Monthly Archives: November 2015

35 years after the MGM fire, are we really safer?

It was shortly after 7 a.m. on Nov. 21, 1980, when a plume of smoke emanating from the Las Vegas Strip could be seen by residents throughout the valley. The 26-story MGM Grand Hotel (now Bally’s), had caught on fire, leaving 5,000 guests trapped in the tower.

The fire was the second-worst hotel fire in U.S. history, resulting in 87 deaths. Eight of the deaths were from burns. The rest — along with 700 injuries — were the result of smoke inhalation.

That infamous day 35 years ago brought about changes in the way high-rise buildings were designed and built and how all commercial buildings are to be protected from fires.

But are high-rises safe today?

According to Gregory Fehr, a Las Vegas-based corrosion specialist and principal of ATMG Nevada, we may be living with a false sense of security.

When the original 26-story MGM Grand Hotel opened in 1973, it was the most lavish hotel on the Strip. But, according to survivors, there were no alarms or sprinklers to alert the guests, most of whom were asleep in their rooms, to the fire.

After a review of the architectural plans for the hotel, despite the urging from a former fire inspector at the time, the hotel was constructed according to building codes adopted in 1970. There was no requirement to install sprinklers or smoke alarms above the second floor. And when the codes were updated in 1978, hotel owners were not required to bring the hotel up to the current standards.

However, shortly after the MGM fire, the Nevada legislature passed one of the toughest fire codes in the nation and sprinklers would be required in all hotels both old and new.

The MGM fire started in a small snack shop called “The Deli” and, according to estimates by officials, crossed the entire casino (the length of a football field), in less than 20 seconds. Even though the flames never went above the second floor and were quickly contained, the smoke continued to spread quickly throughout the tower.

The subsequent investigation showed the tragedy could have been prevented had the hotel been required to install a sprinkler system inside The Deli restaurant. Though both the fire marshal and a risk management consultancy hired by MGM had urged spinklers, hotel executives resisted. Clark County officials eventually granted the MGM an exemption because the restaurant was to be open 24 hours a day, and thus an employee would be on hand to notice any fire, sound alarms and combat it with fire extinguishers. However, in 1980 the restaurant was no longer operating round the clock and was unoccupied when the fire broke out. The cost of the sprinkler system would have been around $190,000.

The lack of fire sprinklers, which only react to heat and would not have been activated in the rooms, was not a major factor. But smoke alarms would have alerted the sleeping guests. And several other building practices that have now been revised, contributed to the deaths during this catastrophic event.

The smoke spread through stairways, elevator shafts, corridors, and ventilation equipment and the high-rise towers acted like giant chimneys. The air conditioning units on the roof were not equipped with smoke detectors, and so they continued to operate, recirculating the lethal smoke back into the building.

The stairwells that could be opened from the hallways were locked from the stairwell side for security reasons and did not go to the roof. When some of the guests tried to escape down the stairs, they became trapped in the stairwell that filled with smoke. In addition, the seismic expansion joints provided a clear path upward for the smoke to travel to each of the guest floors. Once the rooms began filling with smoke, many of the guests began breaking exterior windows for fresh air drawing more smoke to the corridors and rooms.

Modern building codes have changed the way expansion joints are designed, and requirements are in place for stairwells to automatically unlock during a fire or from a manual signal from the fire center, allowing complete access to and from the stairs during an emergency. Also, every fifth floor needs to be equipped with two-way communication devices.

Air conditioning units now have sensors to shut them down in the case of a fire. The former MGM was reconfigured with smoke barriers to prevent smoke from penetrating the building floor by floor or through openings such as laundry shafts, elevators, and stairways. Modern systems also confine and control smoke and use exhaust fans to vent it outside. Safety codes also require protective slabs between balconies to keep the fire from jumping from one balcony to another, and guest room doors must be rated to hold back a fire for 45 minutes.

And that brings us back to the fire sprinkler system.

Fire sprinklers are required in all commercial structures. They operate by heat sensors— a metal fuse or a red liquid in a glass tube, which holds a plug in place to keep the water that is under pressure from escaping. During a fire, the fuse or the red liquid expands with heat, breaking and allowing the plug to be pushed free by the pressure from the water. The water is pushed to a diffuser located on the bottom of the sprinkler head and sprayed around an area below the sprinkler head.

Each sprinkler head is individually activated by heat, and not all of the sprinklers activate at the same time.

However, according to Fehr, nine out of 10 sprinkler heads may not activate at all. Fehr, who has been randomly testing sprinkler heads for the past five years, has had a 90 percent failure rate on all tests. He points out that these are small samples, and not statistically relevant, but they provide some serious anecdotal information.

The reason, he says, is corrosion build-up in the system. The water in a sprinkler system sits under pressure but can be stationary for years, except for occasional tests. During this time, microscopic bugs that live in the water along with the normal minerals found in the Las Vegas water cause a biological sludge to build up in the water. The sludge eventually finds its way to the lowest point in the system, which happens to be the vertical pipe that leads to the sprinkler heads. This sludge builds up in the vertical pipe and over time hardens forming a solid rock-like substance. When the sprinkler head is activated due to a fire, the sludge can effectively acts as a dam blocking the water from being expelled.

According to Fehr, during testing, water pressure has been increased to five times above the normal required fire suppression system pressure before dislodging the sludge and allowing the water to do its job. Fehr has spoken informally about his findings to building and fire officials, but to date has not been invited to make a formal presentation.

The MGM fire was a perfect storm of building code inadequacy, including the locking stairwells, oversized expansion joints, and decorative plastic trim in the casino that allowed the fire to spread so quickly and produce toxic fumes. With the code changes made since the fire and a little luck, we may be able to avoid future catastrophic events. But then again, it could be the microscopic things we ignore that could be the cause of another big event.


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Brazil seeking Nevada, U.S. partners

Brazil is the sixth largest economy in the world. And while the global spotlight is on the 2016 Summer Olympics in Rio de Janeiro, there is a lot more to Brazil than gorgeous mountains, sparkling beaches and lush rainforests.

There might even be lucrative opportunities for Nevada businesses.

On Nov. 4, a 25-member Brazilian Trade Mission from Espirito Santo visited Las Vegas on a tour that would also take them to Reno and San Diego. The goal is to build long-term trade partnerships between the two countries. Among the delegates were representatives of the governor’s office of the State of Espirito Santo, the state’s investment agency and Brazilian businessmen and women.

Just directly north of Rio, along the coast is the state of Espirito Santo, the largest producer of oil in Brazil. Its capital, Vitoria, is the biggest steel producer in the world. Espirito Santo also boasts the largest complex of shipping ports in South America.

The U.S. has traded goods with Brazil for decades and exports over $42 billion in goods to the country each year, accounting for 15 percent of all Brazilian imports.

The delegates in the mission have identified three urgently needed import areas in which Nevada has considerable expertise: water and energy savings technology, and assistance in developing and expanding tourism, in particular, eco-tourism.

Another needed import is solar. Jairo Alves is the owner of Solarvix Energia, a company that designs and installs solar panels for commercial and residential applications.

Energy prices in Brazil have risen 80 percent in the past year, mostly due to climate change. For decades, the country has relied on hydroelectric power, but a severe drought has caused a decrease in the amount of water that flows through the rivers. This has forced the country to use petroleum and coal-fired power plants, once used for backup, as their main source of power. The higher cost of fuel has in turn escalated the cost to produce power.

The government of Brazil has authorized the construction of 24 solar projects that will produce over 2 gigawatts of power for the nation. However, to build those projects, the country needs to import over 8 million solar panels. Alves is looking to U.S. distributors for answers to this problem.

Louise Helton, owner and vice president of Las Vegas-based 1 Sun Solar, may have the answers. Helton spent an hour with Alves, discussing his needs and identifying business contacts in her Rolodex for purposes of introductions. It was the possibility for this type of face-to-face discussion that prompted the trade mission.

On the export side, Brazil is well known for its coffee production — 1.584 billion pounds each year, much of it destined for European and North American countries. However, the trade mission was eager to call attention to the nation’s many other products, such as ginger root, tropical fruits, black pepper, iron ore, pulp products, fair-trade chocolate and, of course, steel.

Nearly on par with coffee production is the cocoa bean from which chocolate is made. Two of the mission representatives were from Espirito Cacau, translated to mean Spirit Cocoa, that has been in business for three generations, producing some of the finest “fair-trade” dark chocolate in the world. This family owned company is looking to find outlets in Las Vegas and throughout the U.S.

Also among the members of the mission were representatives of four companies that mine granite, marble and other stone building materials. In Brazil, there are more than 1,000 companies that operate quarries and produce staggering amounts of material each year. Much of the granite and other decorative stones had been shipped to China, to feed that nation’s decade-long construction boom. However, China has been experiencing a slowdown in construction and Brazil is looking for other markets, such as Las Vegas, for this product.

During their daylong conference at Planet Hollywood, members of the mission were introduced to several Las Vegans who were able to provided information about working in Clark County and the State of Nevada.

Among the speakers was Antony Santos of A.M Santos Law, who spoke about imports/exports in Nevada and the local trade-free zone.” Andrew Edlefsen, Nevada director of the U.S. Commercial Service, spoke on trade Relations between the U.S. and Brazil. And Michael Erin, chief of staff and director of operations for the Las Vegas Global Economic Alliance, gave an overview of the advantages that Nevada and Clark County have for businesses that choose to establish an office.

The event was the result of the efforts of Charles McNeely, president of MCE Solutions LLC, and former Reno city manager. McNeely has been working with Brazilian trade associations for more than 10 years and has been instrumental in forging several trade relationships in the past.

McNeely is planning to send a delegation of U.S. representatives to Brazil in 2016. Reach him at


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Small business hearing rips over-regulation

When Rep. Crescent Hardy scheduled a North Las Vegas hearing for his Small Business Committee, Subcommittee on Investigations, Oversight, and Regulations, he knew what to expect. The title said it all: “Regulatory Overload: The Effects of Federal Regulations on Small Firms.”

And a series of speakers didn’t disappoint.

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Ready to give testimony Nov. 6 are, from left, Mendis Cooper, general manager of the Overton Power District 5; David Jennings, representing the Southern Nevada Homebuilders Association; Robin Simmers, CEO of Pahranagat Valley Federal Credit Union, and Spencer Hafen, president and CEO of Nevada Bank & Trust Co. in Caliente. (Craig A. Ruark, special to the Las Vegas Business Press)

Spencer Hafen, president and CEO of Nevada Bank & Trust Co. in Caliente, targeted the “unintended consequences” of the Dodd-Frank banking reforms for a set of rules that have added to the overhead of running a small bank. He said Nevada Bank & Trust spends more than $150,000 annually on compliance-related expenses, which does not include personnel expenses.

The result, he explained, has been that the bank has closed five of its nine rural branches and has stopped providing mortgage services to those customers. “At the end of the day it doesn’t really hurt us as a bank because it was never a money-maker — we only made 12 to 18 mortgages a year — but it means that those customers may not be able to find a mortgage,” said Hafen.

Robin Simmers, CEO of Pahranagat Valley Federal Credit Union, told a similar tale of rising overhead. The credit union has just one office — in Alamo — and six employees. It is the only financial institution within a 60-mile radius.

Since 2008, credit unions have been subject to more than 202 regulatory changes from more than two dozen federal agencies, totaling more than 6,000 pages in the Federal Register.

“Every time a rule is changed, the credit union must analyze the change, modify the systems, update internal controls, train staff, print new material and explain the new regulations to the members. Even simple changes cost a credit union thousands of dollars and many hours of time and resources,” said Simmers.

David Jennings, representing the Southern Nevada Homebuilders Association, targeted regulations imposed by the Bureau of Land Management (BLM), which manages a significant portion of the federal government’s expansive land holdings in Nevada.

BLM, at the prodding of the Inspector General of the Department of Interior, is enforcing a tight view of mineral material rights. The result, Jennings said, is that builders are being cited for mineral material trespass when they simply grade a property in preparation for building.

Jennings cites instances where homebuilders have had to pay tens of thousands of dollars to resolve trespass notices from the BLM for “unauthorized use” during normal site-grading operations. This overreach by the BLM is causing the homebuilders to raise the price of the homes to cover the cost, he said.

The National Association of Home Builders has estimated that a $1,000 increase in the price of a median-priced home — from $225,000 to $226,000 here in Clark County — will equate to a total of 1,086 households that would no longer be able to afford a home.

And Mendis Cooper, general manager of the Overton Power District 5, also cited BLM, saying the cost of right-of-way permits has risen from $500 per mile to over $25,000 and that permitting time has increased from 12 months to eight years. Cooper also cited issues with enforcing the Endangered Species Act and confusion over the treatment of washes and culverts.

The conclusion by Hardy, a Mesquite Republican, was that “Today’s hearing has only reaffirmed my belief that one-size-fits-all regulations do not work. That’s why I am cosponsoring legislation that demands congressional review, involves regional stakeholders and considers less costly alternatives.”


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Diamond in the Silver State

Stephen Cloobeck has been described as “the most explosive boss” in the history of the TV program “Undercover Boss.” He’s terrorized employees around the world and often calls his lieutenants at 2 a.m. just to make sure they’ll answer.

But there’s no debate that the founder and chairman of the board of Diamond Resorts International has built a business success story.

He recently opened his speech to a group of students at the UNLV Lee Business School with a showing of his appearance on the reality TV program. On several occasions during the filming, Cloobeck angrily blew his cover in advance of the “big reveal” to correct an error being made by one of his employees.

After the video, Cloobeck, with his distinct bravado delivery, didn’t pull any punches when he described his climb to the top of the timeshare industry.

Diamond Resorts International, headquartered in Las Vegas, is the second-largest timeshare company in the world, boasting more than 45,000 beds in nearly 330 destinations located in 34 different countries and serving more than 400,000 guests each year. The company operates three resorts in Las Vegas — the flagship Polo Towers along with the Desert Paradise Resort and The Carriage House.

To operate such a large enterprise, Diamond Resorts employs 15,000 team members worldwide. In Las Vegas, there are more than 1,800 team members that work in the corporate administration and reservation center located in two office buildings in Summerlin.

On July 19, 2013, Cloobeck rang the bell at the New York Stock Exchange allowing the sale of the first shares of Diamond Resorts (NYSE: DRII), as a publicly traded company. During the initial offering, 15,500,000 shares of its common stock were available at a price of $14 per share. The stock has been trading at twice that price and the company recently reported its third quarter revenue had increased by $29.4 million (13.3 percent), to a total of $251.4 million. Net income increased by $10.6 million (40.3 percent), to $36.9 million.

According to the December 2014 filing with regulators, the company had an adjusted capitalization of $1.472 billion. Cloobeck has an estimated personal net worth of $100 million.

The backstory

To appreciate the company’s success, you first have to understand both the man and the history.

In 1983, Cloobeck graduated from Brandeis University with a degree in psychobiology. “I started out wanting to be a surgeon but after graduation decided that wasn’t for me. I should have gone to business school, but it wasn’t in the cards at that time,” said Cloobeck.

After college, he went to work for his father (a partner in the Jockey Club), selling time shares.

“I think I was 18, and I probably did a few things that I shouldn’t have done, but all I cared about was the split, the cash, closing the deal — but I learned a lot. I went into the shopping center development business and got my butt kicked a little bit and learned how to build,” said Cloobeck.

With the Jockey Club completely sold out and a need for expansion, Cloobeck came back to Las Vegas to help his father. At age 29 he designed and built the Polo Towers which opened New Year’s Eve 1993 as the first high-rise timeshare.

Cloobeck eventually bought all the shares in the Polo Towers and took over running the company. Starting with a negative $5 million, Cloobeck turned the Polo Towers into a huge success and, in 2004, he sold his majority interest in the company but kept his hand in the timeshare business by partnering with Wyndham on a couple of projects.

With time on his hands, Cloobeck seriously considered running for governor of Nevada in 2007, but instead purchased Sunterra Resorts, a struggling timeshare company, in a $700 million buyout. The acquisition brought a portfolio of 100 timeshares in 17 states and 13 countries along with more than 3,300 employees to the Diamond Resorts International brand.

Noting that Sunterra never had leadership with timeshare experience, Cloobeck went back to work, stating, “I plan on being an active CEO in running the company.”


‘Capital lite’

Diamond Resorts International weathered the recent recession by building a robust and lean company, what Cloobeck calls “capital lite.” In addition, the company speaks 16 languages and has a proprietary technology system with the ability to run thousands of resorts with multiple currencies and multiple languages.

Since 2007, Diamond Resorts has acquired seven smaller timeshare companies that contributed to its growth. The most recent acquisition, in August, included Gold Key Resorts, which manages five vacation ownership resorts in Virginia Beach, Va., and one in Outer Banks, N.C., for $167.5 million.

When asked by a UNLV business student about the key to his success, Cloobeck replied that it is all about “communication and training.” He elaborated about how he gave every executive in his organization a Blackberry and told them that he wanted to see communication between all departments.

He admits that he would call people at two in the morning to see if they would answer their phone; if they didn’t answer they were fired.

“The resort business is 24/7 and 365 days a year, and it is a lot of work to be successful,” said Cloobeck.

However, on the subject of communication, he admitted that when people ask his secretary for a half-hour appointment with him, she tells them ‘good luck if you get 15 minutes’ claiming that he is too busy to listen to a lot of stories. “Besides,” said Cloobeck, “I have been in this business for over 25 years, I have forgotten more in the last two minutes then most of these people will ever learn.” He also commented that he quite often answers email correspondence with “Y,” “N” or “WTF.”

Cloobeck emphasized that customer service is very important and at each resort has introduced the catchphrase “the meaning of YES,” where each guest is entitled to what they need and expects his employees to go out of their way to provide that service. Likewise, Cloobeck doesn’t tolerate any abuse of his employees and has been known to call rude guests to tell them that they are no longer welcome at a Diamond Resorts property.

“When I did ‘Undercover Boss,’ it changed me forever being a CEO,” said Cloobeck. “Because you can go to your resorts and you can talk to your team members and they are not going to really tell you what is going on. So you really don’t have any idea what’s going on until you’re working at the resort.”

At the end of each of the two episodes, Cloobeck gave money and other generous gifts to employees in need. This prompted him to establish an “Employee Crisis Fund” to help any employee in their time of need. The fund was established with a $1 million personal contribution from Cloobeck and an additional $1 million contribution from the company. The fund is run by the human resources department, but the decisions are made by a committee of employees. So far, more than 250 employees have received benefits from the fund.

Tourism ambassador

In addition to Cloobeck’s duties as chairman of the board, he has also taken on the position of chairman of Brand USA, an organization tapped by Congress to promote the U.S. as a destination for international tourists. He describes this position as “like being the tourism minister.”

He speaks passionately about the work he does on America’s behalf, including a campaign he’s launched to make U.S. borders friendlier. “There is no reason our customs agents can’t do what they have to do to protect our borders and smile at the same time,” says Cloobeck, who wants the agents to say “Welcome to the U.S.” to all international arrivals.

Cloobeck, along with Steve Wynn, is also responsible for the “Strip Beautification Project” on Las Vegas Boulevard from Russell Road to Sahara Avenue. Now designated as a Nevada Scenic Highway, the project consists of 4.5 miles of streetscaping of the landscape medians on “the greatest midway in the world.” The project was completed in 1995 after more than 200 Strip frontage property owners unanimously approved the $13 million special improvement district project, which had no fiscal impact on individual Clark County taxpayers.

At the end of his UNLV talk, Cloobeck asked the students if they knew the most important asset on the balance sheet.

“The most important asset on your balance sheet is human capital. It’s actually not on a balance sheet, but it is your most import asset. You had better nurture it, you’d better train it, you’d better retrain it, and if people don’t work — get rid of them. Don’t be lazy — otherwise you create a cancer in the company,” stated Cloobeck.

In classic Cloobeck style, he declined a request for an interview after talking to the students.


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