“You have to promise not to drink the Kool-Aid there.” That’s what a colleague familiar with Las Vegas’s infamous “Downtown Project” told me just before I went out to experience this outlandish experiment in urban revival for myself.

Certainly, the $350m (£225m) investment in businesses and other spaces in the city’s depressed core by multi-millionaire internet entrepreneur and retailer Tony Hsieh is in a fragile state. Some of the excitement and acclaim that met the effort at its beginning in 2012 has already congealed into a mixture of ridicule, schadenfreude and plain confusion: did Hsieh really think he could run a city like an internet startup? What did he really intend in the first place? And has he already abandoned ship?

Hsieh’s story, one well-told among American urbanists, resonates with the country’s culture on several levels. The Harvard-educated child of Taiwanese immigrants became rich in the late 1990s when Microsoft purchased LinkExchange, the internet advertising firm he had founded after ditching his corporate job.

Hsieh’s subsequent foray into venture capitalism led to his investment in the idea of an online shoe store, which soon morphed into the “service company that just happens to sell shoes” (in Hsieh’s own description) now better known as Zappos. When he brought his company to downtown Las Vegas, Hsieh also brought his entrepreneurial spirit, his reputation as an unpretentious bon vivant, and his media-friendly sense of spectacle. Furthermore, he brought his interest in privately creating a new start for the city’s depressed centre – its original gambling district, before the supercharged Strip took over.

Container Park, Las Vegas

Yet by late September of this year, the press – especially the technology press – had begun asking some serious questions, as the Downtown Project suddenly laid off 30 people – 10% of the total it then directly employed. Alongside portentous headlines announcing this “bloodletting” appeared claims that Hsieh had “stepped down” from his position of leadership of the project. A damning open letter from the Downtown Project’s former “director of imagination”, David Gould, called the operation from which he had just resigned “a collage of decadence, greed and missing leadership ... There were heroes among us,” he added, “and it is for them that my soul weeps.”

Gould’s tone fits with the drama that has characterised the Downtown Project since its inception. The story presents no end of elephantine symbols, metaphors and ironies: Zappos turns Las Vegas City Hall into its new headquarters; a hub of win-big-or-lose-everything technology startup culture opens in the centre of American casino culture; Hsieh, in his role as eccentric and charismatic prophet (and author of a bestseller called Delivering Happiness), leads his followers into his future utopia in the desert. The euphoria does not prevent some some suicides occurring. The story fairly demands an apocalyptic ending.

But that apocalypse hasn’t come – not yet. I found America’s most ambitious private urban development effort continuing, if not apace, then at least at a pace. Those with high hopes for the Downtown Project can find some relief in the fact that it hasn’t actually disintegrated, but they still have cause to worry at how the story of the layoffs got away from them — Hsieh soon came forward with clarifications, but the damage was done.

The Downtown Project has long had trouble making people understand exactly what it is — and, perhaps more importantly, what it isn’t. The project is not Zappos’s push to revitalise downtown Las Vegas, despite its move from suburban Henderson to the former city hall – a 1973 piece of high governmental modernism located right downtown, near the fruits of much of the Downtown Project’s investment.

Outside seating at Oak & Ivy

And nor is it technically helmed by Hsieh himself: “I am the CEO of Zappos.com but I’ve never referred to myself as the CEO of Downtown Project,” he clarified, too late, in a damage-control statement. “I’ve never considered myself as being in ‘day-to-day management’ of Downtown Project.”

You can’t blame people for making the assumption: not only did the $350m the Downtown Project used to buy 60 acres of the city and invest in businesses established there come straight from Hsieh himself, but the look and feel of the resultant neighborhood-in-progress aligns closely with what few aspects of Hsieh’s personality the public knows.

The Zappos CEO’s love of gambling, partying, the famously countercultural Nevada desert festival Burning Man, electronic music and, yes, llamas (word has it the border of the 60-acre holding is in the shape of one) appear to colour much of the neighbourhood’s new development. A genuine enthusiasm for Las Vegas shows up in the aesthetics of the built environment: the design review process makes sure that if a business puts up a new sign, they put up a neon one — or at least a reasonable imitation thereof.

Hsieh reportedly spends a great deal of time downtown, usually surrounded by a posse of ten or more. Despite playing the role, in his words, of a mere “investor, advisor, and equivalent of a board member”, he remains a fundamental part of downtown Las Vegas’s identity – for good or ill. Some see in Hsieh just the kind of hard-working, hard-playing brand of enthusiasm needed to save an ailing part of a straitened city; others see a fundamental lack of seriousness that will hasten the Downtown Project’s downfall.

Hsieh’s declarations of intent to turn downtown Las Vegas into “a really big party” may now seem ill-advised, but they do reflect a certain understanding of city-building. For this he credits Triumph of the City, Harvard economist Edward Glaeser’s popular study of the benefits of high-density urban living published the year before the Downtown Project launched.

The Gold Spike hotel and casino

“Cities are the absence of physical space between people and companies,” Glaeser writes. “They are proximity, density, closeness.” He makes much of the city’s unsurpassed ability to facilitate productive connections, even in this age when the internet has eliminated so much of the difficulty of distance — as Zappos has done with shoe-shopping. “Cities enable collaboration, especially the joint production of knowledge that is mankind’s most important creation. Ideas flow readily from person to person in the dense corridors of Bangalore and London, and people are willing to put up with high urban prices just to be around talented people, some of whose knowledge will rub off.”

True, but could a place like downtown Las Vegas offer the same? Hsieh was able to risk his money on that long shot in part because of very low urban prices, a result of the overbuilding in which the city engaged during the last housing bubble. He even made his home in an artifact of that irrational exuberance, an incongruously imposing $200 million, 21-storey luxury residential tower called the Ogden. Built in 2007 as condominiums unlikely to sell under that time’s economic conditions, the building offered its units as rentals instead. The Downtown Project itself followed Hsieh in, using some of them as “crash pads” for visiting journalists and entrepreneurs looking to join the action-to-come.

But times have changed, and as the market has picked up, so the Ogden’s owners have reverted the building to its original intent. This prompted the Downtown Project (though not Hsieh) to move out, having in the meantime developed several properties of its own.

I stayed in a crash pad at the Downtown Project-owned Gold Spike, a facility remodelled from a hotel and casino that had seen better days. Stripped of all vestiges of the gambling industry, Gold Spike now operates as a combination bar, concert venue, board-gaming and beanbag-tossing space, and college dorm-style residence (complete with white eraser boards bearing messages like “LIVE, LEARN” and “Need cellphone charger”) for those looking to set up businesses.

Container Park in the evening

Gold Spike, whose ground floor turns, several nights of the week, into the kind of party scene whose noise renders its upper floors all but unsleepable, exemplifies the intensely social focus — or, to its detractors, intense frivolity — of the Downtown Project’s urban vision. One of Hsieh’s known hangouts – rumour has it he often turns up there to buy shots for the room – Gold Spike offers ample opportunity for two of the concepts the Downtown Project values most: collisions, and connectedness.

These two oft-heard terms codify Glaeser’s analysis of the benefits of urban proximity. But downtown Las Vegas has long lacked anything like the residential population needed for the kind of density that can by itself ensure such collision and connection. And so, until such time as that density arrives, the Downtown Project has attempted to come up with a substitute: by incentivising the building of institutions that maximise something called “collisionable hours”.

A collisionable hour, to the best of my understanding, is an hour you spend in a downtown social space: having a cappuccino at its perpetually vinyl record-soundtracked coffee shop, for instance, or eating at one of its “restaurant concepts”, tinkering with a project in its “co-working spaces”, drinking in one of its ever-more-numerous bars, taking your pet to its members-only dog park, or playing oversized chess out behind Gold Spike. Do this for an hour a day, and you’ll have put in 365 collisionable hours after a year, all of which would count towards the Downtown Project’s stated goal of producing 100,000 such hours per acre, per year.

This sort of quantification may strike even some of the wonkier urbanists out there as overthinking it. But what really stuck in the press’s craw was how, in February, “connectedness” suddenly replaced “community” in the Downtown Project’s official language. Was this the renunciation of an ideal, or at least a responsibility?

When I asked Downtown Project Director of Communications Kim Schaefer about it on a walk through the neighbourhood, she explained the change in terminology thus: every time someone came to her to suggest, say, that the Downtown Project should install public drinking fountains on the sidewalks, she was having to redirect them to city hall — the actual one, a mile south of the Zappos headquarters.

The interior of Gold Spike

The expectations of the water fountain-requesters speaks both to a lost American belief in the ability of governmental institutions to get anything done, and to a newfound faith in technology-oriented corporations to enact miracles. (Certainly, smartphone-driven ridesharing services have compensated for grievous public transportation gaps in cities all across America, and given the entrepreneurial slant the Downtown Project has brought to Vegas, I expected to use them here – only to find that the city’s powerful taxi industry has for the most part held them down.)

Yet you don’t have stray far into the Las Vegas community outside the Downtown Project to hear resentments aired about Hsieh and his enterprises. They often, in such quarters, get called some variant of “the best and worst thing to happen to Las Vegas”: cleaners-up of a forbidding part of town, yes, but an even more alien transformational force than standard gentrifiers.

A perception exists that Hsieh’s downtown – which has replaced punk clubs and watering holes that some loved for their dinginess with juiceries, artisanal donuts, Bikram yoga and craft beer – caters almost entirely to his own “community” of imported 20- and 30something employees. Even those who run businesses of this type not funded by the Downtown Project have their qualms: “Those guys don’t know bars and restaurants,” said the operator of one drinking establishment. “They know real estate and finance.”

As we walked through the showcase Fremont East district, Schaefer, a Las Vegan of some 20 years’ standing, wasted no time correcting the common misconception that the Downtown Project has invested only in outsiders with no pre-existing connection to Las Vegas. By way of illustration, she took me to a new-wave cupcake shop run by a proud fifth-generation Las Vegan, a category of human being I hadn’t realised existed.

The shop was in Container Park, the most notable of several public-feeling private spaces the Downtown Project has so far produced. A variety of small businesses operate in this arrangement of shipping crates, from a barber shop to a toy store (usually filled with childhood-reliving adults) to a barbecue joint to any number of boutiques. It reminds me of London’s Boxpark in Shoreditch, though it executes the concept much more flamboyantly, centred around a full-featured playground with four-storey slide and fronted by a 55-foot-tall scrap-metal praying mantis, originally built for Burning Man, which at night periodically shoots fire from its antennae in bursts audible for blocks around.

A concert at Container Park

The further east we strolled down Fremont Street, the more rapidly development thinned out, giving way to the parched, low-rise texture of bail bondsmen, personal injury lawyers, sketchy motels and vacant lots characteristic of much of the rest of Las Vegas, (excluding Strip, which lies entirely outside city limits). But some of these vacant lots have construction plans posted, and at least one of the sketchy motels will soon undergo a Downtown Project-bankrolled transformation into another Container Park-like complex of bars, coffee shops, eateries, and galleries with another giant ex-Burning Man sculpture at its centre.

Schaefer pointed out other buildings in the middle of their repurposing towards richer collisionable-hour futures: a bookstore here, a combination vinyl record shop and recording studio there. All exhilarating stuff, especially to unmarried 30-year-old new urbanites such as myself – but even Downtown Project boosters admit that certain essentials haven’t quite arrived.

Schaefer herself told me she’d like to see more family-oriented venues. And beyond the Downtown Project-funded, entrepreneurially-geared 9th Bridge School, surely education remains a concern: Schaefer and another mother we encountered, the proprietor of a downtown restaurant, both mentioned sending their children to the same school a serious commute away.

Though Hsieh continues to reside downtown, I had no chance to collide with him. During my time in Las Vegas, he had to deliver the keynote speech at Stanford University’s city-themed Behavioural and Social Science Summit, an event also featuring — surely no coincidence — a talk from Glaeser. “Thus far, Tony Hsieh in his keynote has used the word ‘serendipity’ about 30 times in 30 mins,” tweeted reporter Allison Arieff from her seat there, adding, after the full hour, that Hsieh “did not once address Downtown Project’s recent pullback in funding or its decision to stop using [the word] ‘community’.”

With its free coffee and snacks (energy drinks cost $2), its gym, its foosball tables, and its beanbag-chair lounges equipped with DVD players and libraries of 1980s comedies, the Zappos headquarters embodies the corporate office as playground in much the same way as the Downtown Project has created an urban downtown as playground. And neither of these environments conceal their ultimate purpose: to encourage those serendipitous social encounters and their potentially profitable results.

At the Stanford summit and elsewhere, Hsieh has spoken openly of these social-engineering intentions. While renovating the old city hall, converting its walled offices into an entirely open plan, he also ordered closed a sky bridge connecting the building to its parking garage, thus forcing employees to walk on the more collisionable street. On the tour, we walked on to that sky bridge, which had become a “sky park”, carpeted in artificial grass and lines with hammocks. “Can employees bring their dogs here?” asked one of my fellow visitors. Our guide replied that they could not. “They can bring their dogs at Amazon,” grumbled another voice toward the back of the group.

A sign for Container Park’s market

Amazon, which bought Zappos in 2009 for a reported $1.2bn, has also moved its headquarters from suburb to city. The results of both relocations invite comparison, especially in terms of the criticism they attract: both have taken heat as engines of overly specialised gentrification. But where Amazon’s new neighbourhood has a Seattleite sobriety (or as sober as it can be, while planning to construct a 95-foot tall “biodome”), Zappos’ reflects Las Vegas showmanship and bravado.

In the early stages of the Downtown Project (a time when those close to it stress that they had nothing to show but their ideas, with only a level of enthusiasm that may look crazy to the outside world to motivate them), this made Hsieh, the youthful tech multimillionaire turned urban visionary, a great media asset. But now, painted as fickle, uncommunicative, and interested more in drawing technology entrepreneurs than all the necessary components of a well-functioning city, he seems to have become a media liability.

On this point, the duller virtues of Seattle’s South Lake Union, which has come a long way without Amazon CEO Jeff Bezos publicly fronting a “South Lake Union Project”, look advantageous by comparison: nobody anxiously tries to read the gestures of a single showman to determine whether the neighbourhood will live or die.

In fact, since the supposed “bloodletting”, downtown Las Vegas as a whole has come only more to life: the Downtown Project recently rehabilitated the Oasis motel to its full mid-century glory and then some, and a grocery store has finally arrived in the form of the aptly named The Market, something of a scaled-down Whole Foods. As troubling as observers have found the souring of the Downtown Project’s once-golden relationship with the media, downtown itself still inspires some optimism.

The Downtown Project will stand or fall not by the success of the particular businesses Hsieh’s money has got rolling, but by the separate development and proper urban design work – from other players and the city of Las Vegas itself – which its presence has begun to attract. Ultimately, we may only be able to call Tony Hsieh’s Downtown Project a success if it falls apart and, amid the vibrancy of its surroundings, the community doesn’t even notice.