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After Harmon Tower in Las Vegas is Imploded,
What Will Take its Place at CityCenter?

By Steve Green, Las Vegas SunMcClatchy-Tribune Regional News

July 23, 2012--The ruling last week that potentially speeds up demolition of the $275 million Harmon hotel has casino industry observers wondering what CityCenter will develop in the tower's place.

MGM Resorts International, half-owner and manager of the $8.5 billion CityCenter resort complex that includes the Harmon, hasn't offered any clues on what might be developed once the tower is removed. But there are no shortage of theories and ideas about what makes sense for the prime real estate on the Las Vegas Strip at the northeastern end of CityCenter.

The two concepts most bandied about so far involve either another hotel-condominium project or an entertainment complex that could include restaurants and bars and be designed to draw pedestrian traffic deeper into CityCenter and its flagship Aria.

"MGM Resorts will likely view the site as prime real estate," Union Gaming Group analyst Bill Lerner said. "If one looks at the strength of food and beverage at the Cosmopolitan next door, it is a great proxy for the value of new development there.

"I'm not sure exactly what they would build," Lerner continued. "But something that can pull volume into CityCenter, if not produce demand standalone, is doable in that locale. It is worth a significant amount of value in our view."

Whatever is built likely will produce cash flow for CityCenter, which would be a welcome change. The Harmon generates no revenue as it sits unused because of construction defects.

But one big factor complicates analysis of future uses for the property. Something that doesn't make sense in today's environment may end up being lucrative once the economy turns around.

For instance, it wouldn't make sense today to build another hotel-condominium tower given the struggles CityCenter has had selling its existing condos during the recession. And while hotel occupancy rates in Las Vegas have been improving, they're running well below the levels reached during the boom years.

In May, citywide occupancy was 87 percent, versus 92 percent five years ago. The drop is largely attributed to visitor volume failing to keep up with new construction. The city's room count grew during the same period from 133,000 rooms to 151,000.

"The last thing they need right now is more rooms," said David Schwartz, director of the Center for Gaming Research at UNLV. "But by 2014, we may be in a substantially different market."

Given its high-profile location, the Harmon land is well suited for development into something that would pull in passers-by, he said.

"They have excellent potential to use this to pump some life into the project," Schwartz said.

It remains to be seen whether whatever is developed will be geared toward a higher-spending visitor, like the adjacent Crystals mall in CityCenter, or to hipsters who prefer a boutique feel, like that of the neighboring Cosmopolitan.

MGM Resorts International, in the meantime, is focused on dealing with continued litigation over the Harmon. A spokesman said the company has nothing new to disclose about potential projects that may replace the hotel.

MGM Resorts has made it clear in recent months that demolition of the Harmon is a foregone conclusion. The ruling last week by Clark County District Court Judge Elizabeth Gonzalez could speed up the process, though contractors litigating with CityCenter plan to appeal the decision that green-lights demolition. The ruling came in a lawsuit filed in 2010 over defects in the Harmon and unpaid construction bills. The case is headed toward a 2013 trial.

Because of expected appeals, preparation of the 26-story tower for demolition won't begin until the legal fight is resolved and demolition permits are issued. Once the prep work begins, it will take an estimated six months to ready the building for implosion and several more months of cleanup work after the event, MGM Resorts spokesman Gordon Absher said. Some of that preparation work involves removing the Harmon's extensive glass skin.

That leads some casino industry observers to think an implosion won't occur until late 2013 or 2014.

In the meantime, the battle in District Court and potentially in Nevada Supreme Court will continue.

General contractor Perini Building Co. and subcontractors are expected to argue that they're owed $220 million to $240 million for work on the Harmon; that CityCenter design errors are responsible for many of the construction problems; that the building is safe as it stands; that repairs to bring it up to code would cost about $20 million; that its demolition violates contractors' right to repair it; and that an implosion before trial would taint the pool of potential jurors.

MGM and CityCenter officials are expected to counter that the Harmon is "riddled" with construction defects, including missing or improperly-installed reinforcing steel; that it owes nothing to the contractors because of their failure to deliver a building that can be used; that the company has sustained damages in the form of lost hotel and condominium-sales revenue; and that implosion of the structure is the surest way to abate a public safety hazard because the building could collapse during an earthquake.


(c)2012 the Las Vegas Sun (Las Vegas, Nev.)

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