January 7, 2009 - MGM CityCenter, Las Vegas NV

MGM Mirage is scaling back its massive City Center project under construction on the Las Vegas Strip.....

Construction mistake cuts 200 Condominiums

MGM Mirage cancels CityCenter condo project

County official says ‘significant’ errors found on 14 floors of CityCenter unit

MGM CityCenter

The Harmon Hotel & Spa – originally planned as a 49-story building with some 200 condominiums atop 400 hotel rooms, will no longer offer condominiums and instead will open in late 2010 as a 400-room hotel, MGM Mirage said today.

The Harmon, one of six towers at MGM Mirage's CityCenter resort complex under construction on the Strip, had been slated to open in November.

As first reported in the Las Vegas Sun early this morning, MGM Mirage was considering topping off The Harmon where the hotel ends, which would be a little more than half of its planned height, after months of extensive structural repair work that slowed progress on the tower.

MGM Mirage executives had recommended the change as of Monday afternoon but other parties involved in CityCenter, including the company's lenders and joint venture partner Dubai World, had not yet signed off on the decision.

By cancelling the condominiums, the partners will be able to avoid the need "for substantial redesign" of The Harmon "resulting from contractor errors," CityCenter Chief Executive Robert Baldwin said in a statement today.

The scaled-back building, as well as other cost-saving measures initiated by MGM Mirage amid this recession, will result in savings of about $600 million at CityCenter. Postponing The Harmon by a year will defer about $200 million in construction costs to fit out the building's interior, Baldwin said.

The final budget for CityCenter, the largest commercial construction job in U.S. history, is in flux but is likely to be less than the most recent official figure of $9.2 billion.

Since August, workers have been correcting concrete and rebar construction at The Harmon. Rebar is the steel used to reinforce concrete.

At The Harmon, “they ... installed it wrong. That’s the bottom line,” said Ron Lynn, Clark County Building Division chief. “They made a mistake.”

Clark County inspectors, he said, uncovered rebar problems on 14 floors.

Lynn characterized the rebar problems as “significant” and “very unique.”

“We do not see this very often,” he added.

The placement of the steel bars and how they are configured are calculated to maximize a structure’s strength.

“It’s very important,” he said. “Even if you have the correct number and size of rebar, it’s not enough if it’s not in the right place.”

In The Harmon, Lynn explained, some of the rebar was spaced incorrectly and some ties, which hold the bars together, had been cut by a torch.

Had the problems never been detected, the building would very likely have been able to withstand its own weight, Lynn said.

“It’s tested every day with the activities of construction including workers, equipment and wet concrete,” he said.

But the potential risk would have increased with an earthquake or high winds.

“Just having the rebar there provides some structural strength, but when you have a high wind or seismic load, you have to tie them together, and if they are improperly tied or spaced, that can result in problems,” he said.

Lynn said an employee of Halcrow Yolles, the engineer of record, discovered The Harmon’s rebar problems last summer after walking the site and noticing some cut ties.

That led to a larger investigation. In some cases, rebar problems were found before concrete had been poured around them. Where concrete had been poured, the concrete would have to be chipped away and repoured after fixes were made.

As of Tuesday, plans for all those repairs had not been submitted to the county.

“They are still trying to figure out how to do some aspects of the final structural fix,” Lynn said.

In an Oct. 27 letter to AAI Architects regarding “Harmon Tower Construction-Progress of Link Beam Repair,” Frank Martinovic, Halcrow Yolles principal, hinted at the difficulty of fixing the problem in his opening paragraph:

“The current status of the link beam repair is such that it does not appear the contractor can execute the repair as detailed in a timely manner,” he wrote. “Given this fact, I see no recourse but to abandon the repair as currently being executed once level 15 is complete.”

Martinovic also wrote that a re-analysis of the building was taking place with “the goal of this analysis ... to repair the building without the extensive demolition and in a manner that can be executed quickly in order to meet the project goals.”

Martinovic could not be reached for comment this week.

Lesley Pittman, a spokeswoman for CityCenter contractor Perini Building Co., said the corrective work is in progress. Pittman declined further comment.

Insiders close to the project said the souring market for condo sales played a minor role in the decision. Scaling down the building made more sense than demolishing the building or leaving it unfinished, they say. Construction had stalled at the 23rd floor.

Lynn noted that inspectors find issues on “almost every” construction site. Another significant problem, albeit one easier to fix, was found at Veer, also within the CityCenter complex.

At that site, inspectors found problems with the stirrups or ties holding rebar “cages” together. During prefabrication of the cages, Lynn said, troubles developed with how the ties were fused or welded to some rebar. To fix the problem, the county required fiberglass jacket wrappings around the columns.

That fix was expensive but very effective, Lynn said.

“Those columns are stronger now than they were before,” he said.

Shapiro & Sher Group’s Aaron Auxier said the cancellation of The Harmon condos is an “extreme letdown” for buyers as well as brokers who have been disappointed by a series of condo projects that have been ditched amid poor market conditions.

MGM Mirage bills The Harmon as a glamorous, boutique hotel with a spa and residences. Designed by Foster + Partners, it is an iconic, oval-shaped building at the northeast corner of CityCenter’s 67-acre campus, at Harmon Avenue and Las Vegas Boulevard.

Las Vegas nightclub operator Light Group is developing and managing the hotel for CityCenter joint venture partners MGM Mirage and Dubai World. Officials for Light Group could not be reached for comment.

“The Harmon is the premier condo destination for the celebrity clientele,” said Auxier, whose clients have signed purchase contracts for millions of dollars’ worth of penthouses at The Harmon.

MGM Mirage said today that buyers, who had signed purchase contracts for 88 of The Harmon's approximately 200 units, are entitled to refunds on their deposits. These deposits are likely worth tens of millions of dollars.

Buyers may also purchase units at other CityCenter buildings with condominiums, including Mandarin Oriental, Vdara and Veer Towers. Mandarin and Veer feature residential condos and Vdara is a condo-hotel building, with hotel rooms that can be owned by individuals and rented out to tourists.

Auxier's clients include musicians, athletes and other celebrities who sought out The Harmon because it was designed to provide them with privacy in addition to its other amenities.

With The Harmon Residences scrapped, Palms Place, a night life magnet for the Hollywood set adjacent to the Palms, will take the place of The Harmon as the “hippest condo address in the city”, he said.

Original Story - Las Vegas Sun

Update January 8, 2009

How did CityCenter tower flaws persist?

Failed safeguards puzzle county inspections official

Clark County is investigating the consultants hired by CityCenter owner MGM Mirage to inspect the structural integrity of construction work at the site, after faulty rebar caused massive problems in the project’s Harmon tower.

Ron Lynn, the county’s director of development services, said Wednesday that engineering consulting firm Converse Consultants repeatedly filed rebar inspection reports indicating there were no problems with The Harmon.

However, an employee of the engineer of record for the tower, Halcrow Yolles, walking the site in July, discovered rebar deficiencies. By that point, much of the reinforcing iron had been buried in concrete.

Those concerns prompted a more detailed county inspection that halted construction on the project and led to the decision Wednesday by MGM Mirage to top off the building — originally planned as a 49-story tower — at 28 floors.

Lynn said that while responsibility for the faulty rebar ultimately lies with the general contractor, Perini Building Co., and rebar subcontractor, Pacific Coast Steel, he wants to learn how an apparent systematic breakdown in the inspection process occurred.

“There are multiple levels that transpired here,” Lynn said. “You have to put the first burden on the contractors who put the work in because they are responsible by law to install it correctly. But certainly the special inspector should have caught the problem.”

The county requires project owners such as MGM Mirage to hire certified inspectors to sign off on structural elements of construction projects and submit their reports to the county.

On Wednesday morning, MGM Mirage announced it was reconfiguring the project as a 28-floor hotel rather than a 49-story building topped with condominiums, and delaying its opening to 2010. The Harmon will no longer include the planned 200 residential units that were to occupy the top floors of the building.

Lynn said the county had expected MGM Mirage to submit new plans to reconfigure the engineering design of the building. But now a shorter building will make extensive reconfiguration unnecessary, experts say.

Lynn thinks the problems stemmed from construction errors rather than a faulty design. The county had signed off on blueprints that should not have been difficult for the contractors to interpret, he said.

Outside experts said that although mistakes on large construction sites are not uncommon, the size and scope of The Harmon’s troubles — and the decision by the owner to shorten the building as a result — is.

“This is not a perfect science. Human error is involved,” said an expert who isn’t involved in the CityCenter project. “A lot of times, a mistake that isn’t caught the first time is perpetuated.”

Particularly puzzling to Lynn was the fact that the mistakes in this case were not uniform. “In some cases the number of rebar was wrong and in some places it was in the wrong place,” Lynn said.

“They were inconsistent in their errors. We don’t understand how that inconsistency could have been missed or why it was done, and that’s certainly an area of concern for us,” he said.

Lynn would like to better understand why the rebar was installed incorrectly, but his department can only sanction inspectors for violations, not contractors.

In a Notice of Violation issued Aug. 5, county inspectors said that Scott Edberg and Joseph Glenn Laurente, employees of Converse Consultants, noted in their reports to the county that all structural reinforcements complied with approved plans. But, the notice stated, “it had been found in the field that the link beams reinforcing has severely deficient items, such as reinforcing torch cut, misaligned and missing cap ties” on floors 5 through 20.

After the county issued the notice ordering that the site be shut down, officials began an investigation to determine whether Edberg and Glenn were responsible for problematic oversight at other projects at CityCenter and elsewhere.

Lynn expects to issue results of that investigation in a couple of weeks. The county could strip Edberg and Glenn of their certifications to conduct inspections in some or all areas, or require them to pass new tests.

One of the inspectors no longer works for Converse and the other has been reassigned, Lynn said.

The county could also stop Converse from conducting inspections for a time, imposing a significant monetary loss on the company.

Converse representatives did not respond to calls for comment. Pacific Coast Steel representatives also could not be reached. Perini spokeswoman Lesley Pittman said the company did not want to comment while the county investigation was ongoing.

Like many other municipalities, Clark County relies on the oversight of third-party inspectors hired by owners because it doesn’t have the manpower to examine every aspect of every building project in the county, Lynn said. Instead, the county employs as many as 14 “monitors” to spot-check the work of the third-party inspectors who submit regular reports.

In the case of The Harmon, county monitors examined rebar on the lower floors and did not find any problems because the rebar deficiencies did not occur until construction reached the fifth floor.

The county monitors who inspected the higher floors did not examine the rebar, Lynn said.

In addition to looking at the role of the third-party inspectors, Lynn said, his department may also examine its role, which he said is limited by resources. The monitors often spend much of their time inspecting buildings’ foundations rather than rebar placement because rebar is not as complicated, he said.

“We have one of the largest staffs around devoted to monitoring,” Lynn said. “But when something like this happens you have to ask how it happened and I have been asking is our level of oversight adequate. Do we need to focus more on a particular project? But particularly in these economic times, there’s just not the manpower.”

Updated Story - Las Vegas Sun

Related Story - March 3, 2009

MGM Mirage casino co. says it may default on debt

MGM Mirage Inc., the gambling company owned by billionaire investor Kirk Kerkorian, said Tuesday that it may default on its debt amid development of its biggest casino project ever, the $8.6 billion CityCenter in Las Vegas.

Unless the economy turns around and more people start gambling again, the Las Vegas-based casino company believes it will break its loan agreements this year, it said in a filing with the Securities and Exchange Commission.

That would mean a default on its senior credit facility, which MGM has asked to modify.

MGM Mirage will delay filing its annual report until March 17 because it is still assessing its financial position and liquidity needs, the company said in Tuesday's unscheduled filing. One factor in the delay, the company reported, was its decision last week to tap $842 million of its $4.5 billion senior revolving credit agreement to cover general expenses.

As of the end of September 2008, MGM Mirage had $13.29 billion in long-term debt.

Many U.S. casino companies borrowed huge sums in the last few years to develop resorts in the United States and abroad. But several are having trouble making payments on that debt because their revenue has fallen sharply over the past year as fewer patrons spend less money on gambling and services.

Chief Executive Jim Murren, who took over late last year, has said the company is exploring a half-dozen deals around the world in which MGM Mirage would lend its name and expertise to generate income.

It sold the Treasure Island casino on the Las Vegas Strip to Kansas billionaire Phil Ruffin for $775 million and has since been shopping other properties, including nearly 300 acres of land in Nevada and Atlantic City, N.J., and two airplanes.

MGM Mirage has not reported on its financial position since September nor posted its earnings for the quarter that ended Dec. 31.

The March 17 report is to include an auditor's assessment of whether MGM Mirage can continue as a company.

Another casino operator, Las Vegas Sands Corp., faced similar questions from its auditor in November, but the concerns were removed after the company raised $2.1 billion in capital by selling common stock and preferred stock with warrants. In September, Sands' billionaire founder and CEO Sheldon Adelson and his wife invested $475 million in the company to help meet its debt obligations.

MGM Mirage has said it still needs to raise $1.2 billion to finish CityCenter on the Las Vegas Strip. The 67-acre complex of hotels, a casino, condos and retail space has been called the largest privately financed project in U.S. history. CityCenter is a joint venture of MGM Mirage and Dubai World subsidiary Infinity World Development Corp. Dubai World also owns a 9.4 percent stake in MGM Mirage.

Analyst Robin Farley of UBS Investment Research told investors on Tuesday that MGM Mirage and Dubai World each need to fund about $1.3 billion for CityCenter this year.

"MGM had expected to fund their portion with condo sales proceeds; however, we expect many of the condo sales may not close," Farley said.

MGM Mirage's profit during the first three quarters of 2008 fell 59 percent compared with the same period in 2007, from $712.21 million to $292.7 million.

Joseph Weinert, senior vice president of casino consulting business Spectrum Gaming Group in Linwood, N.J., said MGM Mirage's filing on Tuesday is a sign of the times.

"When you have one of the industry giants walking a financial tightrope, it really speaks to the state of the whole industry," Weinert said. "MGM is a widely respected company both on Wall street and in the gaming street, and to see a company like that in the situation it's in, it's a troubling sign for Las Vegas."

Shares of MGM Mirage dropped 37 cents, or 14 percent, to $2.25 in after-hours electronic trading. It ended the regular session at $2.62, down 43 cents or 14 percent from its previous close. The stock has lost most of its value since peaking at $64.73 last March.

In the last year, the 91-year-old Kerkorian's majority stake in the company shrank in value from $9.6 billion to about $390 million.

Kerkorian's Tracinda Corp., based in Beverly Hills, Calif., also holds stakes in Ford Motor Co. and Delta Petroleum Corp.

Tracinda sold part of its stake in Ford in October, taking millions of dollars in losses. Kerkorian, a longtime casino and hotel developer, has a mixed track record with the other two major U.S. automakers, including an unsuccessful $4.5 billion cash offer for Chrysler last year and his push for General Motors Corp. to form an alliance with Nissan Motor Co. and Renault SA in 2006.

Tracinda also was Chrysler's largest shareholder at the time of its 1998 combination with Daimler-Benz.

Original Story - Associated Press

Update Story - March 15, 2009

A Silver Lining for a Hotel Developer

Even in flush times, CityCenter was an ambitious undertaking. Sprawling over 67 acres on the Las Vegas Strip, it was to contain four hotels, one of them with more than 4,000 rooms, and hundreds of condominiums offering hotel services.

The owners — MGM Mirage, the publicly held casino operator, and Dubai World, an investment arm of the Dubai government — have together spent nearly $9 billion on CityCenter, which they hope to open by December.

But the demand for hotel rooms in Las Vegas has softened in the economic downturn, and MGM Mirage, which is controlled by the financier Kirk Kerkorian, is struggling to raise funds to complete the project. The company said in a recent filing with the Securities and Exchange Commission that it might default on some of its loans later this year.

And so it may seem fitting to some observers that one of the hotel towers at CityCenter — the Harmon — will be 20 stories shorter than expected.

Designed by the London architects Foster & Partners as a 49-story building, the Harmon has instead topped out at 28 floors. More than 200 condo units, which were to fill the higher floors, have been scrapped, according to Alan Feldman, a spokesman for MGM Mirage.

Building inspectors discovered last summer that metal rods inserted into the structure’s concrete beams to strengthen them were positioned incorrectly. Moving the rods, called rebar, to their correct locations would have required extensive demolition and rebuilding. The company decided to stop at 28 floors, a height that the existing structure could safely support, Mr. Feldman said.

He says the building would have been built as planned had it not been for the structural problems. But the financial savings derived from the downsizing — an estimated $200 million, according to Mr. Feldman — couldn’t have come at a better time for MGM Mirage, which is trying to renegotiate its debt.

Indeed, it may be hard for MGM Mirage to show that it was damaged by the loss of the upper floors of the Harmon. Shortly after the decision to shorten the building was announced, MGM Mirage’s chairman, James Murren, told The Associated Press: “It takes pressure off of selling more condominiums; it takes pressure off of occupying more rooms.”

Citywide, hotel occupancy in December 2008 was down nearly 10 percent from the previous December, according to the Las Vegas Convention and Visitors Authority, even as average room rates fell 14 percent.

Joe Greff, an analyst at JPMorgan who follows the gambling industry, said: “Every single option to improve the capital structure of MGM Mirage is on the table.”

Those options, he said, included the possibility that CityCenter won’t be finished; that it will be completed later than expected; or that MGM Mirage will sell all or part of its ownership in CityCenter.

Aaron Auxier, an agent with the Shapiro & Sher Group who sold condominiums in the Harmon, said that canceling the condos was good for Las Vegas developers, including MGM Mirage, because “it removed inventory” at a time of oversupply.

Mr. Auxier said he had sold three units at the Harmon, including a round penthouse that brought $2,400 a square foot. Altogether, according to MGM Mirage, nearly half of the 200 Harmon condos had been sold, at prices starting at $1.3 million. According to Mr. Auxier, the buyers received their deposits back as soon as the decision not to build the condos was announced.

Cesar Pelli, who designed the largest of the CityCenter hotels — the 4,000-room, 61-story Aria — said he had never heard of a skyscraper being shortened because of construction problems. Mr. Pelli has designed some of the world’s tallest buildings, including the Petronas Towers in Malaysia.

He said the real surprise wasn’t that a mistake was made, but that it wasn’t caught until the building was nearly half-finished.

Rebar errors were also discovered at the Veer Towers condominiums, also a part of CityCenter. There, the local building officials allowed the builders to strengthen the columns by encasing them in fiberglass “jackets”; the buildings have reached their full height of 37 stories.

Foster & Partners, which designed the Harmon, an oval-shaped building of blue glass, did not respond to several requests for comment. But Mr. Pelli said he felt bad for the building’s designers, because the Harmon Hotel has CityCenter’s most prominent location. “It’s the first thing that you are going to see,” he said.

He added that two Veer towers, by the Chicago architect Helmut Jahn, which would have been largely hidden by the Harmon, would now be far more visible. “Helmut must be happy with that,” Mr. Pelli said, jokingly.

Mr. Pelli said that the Aria was on schedule for an opening later this year. “We designed it in better times,” he said. “But our client has kept on moving. They have not given us any indication of being concerned about the downturn.”

Mr. Pelli’s building will include a new theater for Cirque de Soleil, which is developing an Elvis-themed spectacle for the space.

By contrast, the Harmon Hotel won’t open until late 2010, according to Mr. Feldman. He said that the Harmon’s exterior would be complete by the time CityCenter opens at the end of 2009. Delaying the opening, he said, allowed the company to defer about $200 million in costs from 2009 to 2010 (in addition to the $200 million it will save by not building the top 21 floors).

The hotel is still expected to contain a Mr. Chow restaurant, a Frederic Fekkai salon and other high-end amenities. It will be managed by the Light Group, which runs several Las Vegas nightclubs.

The Perini Building Company, the contractor for the Harmon, has disclaimed responsibility for the structural errors. In a written statement, Perini’s president, Craig W. Shaw, said that plans for the building “contained elements of reinforcing steel that could not be installed as drawn.” As a result, he said, changes were made on-site.

Converse Consultants, a private engineering company based in Las Vegas, was responsible for certifying that the rebar was installed correctly. Converse filed 62 separate reports with Clark County, saying that construction was proceeding as planned, according to Dan Kulin, a spokesman for the county. Those reports, Mr. Kulin said, “were not accurate.” Converse did not respond to requests for comment.

By the time Halcrow Yolles, a consulting firm that had been brought in as the building’s engineer of record, noticed the discrepancies between the plans and how the rebar had actually been installed, the structure had risen more than 20 floors. Halcrow Yolles, which found rebar errors on 15 of those floors, informed the county of its findings. A stop-work order was issued in July, Mr. Kulin said.

Clark County filed a complaint with the Nevada State Engineers and Land Surveyors Board against Don J. Christiansen, the engineer who supervised the Converse inspectors, and has removed two Converse employees from the list of authorized concrete inspectors. Mr. Christiansen did not respond to requests for comment.

The county also filed complaints with the Nevada State Contractors Board against the rebar subcontractor, Pacific Coast Steel, and against Perini. Messages left for executives at Pacific Coast were not returned.

At the same time, the county has changed its own procedures, requiring that county employees visit the CityCenter site at least twice a day, Mr. Kulin said, to “look over the shoulder of people doing the inspections.”

Update Story - New York Times