It is well known that debt-plagued Dubai World has been a big investor in high-profile hotels and resorts, including One&Only and Atlantis resorts, New York and Miami luxury hotels and Las Vegas' massive new City Center. What remained unknown last week was what impact its inability to make an upcoming loan payment might have on those holdings.
MGM Mirage, its partner in CityCenter, said Dubai World's troubles would have no impact on the development. Sol Kerzner said his partnerships with Dubai World in his One&Only resorts and the Atlantis in Dubai were not among the investments whose debt Dubai World is seeking to restructure.
Dubai World, the government investment arm of the emirate, is reportedly carrying $59 billion in debt.
But New York University hospitality school professor Bjorn Hanson said that without intimate knowledge of the private partnerships in which Dubai World is involved, it is hard to know what impact, if any, its financial woes might have on any single partnership.
"I believe the answer is: Nobody knows," Hanson said. "And if they say they do, they are making it up."
The broader impact, however, he added, could be a further reluctance by investors to finance big resort projects in the future.
"The implications are not so much on the individual entities as on the negative shadow this will cast on all of Dubai and on large-scale resort developments," Hanson said. "The leverage has just created a new level of concern that will affect all large-scale similar transactions."
Among Dubai World's most high-profile hospitality investments is its 50/50 partnership in the $8.5 billion City-Center, much of which is opening this month.
MGM Mirage said Dubai World's debt crisis would have no impact on the massive hotel, retail, casino and residential development. In part, that is due to a restructuring the partners agreed to earlier this year after Dubai World filed a lawsuit seeking to pull out of its funding obligations as a result of cost overruns.
"Any possibility of impacts from Dubai's financial difficulties were eliminated last April as we negotiated an agreement that called for Dubai World to fully fund while initiating cross default language that protects us against any issues at Dubai," MGM Mirage said in a statement.
"Dubai World posted an irrevocable letter of credit with an international bank that can't be undone under any circumstances. Also, with the project near completion, there is little left to be drawn.
"Simply put, there is no activity at either partner that can affect the joint venture," the statement said.
Other Dubai World hospitality holdings include the Mandarin Oriental Hotel in New York, which it bought at the height of the boom in 2007 for $380 million, and a 50% stake in the Fontainebleau Miami Beach, for which it paid about $375 million last year.
Dubai World also owns 30% of Kerzner International, and the two companies are joint-venture partners in Atlantis, the Bahamas; the Palm, Dubai; and One&Only Cape Town in South Africa.
It had been previously announced that the Kerzner partnerships were with Dubai World's Nakheel Hotels, which according to business news wires is the arm needing the most help with its debt. But last week, Kerzner said its partnerships were with Istithmar World PJSC, "a subsidiary holding company of Dubai World that is not within the group of companies that seeks to reschedule or restructure its external debt."
Asked about the discrepancy between that statement and past announcements naming Nakheel as their partner, a spokeswoman for Kerzner said, "Apparently names have changed over the course of the partnership. "