It was to be the culmination of Kirk Kerkorian's drive to become Las Vegas' largest player. But the $9.3 billion CityCenter project, a gangly collection of four hotels, an Elvis-themed Cirque du Soleil show, and 2,700 high-priced condos, has become the billionaire's disaster in the desert. Beset by cost overruns, the MGM Mirage (MGM) project has helped devastate the value of Kerkorian's 54% stake in the casino giant, at a time when he was pledging his casino shares for a line of credit and placing a big bet on Ford Motor (F) stock.
Back in 2004, when the project was announced, MGM executives expected to ride Sin City's condo boom. Then the real estate market cratered. Vegas gambling slowed. And on Oct. 6, MGM announced it was still about $700 million short of the $3 billion in bank loans it wants to complete CityCenter. On Oct. 21, Kerkorian revealed that he may sell his 133 million Ford shares to focus on his casino and oil investments. (His Ford investment is off some 60% since he jumped in back in April.)
Kerkorian isn't suffering alone in the CityCenter mess. Abu Dhabi's Dubai World investment fund is a 50-50 partner and, along with MGM, has already committed to investing an additional $2 billion to complete the project. But some believe Kerkorian may have to ante up some of his personal funds to keep CityCenter alive. "It's going to be tight," says Jefferies & Co. (JEF) casino analyst Lawrence A. Klatzkin. MGM President James J. Murren contends that MGM and Dubai World don't need Kerkorian's money. "[We] have ample funds to complete the project, even if we don't sell one condominium," he says.
MGM says it has nonrefundable deposits for more than half of the 2,700 condos it has vowed to sell. But condo prices on the Strip have been falling, and buyers at other projects have been walking away from their deposits. At five rival buildings tracked by Deutsche Bank (DB), condos sales are running at 14 a month, vs. 100 before the housing bust.
On Oct. 22, Fitch Ratings downgraded MGM Mirage, and the stock fell 13%, to 13, a six-year low. Coming on top of a nearly $600 million setback on his Ford stake, Kerkorian—like so many others these days—finds himself on treacherous terrain.