come here."

Las Vegas is constantly improving its curb appeal and is becoming more pedestrian-friendly in line with other major cities, he said.

Bill Thompson, a professor of public administration at the University of Nevada, Las Vegas, said the condominiums make economic sense.

"Ten thousand people are becoming 50 years old every day and there's a lot of wealth among these people," Thompson said. "As a second home the Aspen ski resort is a little beyond them physically but in Las Vegas you get the excitement of the mind without the physical exertion."

But Thompson questioned the long timetable of the project and said that certain key elements, including the small hotels and condo towers, have been done before.

"I think Las Vegas moves a lot faster than that. The New York-New York (resort) was built in a year."

The process of developing the project will be time-consuming but necessarily thorough, Murren said.

"Nothing of this scale is going to be done in a haphazard way," he said. "It's going to be methodical."

Serious discussions about the potential for residential development in Las Vegas began at a March board meeting -- about three months before initial discussions with Mandalay Resort Group that led to the $7.9 billion merger agreement between the two companies, Murren said. MGM Mirage interviewed six urban planning firms and then whittled them down to three that met regularly with the board over the last few months to develop a master plan. The company also hired McKinsey & Co., a New York City economic analysis firm, to hash out the future market for urban residences in Las Vegas.

The MGM Mirage board on Monday selected New York City-based Ehrenkrantz Eckstut and Kuhn Architects as the winning bid among the three planning firms. The architecture firm, known for urban renewal projects in major cities, also evaluated sites for a Major League Baseball team stadium in Washington, D.C., and crafted the design for an arts center, hotel, mall and theater in downtown Indianapolis.

MGM Mirage will spend the next 18 months assembling a team of architects, designers, retail and residential developers and builders that will work with the county to create a design plan. The company is still in the process of interviewing hotel companies for the three planned hotels. Murren declined to name them but said they are well-known hoteliers familiar to world-class travelers in places like New York and Hong Kong but aren't yet in Las Vegas. Some are small chains and others are solo properties, he said.

One of the first elements to be built will be a parking garage for Bellagio employees, who now use surface parking near the Boardwalk, Murren said.

Future phases of CityCenter are yet to be finalized but would likely be "almost purely residential," possibly totaling another 2 million square feet of living space, he said.

Following the merger announcement with Mandalay Resort Group, some observers questioned whether the combined entity would suppress innovation and stifle competition within its ranks, preferring to dominate based on size rather than risk capital with new projects.

But Murren has staunchly defended the deal, saying it will benefit Las Vegas by creating a giant with deeper pockets and more opportunities to build.

MGM Mirage Chief Executive Officer Terry Lanni said he equates the CityCenter project with other major transformative events in Las Vegas' relatively short history.

"Our master plan represents a significant new direction for our city and our company," Lanni said in a statement. "Las Vegas has taken initial steps to becoming a major urban center in the Western United States." The city's redevelopment efforts downtown and other "urbanization" projects as complementary to its own plans, he said.

Analysts said the project will boost earnings, though the financing plan isn't clear because of all the potential hotel and companies and other partners involved.

UBS Warburg analyst Robin Farley said she had anticipated a development at the Boardwalk that could add about $4 per share to MGM Mirage's stock price over the next year. But because the scope is grander than anticipated, the project could add another $2 per share in value to the company's stock.

The project is a signal that the latest building wave is underway, experts say. Strip development has tended to come in spurts as new attractions draw visitors back into town. Steve Wynn's $2.4 billion Wynn Las Vegas is set to open in April with 2,700 rooms, and the Las Vegas Sands Inc. will open the 3,000-room Palazzo resort adjacent to its Venetian property in 2007.

Harrah's Entertainment Inc., meanwhile, is working on its $9.4 billion merger with Caesars Entertainment Inc. that will create the world's largest casino company. Harrah's Chief Executive Officer Gary Loveman was in a board meeting this morning and could not be reached for comment on his biggest competitor's plans.

Harrah's spokesman Gary Thompson said the MGM Mirage project is good for Las Vegas because it will "accelerate visitor growth" like other new openings have in the past.

Thompson said it's "hard to say" whether the CityCenter project would be very different from other developments taking shape on the Strip in future years. Harrah's will be examining its own expansion opportunities in Las Vegas and beyond once its Caesars purchase is complete, he said.

MGM Mirage Plans Massive Strip Project is republished from Online.CasinoCity.com.