The document discusses the challenges of developing integrated resort projects through the example of MGM Grand Detroit. It describes how integrated resort projects require rapid development to avoid delays, but fast-tracking increases costs and risks. It outlines the many obstacles MGM Grand Detroit faced, including legal battles, changing mayoral administrations with differing plans, and outdated initial designs. However, the project was eventually able to proceed in 2005 after overcoming these issues.

1. Integrated Resort Success Story
MGM Grand Detroit - Building a High Performance Machine
“The term “Integrated Resort” is the name currently being used for a very large mixed-use
development that is rich in amenities and various types of entertainment venues. What makes it
differ from other mixed-use projects is that the development project is centered about the
operation of a casino; were it not for the casino the project would most likely not make financial
sense. To be successful the casino within the IR must be able to generate over half of the total
cash flow of the IR.”
(MacDonald, Monaghan and Eadington, 2008).
By most industry standards, integrated resorts (IRs) qualify as megaprojects. They may exceed
one billion dollars in total cost and carry mega-sized risks for budget, schedule and quality
control. With most megaproject investments, risk can be partially mitigated by taking the time to
carry out long-term studies, planning, to complete the design, and a lengthy procurement
schedule before years of construction begins. These investments can take up to ten years or more
to complete. Then, as we know, several more years of expensive litigation can follow.
However, IRs have their own set of challenges and development factors.
The First Factor: Speed to market and adapting to change.
The IR developer does not have the luxury of time. Here is why:
1) A delayed IR opening is late to market. This means increased opportunity costs, lost revenue,
delayed job creation and loss of market share to the project’s local competitors.
2) The project’s designs could be outdated when the project opened. Integrated resort designs
must have the “cool” factor, and stay on the “leading edge.” Missing this competitive fact is
serious disadvantage in the marketplace.
3) Technology advances every 18-24 months. An integrated resort project must adjust to
changing technology. Opening with outdated technology is another competitive disadvantage.
The standard project delivery model for IR development is to engage a design team and general
contractor and then design just ahead of construction in a "fast track' delivery process.
The standard compensation model is usually Cost-Plus a Fee or Guaranteed Maximum Price, or
a Cost-Plus a Fee until the design is developed enough for the General Contractor to guarantee a
price.

2. The IR developer must manage time by compressing the schedule with the fast track process.
The problem with this is that it adds risk and provides little to no certainty for the developer in
terms of cost, schedule or quality.
“You can have cost, or time, or quality control, but not all three.”
However, the fast track provides the opportunity for contractors to avoid risk and maximize
profit in exchange for speed of delivery. This method can produce great looking/operating
projects. It also can result in higher costs, reduced ROIs, late openings (delayed revenues),
reduced quality, reduced project safety and possible litigation with the contractors.
The Second Factor: Timing is everything.
Yes, timing is everything in real estate development and not hitting the wave just right means
losing the wave. Most of us know this as the Real Estate Cycle. This cycle once followed a
predicable expansion and contraction process in the past century. However, today, hitting the
wave at the right time gets more complicated when we consider multinational IR investments,
variable local economic conditions, and shifting political realities with the occasional global
financial crisis (shark) thrown in.
Here is a fresh reminder of what losing the wave means for a sampling of recent IR
development projects:
• In April 2005, famed investor, Phil Ruffin signed the agreement with Baha Mar Development
Co. Ltd. to sell his Bahamas resort for about $150 million. The $3.5 Billion Baha Mar Resort in
the Bahamas is in the tenth year of its contentious development, the owner is bankruptcy courts,
and the project was just short of being opened in 2015. We see the project remaining closed into
2016.
• The $2.9 Billion Fountainbleau’s cost overruns, forced it into bankruptcy. It was later bought
out of bankruptcy court for $150 Million by Carl Icahn. Today, this IR property sits idle and
unfinished on the Las Vegas Strip.
• The $4 Billion Echelon Place project was abandoned in 2008 by Boyd Gaming. The property
was sold in 2013 to Genting Group for $350 Million. Genting has renamed the property, Resorts
World Las Vegas and construction restarted in 2014.
• Phil Ruffin bought Treasure Island (Las Vegas) from the financially strapped MGM Resorts
(then MGM Mirage) in 2009 for $775 Million. MGM completed its CityCenter IR that same
year, after a five-year development period, and a $4 billion cost overrun.
• The $3.9 Billion Cosmopolitan Las Vegas began development in 2004. The developers
defaulted on their loans in 2008 and after a series of lawsuits, opened in December 2010. The
property was then sold by Deutsche Bank to Blackstone Group for $1.73 Billion in 2014.

3. • Phil Ruffin sold the run down New Frontier property for $1.24 Billion to El Ad Properties in
2007. El Ad planned a $5 to $8 Billion Las Vegas Plaza IR development. They put their plan on
hold in 2008 and cancelled it in 2011, and the vacant 34.5 acres sits idle today.
• The $4 Billion Grand Ho Tram in Vietnam lost its operator, MGM Resorts in March 2014 after
cost overruns, delays, a ban on local residents entering casinos, and a lack of infrastructure
serving the property. The property is a two-hour drive from its nearest airport in Ho Chi Minh
City.
• The $5.7 Billion Marina Bay Sands, in Singapore opened 5 months late in 2010 and $2 Billion
over budget. However, despite its development challenges, it remains one of the top tourist
destinations in Singapore.
Each of these IR projects has a different story of what not to do, why they failed and cost their
investors billions of dollars in losses. Yet, despite the failures, we know there are untold success
stories.
One such project was the MGM Grand in Detroit, Michigan.
The Story of MGM Grand Detroit
MGM Grand Detroit’s development story did not start out well.
The City of Detroit signed the original development agreement in March 1998. MGM renovated
and occupied a former IRS building in downtown Detroit, calling it the Temporary Casino. Then,
the development agreement was amended in April 1998, June 1998, and then on December 1999.
In October 1999, the Lac Vieux Band of Lake Superior Chippewa Indians filed a motion seeking
to halt the casino process for Detroit Entertainment and Greektown Casino. The tribe challenged
the constitutionality of the Detroit casino-licensing process.
Then, Mayor Dennis Archer reluctantly tried to acquire enough land, using $150 million from
the casinos, to cluster the three permanent casinos, each with an 800-room hotel, on the Detroit
riverfront. He was unsuccessful; however, partially because of city council opposition and
partially due to his own lack of interest in the idea.
Mayor Archer left office on December 30, 2001.
Then, Kuame Kilpatrick took over the mayor’s office on January 1, 2002. That same month, a
U.S. federal judge ruled in favor of the Lac Vieux Band of Lake Superior Chippewa Indians and
stated the casino licenses are “illegitimate,” leaving future operations of the casinos in question.

4. March 2002, Mayor Kuame announced a plan, agreed to by the casinos and supported by
Detroit’s civic leaders, to permit the casinos to build smaller, 400-room hotels. Motor City and
Greektown would build on their temporary sites and MGM would build theirs on a yet
unidentified location. Each would be ready for occupancy by January 2006, in time for the Super
Bowl in Detroit.
In exchange, the casinos would forgive the $150 million advanced to the city to buy the
riverfront property (or, the cost of doing business in Detroit under this Mayor).
Then, MGM’s “development” agreement went through four more revisions on March 2002,
April 2002, June 2002, and July 2002.
November 2003, The Lac Vieux Indians agreed to settle a lawsuit against two Detroit casinos for
$80 million. This settlement paved the way for constructing (two) permanent casino-hotels in the
city in time for the 2006 Super Bowl. However, the Lac Vieux tribe did not settle with MGM
Grand Detroit, and they continued to block MGM's IR project from moving forward.
April 2005, the United States Court of Appeals for the Sixth Circuit dismissed the Lac Vieux
appeal case and the MGM Grand Detroit IR project was permitted proceed.
Meanwhile, Time magazine named Mayor Kilpatrick one of the nation's worst big-city mayors.
Then, according to The Detroit Free Press, in May 2005, Mayor Kilpatrick was charged with…
“…a mini-scandal that the news media covered closely, the mayor clumsily denied, then
admitted, that city money was used to lease a Lincoln Navigator for his wife. He spent $210,000
on a city-issued credit card during his first 33 months in office, including for spa massages, Moët
& Chandon champagne and lavish meals. Scandals engulfed some appointees..."
September 2005
Development of the MGM Grand Detroit project was finally fast tracked.
But wait; there were a few more problems.
Development Challenges
 The MGM Grand Detroit team started with three-year old design documents while
construction was coming out of the ground and 75% of the project had to be redesigned.
This complicated cost management and the cost projections were estimated with
incomplete design documents.
 The Michigan Gaming Control Board (MGCB) required all contractors’ personnel to be
regulated by an ID and licensing process. Many contractors were unwilling to work on
the MGM project as a result.

5.  The Development Agreement with City of Detroit required the project to strive to achieve
30% participation of construction spend with Targeted Businesses and required MGM to
strive to achieve 50% of total worker hours with trade workers who are Detroit Residents.
Construction Challenges
 Detroit is a construction community not familiar with large concrete work.
 It has active trade unions. The entire project was built with union members.
 There was management of unfamiliar contractors and service providers.
 Governmental inexperience made it difficult to coordinate with city departments having
oversight of planning, development and construction.
Political Challenges
Then, Mayor Kilpatrick was reelected in October 2005, under predictable controversy.
More on him later…
The Third Factor: Innovative Management.
The MGM Grand Detroit Integrated Resort Business Model
The MGM Grand Detroit IR development model was developed by Dr. Ben Mammina in
partnership with MGM Internal Audit. We recognized the unique challenges of the project and
customized a development strategy to meet the facts on the ground (vs. relying on standard or
traditional project management approaches). This is where development experience makes a
difference.
Here are just a four of the innovative management decisions:
1. Implement a Multi-Prime Contracting Model
The first step was understanding that the use of general contractors in the traditional
development model did not reduce risks and worked against the meeting the goals of cost,
schedule, quality, safety and diversity. Using a general contractor would limit the optimization of
those results.
Mammina eliminated the traditional general contractor’s role, contracting to multiple self-
performing contractors and issuing management responsibilities to a construction manager for a
fraction of the traditional general contractor fee.
By replacing the general contractor function, he formed a development team that had the
interests of the owner, eliminated duplicity of tasks, enhanced ability to act quickly, simplified
communications, and tightened project controls, with the talents of experienced developers,
operators and general contractors rolled into one entity.

6. 2. Implement the 50/50 Staffing Rule
Mammina implemented the 50/50 staffing rule:
Staff 50% of the IR project with people you know, and have worked. They, in turn the bring the
other 50% along to create a cohesive organization with a minimum learning curve to hit the
ground running.
Full-Time On-Site Detroit Staff – 32 total.
Part-Time Las Vegas Corporate Staff – 12 total.
Part-Time Las Vegas Internal Audit Staff – 4 total
3. Implement the “Cash Flow is Production Flow” Rule
Based upon the need for speed in cash flow and maintaining an atmosphere of trust, the
following payment process was in place:
 Pay applications with backup and entitlement were paid.
 Pay applications believed to be legitimate, without 100% backup, were considered. The
development team decided that the risks involved in the payment of these bills were
outweighed by the benefit of delivering a fast track project completion.
 The project assurance team reconciled discrepancies before retainage release to the
audited contractors.
4. Build a strong Project Assurance Team
First, we created a project assurance team that worked in parallel with the project team and
focused on cost avoidance, reduction, cost recovery and risk mitigation. This allowed the project
team to focus on production and getting the project completed. This was a key differentiator in
this business model.
Second, we specified innovative contract language and audit rights allowing audit of the each
contractor’s reimbursable costs, discounts, insurance, accounting systems and payrolls. We billed
audit costs when audit cost recoveries exceeded a certain amount.
Third, construction audits usually recover between 1 to 3% of construction budget. For MGM
Grand Detroit, the cost recovery was over $9 million, or just over 1%, or over ten times their
internal cost to the project.

7. MGM Grand Detroit’s Performance Results
We rated the MGM Grand Detroit according to six performance metrics:
1. The Budget Component
The Board approved budget was $765 million. Construction began in September of 2005. In
December of 2005, MGM made the business decision to raise the level of the project to “a
category killer”, gaining a higher level, more profitable integrated resort product. This decision
increased the initial cost by more than $40 million to a total budget of $805 million.
The results:
1. The final cost closed at $800 million and the company avoided a total project cost of over $1
Billion, or more.
2. The recognized added value = $61,300,000 (General contractor fee, bond, staff savings,
gaming tax, capital interest savings, and audited cost recovery.)
3. The estimated added value = $37,000,000 (Direct owner bidding and contracting savings,
reduced acceleration costs, hidden costs, and fees and change order management savings.)
4. The below the budget line added value = $110,000,000 (Avoided Construction Litigation
(budget contingency amount) = $40,000,000. Operating revenue increase for opening 10 weeks
early =$70,000,000)
Net Budget Performance: Delivered on budget and realized a savings benefit of over $200
million.
2. The Schedule Component
The MGM Grand Detroit project duration was 24.5 months from first shovel in the ground to
first guest in the door. It opened its doors for business 10 weeks ahead of schedule on October 3,
2007 and opened ahead of the Motor City Casino, Greektown Casino and Windsor Casino
projects. The MGM project was larger than the other three projects and all three began
construction at the same time. Occupancy for the $90 Million self-parking deck was achieved 15
months into the project. The first Certificate of Occupancy for the casino and hotel was obtained
21 months after start of construction.
Net Schedule Performance: The property opened 10 weeks ahead of schedule.

8. 3. The Quality Component
The quality of the MGM Detroit (architecturally and craftsmanship) is first class in the Detroit
market and achieved prestigious recognition:
 MGM Resorts International Recognition - The hotel design has become the inspiration
for future hotel designs.
 National Awards - Annual Lodging Investment Summit “Development of the Year 2007”
and the Gayot.com “Top 10 New U.S. Hotels of 2007.”
 Local Awards – Detroit Free Press “Restaurant of the year 2007.” MGM Grand Detroit’s
awards: 1st Place with MGM Saltwater - 2nd Place MGM Bourbon Steak - 3rd Place
MGM Wolfgang Pucks.
Net Quality Performance: A “First-Class Product” was delivered.
4. The Safety Component
MGM Grand Detroit was the safest project in the company, with no serious injuries or loss of life
and the project ran at 25% of the Michigan average for loss workdays.
Net Safety Performance: No loss of life, or serious injury.
5. The Diversity Component
 173 Targeted Businesses were contracted and 120 Minority Businesses were contracted
for the work.
 53% Total project spend with Target Businesses. (Exceeded 30% Detroit Goal).
 33% Total project spend with Minority Businesses.
 32% of all trade work hours were performed by minority trades workers (Exceeding the
25% Detroit Goal).
Net Diversity Performance: Exceeded each Diversity goal.
6. The Community Relations Component
Four months after the debut of the MGM Detroit project, all construction contracts (80 in total)
were closed out.
A swift close out such as this has several advantages:
 Future claims risks and obligations to the contractors are mitigated.
 Goodwill reputation translates to goodwill in the community.
 The development team can focus on other community challenges.
Net Community Relations Performance: The project built a great community reputation
by creating jobs, core city revitalization, and tax revenue for the City of Detroit.

9. Conclusion
We rarely hear about the successful IR projects, like MGM Grand Detroit. However, this case
study proves there are successful stories and the people who build successful integrated resort
projects, like Dr. Mammina and his team should be respected for their hard work, and creativity
and profitable results.
As investors, we should demand more success stories, speed, timing, innovative management
and assurance when we place billions of dollars at risk, or risk losing it all as others have before.
Epilogue
September 2008, eleven months after MGM Grand Detroit opened, Lehman Brothers filed for
bankruptcy, signaling the beginning of the global financial crisis.
That same month, Mayor Kuame Kilpatrick resigned from his office after being convicted of
several felony counts, including perjury and obstruction of justice. Kilpatrick was sentenced to
four months in jail after pleading guilty, and was released on probation after serving 99 days.
March 2010, a report by the court-appointed examiner revealed that Lehman Brothers executives
consistently used accounting gimmicks at the end of their fiscal quarters to make their finances
appear better than they really were. The same accounting gimmicks continue to be used in the
financial industry today.
May 25, 2010, Kuame Kilpatrick was sentenced to 18 months to 5 years in prison for violating
his probation, and served time at the Oaks Correctional Facility in northwest Michigan.
March 11, 2013, Kuame Kilpatrick was convicted on 24 federal felony counts, including mail
fraud, wire fraud, and racketeering.
July 18, 2013, The City of Detroit, filed for Chapter 9 bankruptcy. It was the largest municipal
bankruptcy filing in U.S. history by debt, estimated at $18–20 billion.
October 10, 2013, Kuame Kilpatrick was sentenced to 28 years in prison.
And today, MGM Grand Detroit is still a high performance machine.