One of the smaller components of the MGM CityCenter Project - the Harmon Tower and Hotel is essentially only going to be half built in a move which will save MGM a substantial amount on construction costs.

The Harmon tower was supposed to contain 46 stories, split between 400 hotel rooms and 187 condo residences, but today MGM announced that the scope of the Harmon towers were being cut back to 26 stories and only contain 400 hotel rooms, the condo portion would be canceled.

Image Of The Harmon Las Vegas as of Dec 2008 at 24 Stories (Courtesy of VegasTodayAndTomorrow.com)

Original Rendering of Harmon Hotel Prior to Change

Rumors have been flying since September/October when it was noticed that construction seemed to have stopped on the site. Then rumors were also circulating that the reason for the stoppage was a contractor error – support beams weren’t placed in the wrong places areas hurting the structural integrity of the building as it rose to its original 46 stories.

MGM finally confirmed those rumors were correct by canceling the condos, and announcing that the building would be topped off at 26 stories, saving $600 million in construction costs and the cost to retrofit the building to enable it to be built its full height. MGM also announced that it will not open the Harmon until mid-2010 due to these changes, but the building will still look complete from the outside – all windows and exterior finishes will be completed by the time that CityCenter opens.

This contractor error is a blessing in disguise for MGM. It’s allowing them to conserve capital in this economic slow down, its also relieving them the pressure to sell almost 200 condos and its bringing down the added costs that the retrofitting would have added to the original estimated completion cost. The only downside to this is CityCenter will be a little smaller and MGM will not be able to begin receiving revenue from the hotel portion of Harmon until mid-2010 instead of 2009.

It amazes me how the building contractors and the project managers did not figure this out ahead of time, its unfortunate that it took so long to find the issue, but like I said earlier – it seems to be a blessing in disguise.

2009 is turning out to be a very good year for MGM Mirage even though the economy and gaming industry is in a downturn. Events are playing out so that MGM’s bottom line will come in better than 2008′s and capital expenditures (construction costs for the Harmon) are coming in at more than half a billion dollars than originally expected.

Not only will CityCenter finally open, it’s becoming a great boon to the Las Vegas economy with the hiring of 12,000 employees and the sale of Treasure Island and talk of a potential sale of the Mirage to Penn National will bring much needed capital back into the firm.

andrew@alconic-inc.com