(Bloomberg) — If James Murren, the chairman and chief executive officer of MGM Mirage, needs any reminder of the dire state of Las Vegas, he doesn't have far to go.
Standing forlornly next door to CityCenter, the glittering new mega-resort his company co-owns with state entity Dubai World, is the defaulted, unfinished Cosmopolitan casino.
CityCenter, which at $8.5 billion and 18 million square feet is by far the largest development Las Vegas has ever seen, opened this month as the city's two-year recession showed signs of easing. Yet the complex is a long shot by any measure.
I spoke to Murren, a youthful 48 with a touch of gray, while sitting at a boardroom-size table in his grand private office within the faux Tuscan splendor of the Bellagio Resort. From here he runs the 20 properties MGM Mirage owns or has investments in.
Bringing in six celebrity architects to design CityCenter was Murren's brainchild. Their sleek, glistening buildings are supposed to lure the free-spending visitors necessary to reduce MGM Mirage's $13 billion in long-term debt.
I asked Murren, who once considered a career in architecture, how big-name architects figured into a city defined by fantasy and spectacle.
"In 2004, we were looking at how to develop the 67 prime acres we had between the Bellagio and Monte Carlo resorts. We were seeing designs for one theme hotel after another. It was a big yawn."
Murren said that while attending Trinity College in the "troubled, decaying" city of Hartford, Connecticut, he interned at agencies that helped house people. He also swooned over Rome during a college-sponsored sojourn.
'Magical Time'
"That was a magical time," he said, and one when the profession of architecture tempted him. "I wanted to examine the livability of cities."
For CityCenter, he said he also drew inspiration from the design competitions for the World Trade Center. Daniel Libeskind, whose masterplan became the basis for Ground Zero's redevelopment, agreed to design Crystals, CityCenter's shopping mall. Two other Ground Zero competitors, Rafael Vinoly and Norman Foster, designed hotels at CityCenter.
The area devastated on 9/11 was well-known to Murren, whose career path actually took him to Wall Street. He rose to director of research and managing director at Deutsche Bank before joining MGM Mirage as chief financial officer in 1998. His wife, Heather, was the managing director for global securities research and economics at Merrill Lynch & Co.
"I knew that world-class architects could make an experience that was meaningful and immersing," Murren said. He wanted a high-density plan, with a mix of residences and hotels.
Radical Notion
He was determined that the development would be less like a hermetic blob on a highway strip and more public. He advanced the radical notion—at least in Las Vegas—that people might enjoy walking. He added $40 million in art.
"I overlaid a significant public-art program to appeal both to tourists and people who live here," Murren said. He demanded green design and management techniques, though they get a distinctive spin in a city devoted to heedless spending.
Slot machines are energy efficient, acres of glass are protected by shading horizontal fins, and the limo fleet runs on natural gas.
After Frank Gehry turned him down, Murren rounded out his design team with Manhattan's Kohn Pedersen Fox, Chicago's Murphy/Jahn, the New Haven firm of Pelli Clarke Pelli, and Gensler, a large international architecture and consulting firm hired to deal with the egos involved.
"They all took us to places we couldn't imagine," he said.
'Rugged Year'
How does he make CityCenter work in this economy? "It's been a really rugged year, but 35 million tourists will still come. CityCenter will act as a catalyst. Visitation has grown 10 to 20 percent after a significant project opens up."
"International tourists are coming because America is on sale. We have a larger share of the Asian market in our portfolio."
Asked about prospects for Las Vegas, Murren says "there's unlikely to be any major new development in the next five years. Everyone needs to lick their wounds, heal, and reduce leverage."
He remains bullish on the city: "You can get things done here at a speed that other places can't imagine. Eight years after 9/11, New York hasn't got the 11 million square feet of Ground Zero rebuilding done. Here we proposed 18 million square feet in 2004 and we opened it in 2009."
COMMENTARY: In 2005, I had an opportunity to consult for a client that wanted to build a multi-billion Las Vegas resort hotel and casino. I know how to gamble, mostly blackjack and craps, but I didn't really know that much about the casino business from the inside.
As I got deeper into the project, I realized that Las Vegas us unlike any other part of the country, and that the casino business, although full of glamour, glitz, excitement and over-indulgence, it is a very competitive and cutthroat business.
You have to do some rather indepth research, but you quickly discover just how many properties the MGM Mirage operates in Las Vegas and other part of the country. To call MGM Mirage a gambling empire, would be an understatement.
To make a long story short, the resort hotel and casino project that I was working on never got off the ground due to a lack of funding, but most importantly, because the client had missed his window of opportunity by at least three years when Las Vegas was at the height of its building boom, all made possible by cheap financing.
In the process of my research I concluded that Las Vegas was quickly becoming over-built. Several projects were in the process of being built, Donald Trump had just broken ground on the Trump International Las Vegas, and had amazingly soldout 70% of the space in the building before they had broken ground, but there were about half a dozen projects that had been shelved or stopped dead in their tracks. This set-off an alarm, and I recommended to my client, that it might be a mistake to continue on with his project.
Towards the end of 2007, the U.S. economy went into a recession, and when the financial meltdown hit in September 2008, the era of cheap money was officially over. In short, there was no financing. Commercial real estate went into a tailspin in 2008, really hit the shitter in 2009, and many experts are predicting that the over $3 trillion in delinquent commercial real estate loans held by banks is going to trigger a commercial real estate bubble in 2010.
Las Vegas is certainly not out of the woods, and consumers are not exactly opening their wallets to fly into Las Vegas like they did five years ago. I knew about CityCenter back in 2005, when it was just in its conceptual stage, and that was all that I needed to know. Adding an additional 18 million square feet was too much, even for Las Vegas. I am still amazed that MGM Mirage moved forward with the CityCenter project and it is now finished, but I cannot agree more with Mr. Mullen's comments that no new projects will be built for at least five years.
Very few consultants ever get an opportunity to work on projects north of $50 million in size, so working on a multi-billion project was quite a challenge for me, but very enjoyable. It was a lot of hard work, and I learned a lot about big-time hotel resorts and casinos--enough for a lifetime.
Courtesy of an article dated December 28, 2009 appearing in Business Week
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