Big Bets Lost on Vegas Hotel

If you're in Las Vegas, you're probably going to gamble. The city is well known for its attractions, from the resorts to the shopping to the shows to The Mint 400, but the town undoubtedly thrives by lost bets and 'misplaced' paychecks. When I visited several years ago, I only left about $200 under, and I'm one of the fortunate ones.

Yet the gambling environment extends beyond the casino floors. Virtually all stakes are raised in Las Vegas, especially those in the development game. Even classic hotels eventually need to be closed or renovated as yesterday's chic becomes today's retro. It was this cyclic resurgence that gave birth to the Harmon Hotel, a non-gaming boutique hotel that would reside in the MGM CityCenter development, which would replace The Boardwalk Hotel's faux Coney Island landscape.

To say the Harmon was opulent was an understatement. Forty-nine floors with 200 luxury condos, 400 hotel rooms, a rooftop pool, spa, salon, gourmet restaurant. In 2006, developers boasted that it would be the most expensive privately-funded construction project in U.S. history. In late 2014, MGM won a lawsuit that settled with plaintiffs who already purchased condos, as the demolition of the Harmon is scheduled to be finished this year.

All in all, MGM bet $279 million on hotel construction, $11.5 million in demolition, and $173 million in litigation. So what was the cause of this huge loss?

Improper construction techniques that made the structure virtually unusable, and falsified inspections that allowed the techniques to continue. Construction on the Harmon began in 2006 and Perini Building had been enlisted as the general contractor. Two years into the project it was discovered that Perini's subcontractor Pacific Coast Steel had been improperly installing rebar in floors 6 through 20. They claimed that there were errors in the blueprints, but Perini, as the general contractor, had authorized design modifications. Perini officials say that MGM executives never made a decision, and approved changes acting as MGM's agent. Rebar is critical to structure strength, as concrete excels at compressed loads but fails easily under tension without reinforcement.

It should also be noted that the steelwork in question was reviewed and approved by a private inspection firm on 62 consecutive days. It would later be revealed that these inspections were falsified. It wasn't until county inspectors arrived that the defects were identified. Not only was the structure at immense risk of collapse due to earthquake or other structural trauma, but remediation efforts would essential mean a rebuild. At first the Harmon was halved to 28 stories, before finally being shelved altogether in 2010.

It's probably for the better, as at least one architecture blog criticized the blue-glass elliptical tower as too bland for the Las Vegas Strip. The city offers a unique blend architectural marvels, so the Harmon would likely end up being rebuilt after 40 years or so. The Harmon might also appear as a huge loss for MGM, but they won the public-relations side of this issue by paying subcontractors who would have to wait for litigation, and are getting rid of the Harmon hotel relatively quietly.

It reinforces a pretty simple principle when gambling: mind your bets.