Project CityCenter to cost $7 billion after upgrades add $2 billion to price tag

MGM Mirage raised the price tag on its Project CityCenter by $2 billion Thursday as part of its plans to upgrade and expand what was already the largest privately financed development project in the U.S. hospitality industry's history.

The Strip development is now projected to cost $7 billion, largely because of plans to enhance the project's hotel operations, add a new monorail component, expand its residential component and upgrade construction quality, MGM Mirage President Jim Murren said. Escalating material and labor costs are also playing a role in the higher price tag, he said.

The MGM Mirage board of directors on Wednesday approved the final design for many elements of the project, which will include a 4,000-room luxury hotel-casino; two 400-room, nongaming boutique hotels; more than 470,000 square feet of retail, dining and entertainment space; and 2.3 million square feet of residential space.

The driving force behind the project's rising cost is not construction but the decision to develop a luxury-class hotel and increase the scope and quality of the retail operations, Murren said.

"We're particularly excited about the Cesar Pelli (and Associates) component, which we believe will become the leading hotel product (in Las Vegas)," he said.

Cesar Pelli is the lead architect on the 4,000-room hotel-casino, which had been planned as a midrange hotel-casino. Rafael Vinoly Architects of New York, which designed Philadelphia's Kimmel Center, is designing the condominium-hotel towers. Amsterdam-based Gensler is the executive architecture firm overseeing design of CityCenter, and Perini Corp. will be the general contractor.

With construction starting in mid-2006, Murren said the board set a hard opening date of November 2009.

Murren also said MGM Mirage will seek to get the project a Leadership in Energy and Environmental Design designation from the U.S. Green Building Council, a first for Las Vegas.

The designation will require the project to meet a stringent set of construction standards requiring reduced electrical use, wastewater recycling and use of costlier but environmentally correct building materials that will benefit the community, he said.

The expanded plan includes improved vehicle and pedestrian traffic patterns that will increase its cost, Murren said.

The monorail, a state-of-the-art people mover system connecting all elements in the project, will cost $150 million to $200 million, he said.

Wachovia Securities analyst John Mulkey said in an investor advisory that the project's expansion and increased cost is consistent with the continuing "condo craze" in Las Vegas, and that further enhancements or cost increases would not be surprising.

Deutsche Bank analyst Marc Falcone said: "The design process remains fluid, and we would not be surprised to see more changes in the future."

And Murren conceded the project could go over budget if there are delays, although it has remained on schedule so far.

The new price does not include preopening costs, which analysts said could be $500 million, and land costs for the urban development located on approximately 66 acres between Bellagio and Monte Carlo.

MGM Mirage, the world's second-largest casino company, will kick in approximately $4.5 billion of the total cost; the remainder will be come from an expected $2.5 billion in proceeds from the sale of residential units.

"We also continue to explore potential partnerships and other financing vehicles to ensure the most efficient use of capital," he said.

MGM Mirage Chairman Terry Lanni said the market for hotel-casinos and vertical residential space in Las Vegas remains very robust.

"Our board and management believe that Project CityCenter will be the catalyst for a new kind of experience on the Las Vegas Strip, and forever change the way we view Las Vegas," he said.

Wall Street was more skeptical of the announced expansion.

Goldman Sachs analyst Steve Kent said MGM Mirage's estimates of proceeds from residential sales are based on selling prices of more than $1,000 per square foot, which he viewed as aggressive in an "extremely tenuous real estate market."

"Recently a major Las Vegas condo development project, Icon, was shelved and others are reportedly seeing demand trail off," Kent said. "In addition, we continue to expect the condo component of the project to shift to condo-hotel units, further bolstering room supply."

Mulkey said that although MGM Mirage contends sales and pricing trends at its Signature condo-hotel in the MGM Grand are strong and will carry over to Project CityCenter, the condominium market in Las Vegas is cooling quickly.

"With that said, we believe the best capitalized builders on or around the Strip should remain successful in the current market," he said.

MGM Mirage shares closed Thursday at $38.20, down 24 cents, or 0.62 percent, on normal trading volume of 1.49 million shares.

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Appreciation slows down, but housing demand remains high

For Debbie Huber, tracking the nuances in the Las Vegas Valley real estate market is not just her job, it's her passion.

Huber is president of the Nevada Commission of Appraisers, owner of Huber Appraisal Inc. and owner and founder, along with her husband, Dan, of Home Pride Inspections.

During her 18 years as an appraiser in Las Vegas, she has seen changes in the market, good and bad, the irrational and the mundane.

"We have been fortunate here that we've never experienced a downturn � ever," Debbie Huber said during an interview at her office, which also doubles as a music studio for her husband, a Realtor by day and musician by night.

One of the reasons for the healthy housing market over the years has been the area's economy and job growth, said Huber, who was speaking as an appraiser, not as a commissioner.

"There are a lot of things that keep bringing people here," she said.

In order to better analyze trends in the resale market, Huber began tracking seven houses throughout the Las Vegas Valley since the beginning of 2004.

The properties are her rental properties and are spread throughout the valley in master-planned communities and older neighborhoods. The houses are a variety of sizes and price ranges, from entry level to $500,000.

Huber assesses the properties every quarter to see how the value of each house has changed and how that reflects market trends.

"It has reflected what we've seen in a lot of our day-to-day work," she said.

As with most of the valley, the seven houses experienced the most appreciation in 2004, when houses in Las Vegas were hotter than a car dashboard in August.

The houses appreciated about 3 percent a month through most of 2004, and toward the end of the year, that appreciation started to level off.

Through 2005 there was still appreciation, but not like what was seen in the previous year.

"It was a much slower rate, 0.5 percent to 1 percent a month," Huber said.

By the end of 2005 and into 2006, appreciation has trended flat, based on her survey of the seven homes, she said.

The most inconsistencies and potential decreases in values for houses has been in the price category $500,000 to $800,000.

"In the $500,000 to $800,000 range people have more ability to sit tight," she said.

Because that price range has had fewer sales recently, it has also been more challenging to appraise those types of houses," Huber said.

For the overall market, while appreciation has slowed, demand has remained solid, Huber said.

"That's what we had before 2004, it just wasn't very sensational," she said.

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Foreclosures could lead to opportunities

While Las Vegas and Nevada garner national headlines over their increasing number of homes entering the foreclosure process, local housing analyst Dennis Smith said it got him thinking how that growing concern can help solve another problem in the valley.

Smith, the president of HomeBuilders Research, who analyzes the Las Vegas housing market, said the spotlight has been on the negative fallout caused by foreclosed properties.

Nevada kept its No. 1 spot in the country in March for its foreclosure rate calculated by national tracking firm, RealtyTrac. Las Vegas made the list of cities at No. 2.

Foreclosures increase inventory and lower prices and that could provide an opportunity to deal with the region's problem with affordable housing, Smith said.

"There is plenty of demand for housing, and the foreclosed properties could offer ownership opportunities to many," Smith said. "If officials really wanted to help those that have been priced out of the housing market, they would restrict the sale of foreclosed properties that might be classified as entry level to investors and allow only owner occupants."

When he first broached the subject in his newsletter, Smith said he was taking a tongue-in-cheek approach but he said it's something that's starting to make sense to him. First-time homebuyers should get the first shot at those homes, he said.

Smith said it's a long shot because it would require some federal or state legislation and also the cooperation of banks who repossess the homes.

"I don't know if you can do it, but what's wrong with the idea?" Smith asked.

Many investors get a list of foreclosed properties and acquire them from banks that are looking to get them off their books, Smith said.

"You are not telling me that there isn't a market out there for people who might be able to afford a $250,000 home that can't afford one for $300,000," Smith said.

About-face: In his latest take on the Las Vegas housing market in light of new home sales remaining weak, new home prices dropping and inventory of existing homes increasing, Smith said he appears to have underestimated what was happening when he predicted at the end of 2006 that the market was bottoming out.

Smith said any suggestions that the market was going to improve by the end of 2007 appears to have been just wishful thinking. He said a recovery may not happen until 2008 or even 2009 based on the current trends.

Smiths said he wouldn't be surprised if some neighborhoods saw home prices drop as much as 20 to 30 percent because of a glut in those areas. Other neighborhoods where fewer homes are on the market would remain the same, he said.

The fallout from the subprime market has been felt by the housing market because of tighter credit standards, Smith said. In some cases, it's taking a credit score of 720 to qualify for a 30-year fixed loan. Those with scores of 680 have to jump through extra hoops to try and qualify for a loan, he said.

"I have heard this from builders and lenders, and it is not helping sales," Smith said.

The 2007 sales figures will be down from the sales of 2003 to 2006 and the same will probably occur in 2008, Smith said.

The growing inventory of existing homes also makes it harder for those who want to sell their home and buy a new one. Smith reported that the cancellation rate in March ranged from 24 percent in the northwest to 42 percent in the south valley.

More foreclosures: Michael Krein, the president of Nevada Real Estate Services, who handles foreclosure cases, said what's happening in the foreclosure market is nothing in comparison to what's coming. He said he was handling about 500 repossessed properties and would like to add staff to handle another 500.

Many adjustable rate mortgages will kick in by November and a second wave of cases entering foreclosure will occur, he said.

"The worst is yet to come," Krein said.

Patrick Egger, a local real estate analyst, wrote me and suggested it should be pointed out that even though Nevada has been singled out for a growing number of cases entering the foreclosure process, that doesn't mean all of those cases are foreclosures.

"It appears that many are including notices of default in their foreclosure figures. The Notice of Default is not a foreclosure nor should it be included when comparing to past years unless you can verify that foreclosures from past years also include the NOD's," Egger said.

A Notice of Default means that the lender has filed a public record that the borrower has missed a payment and is now in default of the terms of the loan, Egger said. This does not place the borrower in foreclosure at this point, only makes the breach a matter of public record, he said.

"If the borrower brings the payment current, this is meaningless," Egger said. "While NOD's are the first step in the process, they do not necessarily reflect the true picture of the number of properties in foreclosure or foreclosed in any one time period."

RealtyTrac, which provides the data to The Wall Street Journal's Real Estate Journal, MSN Real Estate and others, said it does apple versus apple comparisons.

Its numbers include default notices, auction sale notices and bank repossessions from the months, quarters and years it makes comparisons.

In March for Nevada, the firm reported 4,738 homes entering the foreclosure process or one home per 183 households. That includes 3,227 Notices of Default, 857 Notice of Trustee Sale and 654 bank repossessions.

Last word: John Restrepo, principal of Restrepo Consulting Group, spoke at a commercial real estate seminar when he joked about the three reasons why people should believe economists:

1. We have a firm grasp of the obvious.

2. We generally don't know what we are talking about - but we make you feel it's your fault.

3. We have forecasted nine out of the last five recessions.

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Here we grow again, magazine's ranking predicts

A national business magazine is highlighting the potential for economic growth in Las Vegas.

The May issue of Business 2.0 has ranked Las Vegas No. 2 on its list of "America's best jobs in the hottest markets," forecasting a two-year job-growth rate of 6.5 percent in the city. That projected job formation is second only to the 6.8 percent that the magazine's editors expect to see in Orlando, Fla.

The publication's analysis noted that job formation in Las Vegas could actually outstrip job creation in Orlando, because Las Vegas is "uniquely insulated from downturns in ways that most cities would envy." With a sixth of Southern Nevada's work force in construction and real estate, the magazine said, the local economy suffered when the housing market faltered in 2006. But the gaming industry has compensated for the housing dip with restaurant openings and hotel expansions.

Casey Shields, area sales manager for The Eastridge Group of staffing agencies in Las Vegas, agreed that commercial building is pushing Southern Nevada's expansion.
"You really have only to look at all the construction cranes in the city to get some perspective," Shields said. "We definitely are experiencing growth. It's not just on the Strip: You can drive through any major intersection in Summerlin, Henderson or North Las Vegas and see either tenant-improvement projects or new buildings going up."

Business 2.0's roster of the hottest jobs in Las Vegas reflects the importance of construction and hospitality to the local economy.

Top positions include construction project manager, with an average annual salary of $78,800; construction superintendent ($71,900); civil engineer ($70,000); and executive chef ($65,500).

But Business 2.0 also recognized Las Vegas' tech sector, placing information-technology project manager among its hottest local jobs. The position typically pays $74,600 a year in Las Vegas, the magazine said.

Locals-casino giants Boyd Gaming Corp. and Station Casinos appeared on the magazine's list of "who's hiring now." Also cited were MGM Mirage, which will hire 28,000 new workers by 2010, online shoe retailer Zappos.com and hospitality-technology firm InfoGenesis.

Business 2.0 also pointed to strong hiring activity among high-tech companies relocating to Las Vegas, where the cost of a tech-sector worker, including salary, training and benefits, is about 20 percent lower than costs in Los Angeles or San Francisco.

Craig Kurtzman, a local branch manager with the placement firm of Robert Half International, said several factors are contributing to an expanding technology industry in Las Vegas.

First, the city is attracting new businesses in every field, and those companies need information-technology services. Second, more businesses are implementing security measures online and in their networks. Finally, businesses are increasingly upgrading their technology, and they need experts to install new programs and transfer their existing data to updated systems.

Demand for workers isn't limited to project management. Kurtzman said he's also filling requests for senior system developers and workers who specialize in data integration.

"The growth has almost outpaced what the talent pool is providing," Kurtzman said.

The imbalance between supply and demand in the work force is making it difficult for companies to fully staff operations.

Construction companies are launching bidding wars even for office personnel, Shields said, with administrative workers in the building business fielding multiple offers and counteroffers.

The competition for workers is just as tough in the tech field.

Nicholas Jones, president and founder of Web services company Load.com, said it's "very hard" to find qualified tech workers in Las Vegas. Load.com will have enough business in the next two years to double in size, from 14 workers to 28 employees, Jones said, but expanding will depend on available talent, Jones said.

"We do have to do quite a bit more testing," said Jones, whose company analyzes Web-visitation statistics for the Review-Journal.

"It's just been a challenge. We are looking for talented individuals, but they don't have to be perfect. We find diamonds in the rough, people who have the ability to think. We're willing to train them to get them up to speed."

Employment experts say companies looking to draw top talent in a hot jobs market should offer competitive pay and creative benefits.

Some businesses are serving up free lunches and more vacation days, Shields said.

Others are fostering a more pleasant work environment, Kurtzman said.

"You have to make sure that employees feel excited to come to work every day," he said. "(Software and system) developers especially want the freedom to create and to express their ideas, and they want to be in an environment that allows them to grow their skills."

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City of Las Vegas approves zoning for Arena project

The Las Vegas City Council approved plans for a nine and one-half billion dollar mixed used development anchored by a 22,000 seat arena that integrates approximately 85 acres of downtown land into the world-famous Las Vegas Strip. The project is to be developed by REI, a Bloomfield Hills, Michigan-based real estate development firm.

REI acquired the property from TR Las Vegas LLC, a group credited with assembling the over 120 parcels of land located in Downtown Las Vegas. In addition to the arena, REI also plans to include 300,000 square feet of gaming floor space, 6,000 hotel rooms, over 1.5 million square feet of commercial and retail floor space, 3.5 million square feet of office and permanent exhibition space, as well as 1,500 condominium units and 1,600 timeshare condominium units.

"Recent sales transactions in the area, including the Stratosphere, New Frontier, MGM, and Sahara properties, along with the planned development of Echelon and Fontainebleau, place our project in the middle of the action. This is the most exciting and dynamic development corridor in the United States. Our project continues the Strip experience, anchored at the north end by an easily accessible and iconic sports arena. This is great for the City, great for the Strip, and great for the residents of the Valley," said Jon Weaver, President of REI.

"To see this project starting to come together after all of the effort that went into assembling such a significant amount of property is exciting to say the least," said Tom Prato, President of TR Las Vegas. "My partner, Robert Reel, and I, have worked hard for several years on what we refer to as Project Neon Lights in an effort to enhance the City."

"We are ecstatic about this project and how it proposes to change the face of Las Vegas," said Las Vegas Mayor Oscar B. Goodman. "What more could we ask for -- the City could get an arena that we are in desperate need of, in addition to millions of dollars of ancillary development in our burgeoning midtown area, and all at no risk to the City."

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