Dubai World is giving MGM it's biggest problem yet.
Monday, 30th March 2009
Source : Andrew Calvo ~ Passions Of A Zealot
In business its funny how at times your 'partner' turns on you and does the last thing you'd expect a partner to do.

That recently happened with Dubai World and MGMMirage with the CityCenter Project in which Dubai World is a 50/50 partner with MGM, in addition to part owner of the CityCenter project, Dubai is also a 9.5% owner in MGM Mirage as well.

Dubai World has sued MGM Mirage to limit its exposure in having to spend more money on the project, which is more than a billion dollars over budget and thats even after a number of cost cutting moves have been implemented.

Dubai World is looking to not have to spend any additional money ont he project - putting an expected payment to MGM Mirage in uncertainty as well as possibly causing MGM Mirage to default on its debt covents.

What a major turn of events for MGM Mirage!

Its obvious that the economic downturn is hurting MGM tremendously - the majority of their business is centered ont he Las Vegas strip, and the CityCenter Project is considered the largest construction project in the United States today (and even prior to the downturn). Their stock has lost over 95% of its value, and honestly - I wonder if it can go down further. MGM seems to be in a very scary position right now - their only recourse seems to be selling some additional casinos, but then the question arises - who will purchase a casino (Even a profitable one) in this economy?

I wonder why Dubai World is suing MGM - what is their motive? It seems to me that forcing a company to go into default, a company that they own almost 10% of, including its largest property which they are 50/50 partners in would almost be like shooting yourself in the foot. Right? Maybe I'm missing something, or maybe Dubai World is hoping to make a play for MGM Mirage on the cheap if it ends up going into default and filing for bankruptcy. Thats a very good possibility.

MGM's issue was created by having tied up all their capital and debt into the CityCenter Project - a project which isnt open yet, but when it will later this year, will open in quite possibly the worst economic climate in decades, a downturn that is being amplified in Las Vegas area because of the cutback in corporate meetings and overall decline in travel to entertainment destinations such as Las Vegas. If MGM is able to get out alive in its current state (which is looking less and less likely) they will still be a powerful force in the gambling industry, but the question is - how can they do it?

5 Properties that MGM Mirage Might/Should Sell

Mirage - it was built as the sister resort to Treasure Island which was just sold to Phil Ruffin. This property sticks out to me as the most likely to be sold immediately.

Borgata - MGM has a 50% interest in the Borgata in Atlantic City, and a few weeks back - I thought MGM would be crazy to sell their interest in it - but times are desperate, and Boyd does have some cash laying around since they stopped constructing the Echelon Place project last year

Excalibur - this place is so old and so out of place, it may be difficult to get rid of it, but it doesn't really keep up with MGM's high end, luxury, trendy

Circus-Circus - This property and the land surrounding it was supposed to be a mega resort (resembling CityCenter) with Kerzner International. At the time the casino was to be completely redeveloped and added into the larger project. Since MGM has stated they want to sell the Kerzner joint venture land, I could see Circus Circus going along with the land. but who is going to be buying land in Vegas these days anyway?

Any of their non-MGM Grand properties in Reno or Jean, Nevada. MGM Mirage is really a Las Vegas company and that's where over 75% of their land and assets are located, except for the MGM Grand projects they've built in Foxwoods (CT), and Detroit none of the other properties really seem to be up to par with MGM's standards. The only saving grace these properties have is their primary clientele being locals, having less of a reliance on tourism from the rest of the country unlike Las Vegas.

I still like MGM, and I think they are a great company - they have some really great properties that made Vegas famous and the CityCenter project will be an amazing asset when its completed. In fact, Dubai World agrees, they still stated that they expect to make many many times their investment back once the CityCenter project goes online.

And thats what I just don't understand - why hurt your own project?


Andrew Calvo is a 26 year old Commercial Real Estate Advisor in New Jersey. I live in Tinton Falls, NJ. This blog is about my passions - primarily hotels, commercial real estate, and development, etc.

Since I have been in High School Ifve had numerous jobs, but the field which has always interested me is Real Estate, Hotel Development and Construction. I consider myself a zealot in that area - I try to absorb as much as I possibly can, take the experiences that I learn, or read about and use them in my life


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