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LAS VEGAS-On Las Vegas Boulevard but several miles south of that increasingly chockablock six-mile stretch known as “the strip,” a new $700-million resort is preparing to open. The 12-story resort in Henderson, NV, is being developed by Anthony Marnell III thanks to a $160-million investment by MGM Mirage Inc. that may now be converted into 50% equity in the south-end resort.

Situated on a hill at Las Vegas Boulevard and St. Rose Parkway, the development will open with approximately 400 rooms and suites; 90,000 square feet of gaming space; 40,000 square feet of meeting and conference facilities; a 20,000-square-foot spa; a 2.3-acre pool and events area; a wine cellar and tasting room; a top-floor lounge and multiple restaurants. The structures, including a 2,000-slip parking garage, cover about 12 of 95 contiguous acres controlled by Marnell III, son of casino developer and builder Anthony Marnell II, whose firm Marnell Corrao Associates built Wynn Las Vegas and Bellagio and will design and build the M Resort. The construction lender is the Edinburgh-based Bank of Scotland plc.

When the project was approved in 2006, the resort that will open in March was expected to be much larger and it was expected to grow quickly. The first phase was slated to include 1,000 hotel rooms, 135,000 square feet of casino space, and 100,000 square feet of convention space, and a second phase was expected to add an additional 1,000 hotel rooms, a retail center and 2,000 condominium units in multiple mid-rise towers. Overall, the development site has been entitled for 6,000 hotel, condo and condo-hotel units and 1 million square feet of retail.

While the first phase was winnowed as plans progressed and the second-phase plans for additional hotel rooms and condominiums were taken off the burner indefinitely given a glut of both in the market, plans for the retail were heating up. In December 2007, Marnell III struck a deal with Galaxy Theaters for a 14-screen, 63,000-square-foot theater that is slated open in late 2009 atop the development’s parking garage. In May 2008, during the International Council of Shopping Centers annual convention, Marnell and publicly held Taubman Centers announced plans to integrate a 1.3 million-square-foot, department store-anchored shopping mall into the resort that would open in 2011 or 2012.

Although M Resort could not immediately be reached over the weekend for an update on those plans, a December press release announcing that M Resort is now taking reservations for March makes mention of both the movie house and the mall. In a conference call with analysts six months ago, Taubman CEO Robert Taubman spoke highly of the retail opportunity at M Resort, saying the area is an “epicenter of growth” in the region and that his company was “in serious discussions with anchor stores and are hopeful that we can put all the pieces together over the next year or so.”

However, Taubman also cautioned that the M Resort shopping mall is at this point only “a good story” and that the company needs to have a lot of good stories. “Unfortunately, we are not going to be able to build them all,” he said. “Some of them will fall by the wayside.” Taubman is currently providing leasing services for MGM Mirage’s $11-billion Citycenter development on the strip under a 25-year fixed-fee contract. The 19 million-square-foot development is on track to open all at once in late 2009.

MGM Mirage’s investment in M Resort, a $160-million subordinated convertible note provided in April 2007, was eligible for conversion into a 50% equity interest in the M Resort as of October. Marnell III told GlobeSt.com several months ago that MGM Mirage would indeed become a 50-50 partner in the project. An MGM official on Friday told GlobeSt.com that the company would make a filing with the SEC if the note is converted and that no such filing has been made.

In its most recent quarterly report, MGM Mirage reported that the value of its note had decreased 17.5% to $132 million as of the end of September, including accrued interest. No explanation was given for the decrease in value, most of which occurred in 2008, but once local source suggested it may be related to the value of the land beneath the resort. Last month, Fitch Ratings predicted that the casino industry will remain under significant pressure through 2009, with a recovery not likely until 2010. Also that month, MGM Mirage agreed to sell its Treasure Island property on the Las Vegas Strip to improve liquidity.

“The gaming industry experienced a greater impact from the difficult financial conditions for consumers in 2008 than many investors expected,” Fitch states in its analysis. That having been said, Fitch predicted that the recent decline in gas prices, combined with the reduction in airline capacity, will have regional and local markets faring better than destination markets such as the Las Vegas Strip.

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