Mammoth Las Vegas project reaches deal; avoids bankruptcy

After countless delays, a partner-driven lawsuit for mis-management and even a number of worker deaths, Las Vegas' City Center will not have to file for bankruptcy protection.

The enormous mixed-use construction project, consisting of thousands of hotel rooms, two casinos, countless retail outlets and high-rise condominium towers, was facing severe financial sanctions after partners MGM Mirage and Dubai World came to odds over the handling of its ongoing development, leading to a number of sizable financial setbacks. When finished, City Center will be larger than many of America's small cities. All told, it will cost $8.5 billion.

Dubai World threatened to cease all additional payments for the project as part of a lawsuit against MGM Mirage, a move that would have certainly forced MGM to file bankruptcy for protection against the onslaught of additional debt holders. Like so many commercial real estate projects started in the last few years, a good portion of the lending originated from over-generous and low-rate mortgages. Commercial loans have much shorter terms and almost always require a re-finance after three or five years. The problem with trying to refinance in today's market is that the lending industry has all but closed shop for major projects, choosing instead to focus on recouping losses from defaults and funding smaller, more easily managed real estate projects.

The agreement to keep the world's largest real estate project in play calls for MGM Mirage to pay for any cost overruns in addition to paying $100 million to a number of major lenders who mortgaged it. Dubai World will continue to pay as originally negotiated at the start and repay MGM Mirage for two missed payments while deliberations were originated. The Persian Gulf-based real estate investor will also drop its lawsuit.

MGM Mirage was also granted a 45-day extension to deliver payments that are behind schedule.

Despite the seemingly horizon-to-horizon backdrop of gleaming gargantuan casino resorts along the famed Las Vegas strip, City Center manages to completely alter the landscape. It would take standing almost a half-mile away for your eye to take it all in without scanning back and forth like a spectator at a tennis match.

In truth, the completion of City Center might very well prove that Las Vegas, in the end, is recession resistant. While hotel bookings are down and deals are being junk-mailed out nationwide to anyone who has ever taken their picture in front the ubiquitous "Welcome" sign, a construction project of monumental proportions will open in a few short months, funded by bankers who are confident in the majority of America's willingness to part with what they worked hard to earn.

Commercial real estate projects, especially those in partnerships, are quite often subject to lawsuits and funding issues in even the strongest markets. However, their lending is typically backed by the prospect of companies signing leases. While commercial leases are a significant part of the City Center business plan, those leases are supported by gambling losses, making them even more attractive to banks.

The point here is to think about just how much money is lost by gambling. While attaching a direct number to it is probably impossible, we know for sure that it's at least $8.5 billion. So be careful, don't help fund the next Las Vegas building boom.