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The Newsroom - 2005 |
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DEVELOPMENT: The Next Wave
Wynn Las Vegas starts building boom, but some
projects may be more bluster than
brick
October 15, 2006 - When Wynn Las Vegas was unveiled 17 months ago, the opening of the $2.7 billion
resort triggered a slew of announcements about other potential Strip projects.
A collection of hotel-casinos, residential high-rise and mixed-use developments
have been proposed along the Strip, from the boulevard's far southern reaches to
16 miles north just south of Sahara Avenue.
The avalanche of declared projects validated the predictions of Wall Street
gaming analysts and casino industry observers who had speculated that Wynn's
April 2005 opening -- the Strip's first new casino in almost five years -- would
inaugurate the newest construction boom.
Just what ultimately gets built, however, remains to be seen.
"The Las Vegas history book is filled with pages detailing casino announcements
that have never been built," said gaming analyst Matthew Jacob of Majestic
Research. "That said, a lot of projects are proposed by private entities that
may not have their financing lined up. Others may have an idea, but are still
looking for land. For some (projects), the public announcement is just the first
step."
Local developers plan to add 41,423 hotel rooms to the market countywide through
2010, the Las Vegas Convention and Visitors Authority reports. Those rooms would
add to the current inventory of 133,347 guest rooms.
Since Wynn Las Vegas' opening, several Strip projects have started and are now
far along into construction.
The initial 4,000-room hotel-casino that is the centerpiece of MGM Mirage's $7
billion Project CityCenter development is now tall enough for Strip pedestrians
to see. Other aspects of the massive project, billed as an "urban metropolis,"
are also taking shape.
Construction is also well under way on the Palazzo, a $1.8 billion hotel-casino
Las Vegas Sands Corp. is building next to The Venetian. Opening is planned for
the middle of next year.
Wynn Resorts Ltd. has started building Encore, a $1.74 billion hotel-casino next
to Wynn Las Vegas.
The $500 million Trump International condominium-hotel tower and the $1.8
billion Cosmopolitan, a hotel-casino-condominium development, have both been
under construction for a year.
Meanwhile, many other proposed projects are still on the drawing board.
Plans for the Fontainebleau, a $1.5 billion hotel-casino proposed by Turnberry
Associates and former Mandalay Resort Group President Glenn Schaeffer, were
announced more than a year ago for a site just west of the Turnberry condominium
towers on which the El Rancho had stood. Clark County commissioners want traffic
concerns addressed before approving the zoning.
One gaming analyst who asked not to be named expressed confidence in
Fontainebleau.
"Someone like Glenn would not have pursued this unless he thought it was a
viable project," the analyst said. "I think he would have had an opportunity to
do a lot of other things."
Plans for a redevelopment of the New Frontier by owner Phil Ruffin have evolved
over the years from a San Francisco-themed project to a $2 billion hotel-casino
that would resemble a resort in Switzerland. Financing, however, has not been
announced and a development timetable has not been set.
Gaming analysts speculate that Ruffin's condo-hotel partner, New York
billionaire developer Donald Trump might eventually have some involvement in the
New Frontier's plans. Trump is building the Trump International on land behind
the New Frontier.
Deutsche Bank gaming analyst Bill Lerner called the New Frontier's center Strip
site across from Wynn Las Vegas an "enviable location." But he doesn't believe
the project will be completed in the manner that has been announced.
Brian Gordon, a partner in the Las Vegas-based financial consulting firm Applied
Analysis, said the Swiss theme is a new concept to the Las Vegas market. He also
said Ruffin appears to be assembling a qualified team to help with the project.
"Being privately held provides some financing flexibility," he said.
Most gaming analysts scoffed at the notion of a $1.2 billion hotel-casino ever
getting built by the owners of Maxim magazine and a California real estate
developer, who announced a project on June 5. The proposed hotel-casino would
have to fit within the confines of an oddly shaped eight-acre parcel near Circus
Circus.
Jacob, although unfamiliar with the Maxim project, said it could be a case in
which a company pitches a proposal to see if there is any interest of financial
backing.
Another gaming analyst said the Maxim's target audience would seem to put the
casino in competition for the same customers as the Palms and Hard Rock Hotel.
"I'm uncertain on all fronts about this one," the analyst said.
Lerner thought that only a small percentage of what's been announced will
actually come to fruition.
"We continue to believe that only a fraction of currently planned (or) proposed
high-rise projects will ultimately be built," Lerner said. "Developers without
solid track records or who are not well capitalized or not affiliated with
existing brands or casino resorts will likely have the highest failure rates."
Dennis Farrell of Wachovia High Yield Research, said MGM Mirage's Project
CityCenter won't face the financing worries of other developments. He said he
was sure CityCenter would be built just as the company planned. |
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The 4,000-room hotel-casino that is the centerpiece of MGM Mirage's Project
CityCenter is now tall enough for Strip pedestrians to see.
Photo by Clint Karlsen.
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Construction continues Sept. 26 on Palazzo and Trump International,
as seen from atop Palace Station's parking garage.
Photo by Clint Karlsen.. |
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"MGM Mirage can leverage their economies of scale and balance sheet to provide
certainty for the completion of CityCenter especially if the lending environment
becomes challenging in the capital markets," Farrell said. "In our view, the
capital markets will decide which projects will be built in Las Vegas as we
believe debt financing will range between 70 percent and 80 percent of total
project costs."
CRT Capital Group gaming analyst Steve Ruggiero said rising costs for labor and
construction materials could hold up some possible Strip projects. He also said
that if the high-rise residential sales market slows, many of the
condominium-hotel ventures could be shelved.
"It may be the (2,900 high-rise residential units in) MGM Mirage's Project
CityCenter may be the last ones standing if consumer and residential sales
flounder," Ruggiero said.
Analysts seem as sure of Boyd Gaming Corp.'s Echelon Place as they are of MGM
Mirage's Project CityCenter.
Echelon Place was originally planned for 63 acres on which the Stardust now
stands. The Strip hotel-casino will close Nov. 1 and demolished early next year.
The Echelon Place site will grow by 24 acres to 87 total acres early next year
when a Strip land swap with Harrah's Entertainment closes. Boyd Gaming traded
the Barbary Coast to Harrah's for the additional land adjacent to the Stardust
site.
In January, Boyd Gaming said it would spend $4 billion to develop boutique
hotels, a hotel-casino and entertainment venues. A large convention center was
also on the wish list.
Some gaming analysts think Echelon Place's makeup may change over time.
"This is an important development for the north end of the Strip," Lerner said.
"But I wouldn't be surprised to see a residential component added if additional
acreage is acquired."
Ruggiero said any slowdown in Las Vegas tourism could mean Echelon would be
constructed in stages, rather than all at once.
"There is a need for quality midlevel rooms and an integrated
convention-retail-casino experience that Echelon will likely satisfy," Ruggiero
said.
Jacob said he thought Echelon will help spur Strip development northward and
perhaps spark the much rumored sales and redevelopments of the Riviera and
Sahara. He credited Wynn Las Vegas with fueling the start of a northbound
development trend.
"The older, northern Strip properties have been at a bit of a disadvantage,"
Jacob said. "Wynn and Echelon will help those properties thrive as well."
Ruggiero said Palazzo and Encore will give Las Vegas Sands and Wynn Resorts much
needed room capacity on the Strip, but he cautioned the combined 5,000-plus
hotel rooms will dilute the average daily room revenues generated by high-end
properties.
"The high-end properties will need to promote more aggressively," Ruggiero said.
Although Project CityCenter is the largest current construction site, the
project could be eclipsed by whatever Harrah's decides to do with almost 120
acres the company controls on the Strip's east side, stretching from Paris Las
Vegas to Harrah's and everything in between. The stretch will include the
Barbary Coast once the Boyd deal closes.
Harrah's has not presented a development plan for the land but has said it is
considering alternatives.
Most analysts think the Imperial Palace, which sits on 18 acres, will be closed
and demolished while the remaining casinos will be integrated in some fashion.
Bally's, some analysts predict, will be rebranded as a Horseshoe.
The analysts questioned all expected Harrah's would pry the Barbary Coast from
Boyd Gaming. The deal was announced two weeks ago.
"The Harrah's project would have a stronger presence if it also owned the land
under which the Barbary Coast is located so that it could develop the
ever-important corner of Flamingo and Las Vegas Boulevard according to its own
specifications," Ruggiero said.
What the analysts are Saying:
Project CityCenter
"A transformational project for Las Vegas."
Fontainebleau
"A quality developer with experience in this marketplace. Looking forward to
seeing (former Mandalay Resort Group President) Glenn (Schaeffer) again."
Echelon Place
"Many investors underestimate the brilliance and execution capability of Boyd
Gaming. Management talent will get the job done, and the city needs a midmarket
project of this magnitude."
Maxim
"Highly speculative as currently planned given the site configuration."
Cosmopolitan
"Executive turnover in previous months suggests there may be some difficulties,
but the project is likely to move forward."
Olympia Gaming
"There needs to be a little more time for that part of the valley to comfortably
absorb this supply."
Trump International
"This will be a success for both Trump and Las Vegas."
New Frontier
"The timing is uncertain. Will Trump enter the picture at some point?"
Palazzo
"Las Vegas Sands needs this additional room capacity. It's clearly moving as
planned; sufficient capital and a great location."
Encore
"The Encore is an important second tower for Wynn Resorts that will enable the
company to leverage its cost structure."
Palms Place
"A solid residential location."
W Hotel
"While we believe the W project is experiencing delays, we do believe that it
will ultimately be built, unlike other notable projects."
Edge East
"A great location."
Harrah's Strip
"Harrah's (Entertainment) has the ability to successfully integrate its Strip
properties and it will represent a powerful alternative for consumers."
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Article ©: H. Stutz, Gaming Wire, LVRJ
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