MGM Resort Price Tag Rises

MGM Mirage Inc., the world’s second-largest casino company, said February 8th that its Project CityCenter megaresort in Las Vegas will cost $2 billion more to build than previously estimated.

The $7 billion price tag, an increase from the $5 billion estimated in September, reflects a push to make the resort more luxurious and is based on improved expectations of sales of condominium units, said Jim Murren, MGM Mirage president and chief financial officer.

The project now includes a $150 million to $200 million monorail and more than $100 million in walkways and roads, which together will link CityCenter with the company’s other Strip properties such as Bellagio and New York-New York, Murren said. More rooms also will be added at two non-gambling boutique hotels, he said.

“We believe this will forever change the way people view Las Vegas and our company and will result in a very high return on investment for us,” Murren said.

The resort was first planned for mid- to high-end consumers, but now MGM Mirage is aiming toward the “very high end,” Murren said.

“The design that (architect) Cesar Pelli has come up with is so over the top, and so superior to anything that’s out here, that we feel like we can drive the market for the overall resort much higher.”

Construction costs projected to be about 10 percent higher and estimated proceeds of $2.5 billion on residential units also prompted the company to boost the outlay on the project, officials said. The net project cost is expected to be $4.5 billion after sales of condo units.

Construction of the 4,000-room casino hotel and two 400-room non-gambling hotels on 66 acres of the Las Vegas Strip is expected to begin in the middle of the year and be finished in the fourth quarter of 2009.

The plan now includes 2.3 million square feet of residential space, and more than 470,000 square feet of retail, dining and entertainment facilities.

MGM Mirage said rising sale prices for condos at “The Signature” development at its MGM Grand hotel on the Strip bolstered its confidence in the Las Vegas condominium market.

“We’ve seen enormous success in the residential component at the MGM Grand and that’s given us a great deal of confidence in the condo-hotel at CityCenter,” spokesman Alan Feldman said.

The first two 576-room towers of “The Signature” have sold out during construction. They are expected to be completed later this year.

MGM Mirage’s 50 percent share of profits on the joint venture with partner Turnberry Associates of Aventura, Fla., is expected to be $45 million on the first tower and $60 million on the second tower. Its share of profits on a third tower is expected to exceed $100 million, it said.

“The company believes that these sales and pricing trends will continue with the residential offerings at Project CityCenter,” MGM Mirage said in a statement .

MGM Mirage shares closed down 24 cents, or 0.6 percent, to $38.20 Thursday on the New York Stock Exchange.

“We think the news should help support the stock,” said Banc of America Securities analyst J. Cogan in a research note, adding that robust sales and rising prices of condo units supported its view.

“It seems to us that the condo market in Las Vegas is cooling quickly,” John Mulkey of Wachovia Securities said in a note. “That said, we believe the best capitalized builders on or around the Strip should remain successful.”

Associated Press