Viva Las Vegas despite slump

Despite the economic slump, the developers of Dubai World's US$8.6 billion CityCenter remain upbeat.

A welcome sign stands on the Strip in Las Vegas, Nevada, U.S., on Sunday, Aug. 3, 2008. Today, Nevada is the most-foreclosed state in the nation. One in every 82 Nevada housing units got a foreclosure notice in September,  according to RealtyTrac Inc., putting the state at the top of the list for the 21st straight month. Photographer: Jacob Kepler/Bloomberg News
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Elvis has not left the building. In fact, at Dubai World's CityCenter project in Las Vegas, as many as 130 backstage workers are being hired just for a show dedicated to "The King". Developers of the US$8.6 billion (Dh31.58bn) CityCenter are confident of their prospects despite the trying economic climate. Described by MGM Mirage, Dubai World's joint venture partner, as an "unprecedented urban metropolis", the 27-hectare Las Vegas Strip resort is to include a permanent Cirque du Soleil Elvis show, a 4,004-room gaming resort, 2,400 condominiums and luxury non-gaming hotels including Las Vegas's first Mandarin Oriental.

Its 46,450 square metre retail and entertainment district should boast luxury retailers including Louis Vuitton, Christian Dior and Tiffany, and a $40 million fine art collection featuring artists such as Henry Moore and Frank Stella. An array of restaurants - including the first US location of a three-star Michelin Chef Pierre Gagnaire restaurant - will vie for travellers' palates. "This is more than a collection of resorts; we see it as a beacon of hope for a future of renewed economic vitality in Las Vegas," Bobby Baldwin, the president and chief executive of CityCenter, boasted last month.

MGM Mirage says CityCenter is the "largest, single privately-funded development in US history". The stakes are also high for Dubai, which took a 50 per cent interest in the project through Dubai World in CityCenter, as well as a 9.5 per cent stake in MGM Mirage two years ago. The investment was made during a boom period for Las Vegas, which its own tourism board calls "an ever-changing fantasyland of a city that has seen unbelievable expansion since it emerged from the desert just over 100 years ago".

And despite the economic slump, the developers still remain upbeat. "CityCenter is an amazing project that is rising up in Las Vegas amidst the most adverse of economic conditions. Dubai World and MGM Mirage have worked hard over the past many months to ensure that everything is on track for the complex to open in December," said a spokesman for Infinity World, the Dubai World subsidiary that is the joint venture partner in the project.

But the reality of the harsh downturn is now being felt in both desert cities. Las Vegas hotels have suffered from a fall in demand, pushing average daily rates down 26 per cent through to July compared to the previous year, according to Expedia's Meanwhile, gaming revenues have fallen 14.2 per cent in the same period. "Clearly, these are difficult times for Las Vegas," says Ash Kapur, the director of market management, Las Vegas, for Expedia. Visitor numbers have fallen and conventioneers, the lifeblood for many cities' tourism revenues, have fallen by 26 per cent this year.

And Vegas's recent attempt to diversify beyond gaming, which resulted in a boom of residential and commercial construction, have been hurt as the US property market has nosedived, says Justin Epps, the vice president at Jones Lang Lasalle Hotels in the US. Still, MGM and Dubai World say they are confident that the CityCenter development will succeed, and actually could be a much-needed boost to the economy. Indeed, CityCenter is in the process of hiring some 12,000 permanent staff including 255 bartenders and, of course, the stagehands for Elvis.

"MGM Mirage has the benefit of being the largest room operator on the Las Vegas Strip, and therefore has experience in marketing resort properties to a diverse array of audiences," says Yvette Monet, an MGM spokeswoman. "New resort developments in Las Vegas historically lead to increased levels of visitors. Even in this flagging economy, we believe this trend will continue. "In fact, we feel CityCenter has the potential to draw an even larger increase in visitors."

Analysts agree - to an extent. "CityCenter has the potential to boost Las Vegas," Mr Epps says. "However, its full potential will not be realised until the economy and convention pace return to prior levels. "With Las Vegas arrivals significantly down from pre-recession levels, the city has a long road to recovery." The development's arrival on the market also increases competition for other Las Vegas hotels and resorts. "It is my understanding that other resorts are monitoring the developments at CityCenter properties," says Mr Kupur, of Expedia. "Any new room supply in the city can have an impact to competing hotels. CityCenter hotels will compete in the luxury segment."

And given that many of Vegas's recent casino and hotel additions have been in the luxury segment, which now comprises 15 to 20 per cent of the city's room supply, "every property is trying harder to create brand awareness and differentiate the product in terms of service, location, amenities, entertainment and shopping, dining options and green technology", he says. Most notably, CityCenter will be competing with properties such as the Wynn Resort, Encore Resort, the Venetian and Palazzo for business.

"While we are in competition with other Las Vegas resorts, we also know that new developments benefit other resorts," Ms Monet says. "What is good for one of us is good for all of us. By its nature as the newest resort, we expect CityCenter to be the centre of attention." Such rosy predictions seemed uncertain earlier this year, when MGM Mirage's relationship with Dubai World took a tumultuous turn. Dubai World had sued MGM Mirage, citing breach of contract and mismanagement of costs, which almost led the project to the US bankruptcy court. The companies, however, resolved the dispute in May.

"Our partnership with Dubai World is stronger than ever," Ms Monet says. "Enduring hardship together sometimes creates the strongest bonds. "It seems that is the case here, as our relationship is currently working very well." While the project is still scheduled to be on time and the business partnership has strengthened, challenges are not over for CityCenter. On Monday, MGM announced that a 30 per cent price reduction will be offered at closing to the existing buyers of CityCenter's luxury residential offerings: The Residences at Mandarin Oriental, Las Vegas, Veer Towers and Vdara Condo Hotel.

"We believe that in this economic climate this price reduction is an appropriate step to take on behalf of our buyers so as to provide them greater flexibility in closing on their residences," said Mr Baldwin. Last month, MGM Mirage acknowledged that a write-down to the CityCenter project was "reasonably likely" due to the significant property element of the project. "The Las Vegas real estate market is significantly over-built," Mr Epps says. "CityCenter's condo sales will certainly be affected by the downturn and will likely take years to absorb."

Both Vegas and Dubai might need a bit of help from lady luck: property prices in the American city have tumbled 53 per cent between August 2006 and May this year.