Cosmopolitan Casino a Gamble as Credit Risk
The worldwide credit crunch took a little longer to affect Las Vegas than most of the rest of the planet, but the problem has now surfaced on the Strip in a big way. The $3 billion Cosmopolitan Casino and Resort, currently under construction next door to the Bellagio, found itself a target for foreclosure on Wednesday.
Deutsche Bank began the proceedings as a $760 million construction loan went into default yesterday. Bruce Eichner, owner of 3700 Associates, LLC, the parent company of Cosmopolitan, stated that his company foresaw the likelihood of this setback, and it is engaged in talks with several different groups of investors, seeking new creditors to relieve the obligation to Deutsche Bank.
The casino has been under construction since the end of 2005, with a planned opening date in 2009. Almost 3000 rooms are envisioned when the Cosmopolitan is complete; however, most are condo rooms, sold to individual owners who may then rent them and split monies with the hotel management. Speculation was made that the tumbling condo market may be partly responsible for the financial situation of the casino, but Eichner said 84%of the units have already been sold, and demand remains strong.
MGM's neighboring condo-casino project, CityCenter, continues on pace with its own construction to open in late 2009. CityCenter executive vice president Tony Dennis said the difference between the two properties was that CityCenter had been self-financed by MGM, leaving that casino free from the wild swings and tribulations experienced in the credit world since the collapse of subprime mortgages.
It appears that, while the wealthy megaresort companies may have the capital to continue monster expansions, the time may not be the best to be an up-and-comer trying to break into the big boys' private club. Gambling as an industry may be a fairly sure way of generating revenue, but reaching the stage where that income starts flowing may be harder now than for many years.
