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Dubai Buys Stake in MGM-Mirage’s CityCenter Project

Dubai Buys Stake in MGM-Mirage's CityCenter Project in Las Vegas

Earlier this week, MGM Mirage made the announcement that they have signed an agreement with Dubai World to form a 50/50 partnership in the CityCenter project that is currently under construction on The Strip.

Dubai World is a major investment holding company representing the business and investment portfolio of the Arab government of Dubai, which itself is fast becoming a luxury playground. The company also has a hand in many luxury tourist resorts, including Mexico’s One and Only chain, and the Atlantis in the Bahamas. Their wholly-owned subsidiary Infinity World Development Corp will be named as an co-owner in the joint venture, CityCenter Holdings, LLC, with MGM Mirage.

Under the agreement, Dubai World will invest approximately $5 billion in the deal, with $2.7 billion being funneled directly into the CityCenter project. Another $2.4 billion will be invested into purchases of MGM Mirage common stock, purchasing up to 28.4 million shares, which will also give Dubai World an approximately 9.5 percent equity stake in MGM Mirage itself.

MGM Mirage will continue to serve as developer of CityCenter and upon completion, the joint venture will pay MGM Mirage a management fee to operate CityCenter’s resort casino as well as the development’s retail activities and the Vdara condo-hotel tower.

In a press release about the agreement, Terry Lanni, Chairman and CEO of MGM Mirage said, “This partnership with Dubai World brings us a relationship with an internationally-respected developer of large- scale luxury properties that attract an international client√®le. Dubai World’s proficiency in real estate, combined with our company’s operational expertise, strong brands and world-renowned resorts, creates competitive advantages that we believe will benefit all of our stakeholders. We are extremely pleased to be working with Dubai World. We have a tremendous amount of respect for Sultan Bin Sulayem and all that his company has accomplished.

“Our vision is to create a global portfolio of signature properties that will create value for generations to come. The unprecedented CityCenter will redefine the luxury lifestyle and incorporate world-class elements of fine art and design, fulfilling our goal of creating landmark developments while further expanding into the important U.S. real estate market. We look forward to making this project an international success and sharing in other opportunities for expansion with MGM MIRAGE,” added Sultan Bin Sulayem of Dubai World in the same statement.

This is all well and good, but I think there’s more to this agreement than just the CityCenter project. Dubai World is currently building several mega-luxury projects in the city of Dubai, including the man-made resort island groups of The World and the two Palms. The Sultan has said in various interviews that he intends to include several casinos in these completed island projects, so with this CityCenter joint venture locked up, who do you think will be the first company he calls on to construct and manage his casinos? I’m thinking the MGM Mirage will. And with the city of Dubai already a huge vacation destination for Europeans, this would be a big coup for MGM Mirage to get a foot in the door with this CityCenter deal.

At any rate, here in Las Vegas, CityCenter is still on schedule to open in late 2009. The “city-within-a-city” concept will include over almost 5000 rooms in three hotels, with another 2700 condos/condo-hotel units, in multiple towers. These will be anchored together by 470,000 square-feet of retail and entertainment space and a equally large casino area.