Melting Under the Sun

Uh oh…

LAS VEGAS—The primary general contractor for the recently opened CityCenter project in Las Vegas plans to sue the project’s owners for US$492 million.

via Hotel News Now | Hotels News – Article.

The reason I start this off with an uh-oh?  Take a look at who owns it:

MGM Mirage, which owns the mixed-use, multitower site in a 50-50 joint venture with Infinity World, a subsidiary of Dubai World, disclosed the threatened mechanics’ lien in a Securities and Exchange Commission filing Friday.

Ah yes, CityCenter.  That gleaming, glittering, shiny city within the city of Las Vegas (photos courtesy of Wikipedia)…

And since Dubai World is in the middle of some rather delicate negotiations with its creditors, the last thing they need to be hit with is a lawsuit on a multi-billion dollar joint-venture.

Meanwhile, other developers in the emirate are repossessing property.  The only question I have rattling around in my mind is how long will they hold on to the distressed property before they decide to liquidate.  And put pressure on prices in the process.  If the developers in Dubai are just starting to repossess property, it seems like they’re about 2-3 years behind other locales.  Which means property values there are going to see much, much more ugliness ahead.

But back to the issue.  We can see all sorts of things that went wrong, which makes me wonder how MGM manages development/property acquisition projects, much less casinos.  The Harmon Hotel, where most of this lawsuit revolves around, is a fine example.

Originally intended to be a 49-story, mixed-use condo/hotel, the project was stopped at 28 floors when the structural engineer deemed the project compromised after discovering 15 floors worth of improperly placed reinforcing bar. The rest of the CityCenter project opened in December.

Throughout much of the blame game that ensued between MGM Mirage, Perini and a number of other parties, Perini maintained the errors stemmed from faulty designs that contained elements of reinforcing steel that could be not installed as drawn.

Picture perfect project management it is not.  Far from it.  So in the final analysis, what was the root cause?  Where does ultimate accountability lie?

Richard Rizzo, Perini’s vice chairman, said the construction errors weren’t conducted in a vacuum, and that many involved parties were aware of the modifications.

Rizzo said who is at fault is “very blurred,” and that “everybody’s a part of it.”

So there you have it: everybody is at fault.  Which is the same as saying nobody is to blame.  Which makes the lawsuit pointless because if lawsuits are about anything, they’re about money and assigning blame.

You look around at these things and you just can’t help walking away from them thinking that if people are speculating on the value of land and the value of structures built on land, it may be time to hide the cash under a mattress.

Or in a coffee can.

Which is something folks used to do way back when

Meanwhile, the gleaming, glittering towers of CityCenter continue to melt under the Vegas sun.  Not literally, of course.

But in terms of value?  You bet they’re melting.

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Filed under finance, macro

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