Everyone was all smiles at the 2006 groundbreaking ceremony for Las Vegas's CityCenter, the largest privately funded development project in U.S. history. Conceived by MGM, the site was designed to be the ultimate mixed-use hospitality destination—a nearly 5.7 million-square-meter complex that would encompass several hotels, condos, a spa, luxury restaurants, and 18,000 square meters of premium retail space, including the biggest Louis Vuitton and Prada stores in the United States. Culture, not casinos, would be king: artists and architects like Maya Lin, Jenny Holzer, Claes Oldenburg, and Frank Stella were commissioned to create dramatic, site-specific works, including Lin's 40-meter-long silver cast of the Colorado River, suspended above the reception area of the Aria casino hotel. The only gaming options would be found in that one property. Sure, the price tag was $8.5 billion, but back then the party was still going strong.
Then things fell apart. Following union concerns over worker safety, MGM's partner, Dubai World, filed suit for breach of contract and temporarily withheld funding. The economy tanked, along with the local tourism trade; according to the Las Vegas Convention and Visitors Authority, the number of visitors fell 3 percent in 2009, with convention attendance plummeting nearly 24 percent. Even so, MGM and Dubai World forged ahead. On Dec. 16, in the first step of a phased plan, Aria finally opened its doors.
CityCenter represents a new kind of high-stakes player in the luxury-development market: a one-giant-size-fits-all property that positions itself as a regional lifestyle hub. It's one of a handful of projects around the world, conceived pre-crisis, that have gone forward, banking on their innovation in a new market niche to carry them into long-term profitability. They are counting on the fact that most hospitality analysts see improving prospects through 2010, with a significant economic recovery taking root in 2011.
Whether located in America, the Middle East, or Asia, these bullish mega-developments aim to provide a variety of sophisticated cultural offerings. "You get big names and a lifestyle experience that you normally would have to go to a city like New York or London to get," says Melanie Brandman, CEO of the luxury-travel public-relations firm the Brandman Agency. "People who invest in those projects take a big risk, but the rewards can be tremendous, and they're in it for the long term." Their strategy has turned out to be sound in a post-crisis world. By virtue of their giant scale and diverse offerings—room rates, for instance, span a wide spectrum—they offer a difficult-to-match price-to-value ratio that distinguishes them from traditional luxury resorts.
For CityCenter, the gamble may pay off soon, despite widespread media speculation about the implosion of the Vegas hospitality economy. December saw a year-on-year visitor increase to Las Vegas of 1.5 percent, the fourth straight uptrending month. "The concern over the relevancy of Las Vegas was a more sustainable point of view a year ago," says Jim Murren, chairman and CEO of MGM Mirage. From his perspective the biggest issue was building CityCenter, not getting people to come. MGM's numbers back him up: Aria's December occupancy was 68.2 percent.
Half a world away, Dubai's debt collapse in the fall of 2009 left investor confidence deeply shaken. But that won't stop an estimated 10,500 rooms from coming on the market this year, according to the hotel-research company STR Global. The tourism industry is actually one of Dubai's most resilient sectors, falling only 5.7 percent year-on-year in the third quarter of 2009. While local real estate is languishing, tourists are still keen to enjoy the emirate's exaggerated luxury, perhaps best symbolized by the Burj Khalifa, the world's tallest skyscraper. One of its most prominent new properties is Giorgio Armani's first eponymous hotel. With 160 guest rooms, 144 private residences, eight restaurants, a spa, and a shopping arcade, the hotel is a symbol of high-end Western investment in Dubai's future.
In Asia, huge new resorts in Singapore and Macau are hoping to prove immune to hard times. Singapore's new Resorts World Sentosa and Marina Bay Sands, set to open in April, will offer the island's first casinos, along with massive multibillion-dollar hotel and leisure properties. "This is the best time to open because the economies around the region are recovering," says Marina Bay Sands president and CEO Thomas Arasi. "There's growth in domestic demand in countries across Asia, and we see a lot more Asians traveling. Tourism is fostering new economic activity."
These developments go to great lengths to manufacture the element of fantasy, which has emerged as an essential part of a leisure destination. Macau, which has already modeled itself after Vegas, has its own version of CityCenter in the $2.1 billion City of Dreams development, which includes the new Grand Hyatt Macau. Though City of Dreams came online as the crisis hit, visitor volume and revenue have begun to improve, and more of its properties will be open soon.
Although the long-term prospects for these developments look bright, they still need to survive the short term. Changes in corporate ownership could help; there is speculation, for example, that Harrah's or another experienced casino operator could buy a stake in the City of Dreams' parent company, Melco Crown. Any changes, however, are unlikely to affect the consumer, since further investment would be an expression of confidence in the projects' fundamental strengths. By appealing to a broad cross section of travelers, many of whom hail from countries that aren't suffering deeply from the crisis, developers enjoy a measure of insulation from market shocks. It's a powerful appeal for newly minted middle classes eager to expand their leisure horizons. And in a globalized world, the phenomenon is generating regional lifestyle centers that are spreading cultural sophistication far and wide.