Elsewhere: Soaring Costs Stall Vegas Casino Development

One reason for the silence: mounting concerns about rising construction costs and a shortage of steel, concrete, window glass and other materials. And now that Harrah's is the target of a $15.5 billion buyout offer from two private-equity firms, it's even less clear how much of the giant plan will get the go-ahead.

MGM Mirage, Wynn Resorts Ltd. and Boyd Gaming Corp. have their own massive redevelopment projects in the works, plans that, if completed, promise to remake other parts of the Vegas Strip over the next decade. The companies are vying to build self-contained empires with so many lodging, shopping and eating options that guests won't be tempted to venture outside. But rising materials and construction costs are in almost every case either driving up the price tag substantially or prompting the developers to hedge their bets and scale back.

Perhaps the biggest, MGM Mirage's Project CityCenter, is steaming ahead. It now has an approved budget of $7 billion, up from the roughly $5 billion the company mentioned when it announced the project two years ago.

Company officials now say full costs hadn't been calculated back then, and there have been a multitude of design changes: Condos were added, and open-air spaces were enclosed to protect tourists from heat.

MGM Mirage's Project CityCenter, under construction on the Las Vegas Strip, has seen its budget grow to $7 billion from $5 billion since it was announced in 2004.

But other projects may be reined in. Even before the current buyout offer, Harrah's investors were spooked by the potential price tag, which helped drive the company's stock price down precipitously in recent months. Now, Harrah's potential new owners -- the private-equity firms Apollo Management LP and Texas Pacific Group -- may not be eager to execute all of Harrah's plans, according to people familiar with the situation. These people say potential owners are likely to take a hard look at any major development project in Las Vegas if their bid is accepted.

In an earnings conference call with analysts last week, Harrah's Chief Executive Gary Loveman declined to comment on the buyout offer but said the company was moving ahead with its plans and expected to announce details in two to three months. He also struck note of caution: "The spiraling cost of construction...in Las Vegas and everywhere else [has] made the consideration of these kinds of large projects much more difficult than in the past," he said.

Harrah's planned development is a response to competition from not just MGM Mirage, but also from Boyd Gaming's proposed $4 billion Echelon Place, located farther up the Strip. There also is an Epcot-like plan that the mogul Steve Wynn is hatching for his Wynn Las Vegas casino.

Recent glitches are fallout from a global construction boom. Huge developments under way in China, the

Middle East, Europe and the U.S. have created shortages and led to skyrocketing prices for steel, concrete and -- the latest casualty -- glass for skyscraper windows. Few big construction firms are available for new jobs.

Some contractors working in Las Vegas have placed staff members in China, where they work directly with factories to lock up supplies. "China went out and bought 50% of the world's scrap steel and ore 18 months ago," says Tony Marnell, chief executive of Marnell Correo, which built many of the most famous Las Vegas casinos, including the Bellagio and the Wynn. "We've had a man in China for two years making contracts to buy things direct."

An unintended consequence could be a sharp slowdown in hotel-room growth in Las Vegas. For the past five years, supply growth, measured by rooms, has been about 4% a year, says Bill Lerner, casino analyst for Deutsche Bank. With potential construction delays over the next two years, that rate could drop to an average of 1.8% a year over the next five -- a reversal of the scenario Wall Street feared, as new projects crowded the market.

Indeed, Station Casinos Inc., a local casino operator, recently opened its $900 million-plus Red Rock Resort far from the Strip, and a planned condominium tower for the site has been scrapped. In September, the company said the budget for its next suburban Vegas resort had increased by $150 million to $600 million. Glenn Christenson, Station's chief financial officer, attributed $30 million of the increase to higher construction costs. A company spokeswoman said Mr. Christenson was unavailable to comment.

MGM Mirage officials say the worst is over, in terms of rising costs for their massive project, which is set to open in November 2009, next door to the company's Bellagio casino, featuring multiple hotels, condominiums and retail space. It features a large shopping mall, called "SoBella," situated just south of Bellagio; a condo-hotel next to Bellagio, called "Vdara"; and two stand-alone condo towers, dubbed "Veer Towers." Plans also call for a branded Mandarin Oriental luxury hotel and a separate boutique hotel, the "Harmon."

Because of the project's scale, MGM Mirage has built its own concrete plant at the site; at the height of construction in mid-2008, it expects to have 7,000 workers swarming the site. By early next year, 20 cranes will be in use there. The company says it has locked in prices for items like steel, elevator shafts and is shopping globally for items like copper piping.

MGM Mirage executives say the worst is over in terms of their cost increases. "Raw material costs are going down, not up, now," says Jim Murren, president and chief financial officer at MGM Mirage. "We saw a huge spike in 2004 and 2005 but it started slowing near the end of 2005 and costs have been flat, to down, all year."

Meanwhile, construction on Encore, Mr. Wynn's new hotel and casino tower, is under way, and a second resort on the site of Las Vegas Sands Corp.'s Venetian casino -- the 3,000-room Palazzo -- is scheduled to open next year. At the south end of the Strip, the 34-acre Tropicana Hotel & Casino site is set to undergo a change in coming months when closely held Columbia Sussex Corp. completes its acquisition of Tropicana parent Aztar Corp. Details of that project haven't emerged, but Columbia officials have said they hope to add a number of large name-brand hotels to the site while keeping parts of the old Tropicana resort intact.