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CityCenter was supposed to be the face of the next generation of Las Vegas Strip development. Instead, it has become a symbol of the Great Recession and the overbuilding during the late 2000s on the Strip.
Half-owner MGM Resorts (NYSE: MGM ) took another step toward ridding itself of CityCenter condos that have sold like molasses when it sold 427 condos in the Veer Tower to Ladder Capital Finance for $119 million on Friday. That leaves just 11 penthouses in Veer and 160 condos in Mandarin Oriental left to sell at the $8.5 billion property.
Wrong time, wrong place
MGM has struggled with condo sales since before CityCenter opened. The housing market collapsed in 2007 and 2008, leaving the high-cost real estate on CityCenter's balance sheet not generating a dollar of revenue. Many buyers even walked away from deposits on condos before the project was completed. Friday's sale will at least provide some funding and lower ongoing expenses for owners MGM and Dubai World.
CityCenter has been an epic failure for MGM, and this is just the latest example of what a debacle it's become. The Harmon Tower at CityCenter will be imploded sometime next year after construction mistakes made it unusable. On the financial side, the resort cost $8.5 billion and only generated $59 million in EBITDA last quarter, not nearly enough to justify its cost. It was just the wrong time and the wrong place for MGM to make such a big investment.
Condos were once a way to pay for development costs while maintaining the lucrative gaming and food and beverage portions of a resort. Trump ran into similar problems in Las Vegas and had to have a fire sale on 300 condos at Trump International. Las Vegas Sands (NYSE: LVS ) got sort of lucky and stopped the development of a condo building before it could spend too much money on another failed condo project at the height of the housing bubble.
Elsewhere in gaming
The other big news late last week was Pinnacle's (NASDAQ: PNK ) $900 million acquisition of Ameristar Casinos (NASDAQ: ASCA ) . The $26.50-per-share offer comes with another $1.9 billion of debt, making this a risky move for Pinnacle.
The regional gaming market has been rough for years, and the expansion of gaming across the country has made the long-term conditions even more challenging. Investors thought this was a good move for both companies, but I'd take a very skeptical look at two struggling companies combining to make a bigger struggling company right now.