Insurance Questions Will Delay Demolition of Half-Built Vegas Hotel
Insurance questions have temporarily halted demolition plans for the half-built, much-disputed Harmon Hotel on the Las Vegas Strip.
Clark County District Judge Elizabeth Gonzalez, on Nov. 22, withdrew prior approval to raze the 26-story tower on the outer edge of the $8.5-billion CityCenter development that opened in 2009, agreeing that construction insurer FM Global, Johnston, R.I., needs more time to complete in-house investigation of the blue-glass landmark now at the center of competing lawsuits between owner MGM Resorts International and general contractor Tutor Perini Building Corp., Sylmar, Calif.
Although not a party to either suit, FM Global’s decision on the owner’s insurance claim for the never-opened 400-room hotel will likely impact the case by adding expert testimony on the building.
MGM seeks $393.8 million in insurer relief for the Harmon, including $275 million in construction costs as well as anticipated revenue. But the owner did not file for a formal final proof of loss until Aug. 27, long after Gonzalez had approved the demolition.
FM Global contends there were several “new issues” in the final claim that required a building investigation and a review of expert materials, said the insurer's senior general adjuster Chris Roza in a Sept. 3 letter.
Calls to FM Global attorney Scott M. Stickney of Seattle-based Wilson Smith Cochran Dickerson were referred to a company spokesman who refused comment because "it is a legal matter."
Harmon’s construction contract requires MGM to pursue insurance relief before suing Tutor-Perini. Five years prior, however, MGM filed a civil suit seeking nearly $500 million for shoddy construction, prompting a countersuit by the contractor that now is valued at $161 million for unpaid work, including $30 million for Harmon.
Tutor-Perini is pushing to rescind demolition approval, fearing the building's demise will prejudice a jury. Gonzalez will consider that motion on Dec. 6.
LVI Services of Nevada has a contract to demolish the structure in three phases over 297 days.
Designed by Sigma Engineering Solutions, it calls for tearing down the Harmon piecemeal from top-to-bottom, floor-by-floor, using “conventional equipment.” Although the plan received Clark County approval, a demolition permit has yet to be issued, says county spokesman Dan Kulin.
If and when demolition proceeds, it is unclear what will happen to the space to be vacated, a prominent Strip-front location that anchors the northeast corner of the 18-million-sq-ft CityCenter complex.
MGM potentially could push forward with demolition before FM Global finishes its investigation, but that would dash any chances of it collecting the full claim amount.
An early demolition price-tag was pegged at $30 million, although the current cost is likely higher since implosion is not possible due to the Harmon’s location.
LVI Nevada President Joe Catania declined comment on the project costbut observers say it's much higher than the estimated $19.5-million building fix.
Tutor-Perini hired John A. Martin & Associates, Los Angeles, to engineer a three-month repair for the Harmon, which was rebuffed by the owner who claimed the hotel “cannot be used for the purpose originally intended,” due to extensive non-conforming work, said MGM spokesman Alan M. Feldman in an earlier statement.
Building problems revolve around improperly installed reinforcing link beam steel on 15 floors, discovered in 2008 after third-party inspector Converse Consultants falsified 62 daily reports.
As a result, MGM lopped the 48-story Harmon in half, shedding 207 high-end residences, of which less than half had sold. The move trimmed $600 million from the project price tag, providing much needed financial relief for the cash-strapped development which began construction in the real estate boom but finished during a deep recession.
The Harmon has since undergone four rounds of destructive testing, making it no longer easily fixable since “being compromised by the removal of concrete,” said John A. Martin in a statement.
Gonzalez ruled that MGM could demolish its property, without extrapolating findings from destructive testing to demonstrate unsafe building-wide conditions since samples were not randomly selected. Subsequent destructive tests yielded the same legal outcome.
A new jury trial in the MGM-Tutor-Perini dispute now is set for April 28, following a half-dozen date changes.