Colony Capital LLC, a Los Angeles-based real estate firm, is considering a possible investment in the troubled City Center project in Las Vegas, according to people close to Colony and the City Center project.
An investment could keep the USD 8.6 billion City Center project, owned by MGM Mirage and Dubai World, from bankruptcy. It could also keep the owners from halting work on the project, saving thousands of construction and hotel jobs vital to the local economy.
Colony is „discussing with both parties any role they might play in helping City Center get completed without any court action,“ a person close to MGM Mirage said.
A person close to Colony characterized talks with Dubai World and MGM Mirage as „sporadic, but fairly recent wide-ranging discussions.“ This person said they could result in an investment „as well as just brokering a strained relationship“ between Dubai World and MGM Mirage.
„Talks are being held with a number of potential investors in a cooperative fashion,“ said a person close to Dubai World. „So far, none are particularly close to a resolution.“ The company declined to disclose the identities of any of the parties involved in the talks.
Dubai World, which has invested USD 4.3 billion in City Center, is suing MGM Mirage, citing poor management and cost overruns. Last week, Dubai World declined to make its half of a USD 200 million monthly payment needed to fund construction.
City Center came close to filing for bankruptcy last week, but instead MGM Mirage received special permission from its lenders to make the entire payment, including Dubai World’s portion.
The payment put more pressure on MGM Mirage, which is already struggling with USD 13.5 billion in debt and declining revenues from its hotels and casinos. The casino operator, controlled by billionaire Kirk Kerkorian, narrowly avoided defaulting on bank loans in March. Its auditors warned of „substantial doubt about the company’s ability to continue as a going concern“ in a recent regulatory filing.
The gambling company’s lenders recently agreed to a waiver on MGM Mirage’s loan covenants, giving the company until May 15 to resolve its cash flow and debt issues.
MGM Mirage’s USD 200 million payment to City Center was just a temporary fix, giving MGM Mirage and Dubai World a few weeks to negotiate a permanent funding solution. Another payment to City Center is due April 13.
MGM Mirage would need permission from its lenders if it tries to cover future payments for construction on City Center.
It is unclear how much of an investment Colony Capital might be prepared to make in City Center. The project needs to raise another USD 800 million in cash as a condition of accessing a USD 1.8 billion loan needed to finish the project.
Colony Capital has made major investments in the gambling sector, but in recent months those investments have soured. Colony helped take Station Casinos private. But the Las Vegas-based Station may file for bankruptcy protection by mid-April. Colony’s Atlantic City casino hotel, Resorts Atlantic City, is facing foreclosure.
But that hasn’t kept the company from contemplating an investment in the biggest project in Las Vegas. Colony last year raised nearly USD 1 billion in a fund for investments in distressed assets or debt. Only a small portion of that fund has been used so far, said a Colony official.
The company is considering raising another fund to participate in the government’s newly announced public-private partnership program for buying distressed assets, an individual close to Colony said.