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Gaming Guru

Arnold M. Knightly
 

Development: Second the motion

19 March 2007

LAS VEGAS, Nevada -- The much-ballyhooed promises of new development along the Harmon corridor seem to be back on track.

With the MGM Mirage's $7 billion Project CityCenter beginning to rise from the ground and new buyers in place at key properties along Harmon Avenue, the growth of the "second Strip" is progressing quickly and surely.

"Over time that area is going to fill in and develop with relatively high-density types of development," said Brian Gordon, a principal at Applied Analysis, a Las Vegas financial research firm. "Whether it is hotel, gaming, entertainment or residential is yet to be determined. But clearly there is a significant amount of developable property in that area."

The Harmon corridor -- a stretch covering 1.2 miles from Paradise Road to the east to the Strip to the west -- is now marked by a mixture of no-lease, rent-by-the-week apartments and new developments.

The Hard Rock Hotel's new owners, which include boutique hotel operator Morgans Hotel Group, last week announced $750 million worth of renovations and expansions that will double the property's size.

The announcement came 10 months after previous owner Peter Morton had announced he was selling the property and canceling a $1.2 billion condominium-hotel project slated for 23 acres adjacent to the Hard Rock Hotel.

Morton's decision was unrelated to a shift in the real estate market or rising construction costs. But many announced projects along the corridor also seemed to be put on hold or shift direction in 2006.

Reagan Silber, co-chairman and chief operating officer of the Edge Group, said that only large developers such as MGM Mirage, Sheldon Adelson (whose Las Vegas Sands Corp. is building the $1.8 billion Palazzo) and Steve Wynn (whose Wynn Resorts Ltd. is building the $2 billion Encore) were able to continue large projects in the past year while the real estate market was "catching its breath."

"The market went a tiny bit sideways," Silber said. "Everybody, including us, had to take pause and really figure out what it's going to cost us to build one of these things."

Edge Group owns 50 acres behind the Hard Rock Hotel stretching to Koval Lane.

Edge Group announced in late 2005 plans to build a $2.5 billion W Las Vegas in partnership with Starwood Hotel and Resorts Worldwide. The 2,000-unit hotel condominium project was to neighbor the 4,000-unit hotel-condominium project Las Ramblas.

Las Ramblas was a joint-venture partnership between Related Cos. and Centra Properties that involved the actor George Clooney and nightclub magnate Rande Gerber. But poor sales forced Las Ramblas' cancellation. The land was sold to Edge Group in June for $202 million.

Soon after the purchase, Silber and his partners engaged financial consulting firm Credit Suisse to seek another joint-venture partner to advance the project.

"We decided that we would bring in either a gaming partner or another development partner who would be able to put in additional equity alongside the two of us," said Silber, adding that it would be midsummer before any announcements about the new partner and the project's future are announced.

W Las Vegas still holds reservation agreements and deposits, but no hard contracts, for 750 hotel-condominium units.

Although the Hard Rock Hotel plans to add 950 new hotel rooms, it dropped residences Morton had planned. Nevertheless, Hard Rock Hotel President and Chief Operating Officer Randy Kwasniewski said other development options may be considered for the property's 15 remaining acres.

Analysts think that although the residential sales market has slowed, it will rebound. Furthermore, they say, the Harmon corridor is perfectly suited for further strong-branded residential development.

However, they said the days when anyone could blow into town, open an office and sell out a condominium project in mere hours are gone.

"The residential component in the market got overheated, but it is still a viable component," said John Knott, executive vice president of the Global Gaming Group for CB Richard Ellis. "It just needs to be built on the basis of what the real demand factors are. Over time we will continue to see residential projects be incorporated into these major mixed use projects."

As the Hard Rock Hotel reshapes, another Harmon corridor property, the Aladdin, is also changing. The property at Harmon's west end is expected to finish rebranding to the Planet Hollywood Resort & Casino next month.

Unlike the Hard Rock, Planet Hollywood, the joint-venture partnership between entrepreneur Robert Earl and OpBiz, private-equity investor Bay Harbour and Starwood, has started building a two-tower project that will include residences.

The $1.1 billion Planet Hollywood Towers by Westgate, which will include 2,500 hotel-condominiums and time-share units, is scheduled to open the first tower in June 2009.

Earl, who is co-chairman of Aladdin owner OpBiz, said that having the residences close to Project CityCenter is helping to transform the corner of Harmon and Las Vegas Boulevard into one of Southern Nevada's most desirable addresses.

"It's getting people to focus on it (as) being a place to buy a home," said Earl in February.

Silber echoed Earl.

"What CityCenter has been able to prove is the model," he said. "A branded, residential hotel with gaming, nightlife and retail is as vibrant as it has ever been."

The residential and time share units at Planet Hollywood are across the street from two projects that continue to add inventory to the market.

The Residences at MGM Grand, which will have 1,720 hotel-condominium units, has two 40-story towers completed and a final tower scheduled to be finished in May.

West of the Residences is the $500 million Marriott Grand Chateau. The project features 895 units planned for four towers. One tower is open; work on a second is scheduled to finish in November.

Construction on the $2.8 billion Cosmopolitan, a condominium-hotel project bordering CityCenter to the north, has also started. Completion is scheduled for late 2009.

Although many plans are progressing, two previously announced projects have apparently stagnated.

In 2004, financier Richard Alter announced he would invest $400 million in renovations for Alexis Park. He said he envisioned a 1,500-room resort complex at the site of the hotel and an adjacent apartment complex that would include a 28-story hotel tower, a 60,000-square-foot casino, restaurants, a health spa and meeting space.

The project was to have been finished this year. But ground was never broken.

In 2005, MetroFlag, led by Las Vegas developer Brett Torino, announced plans to build two 55-story luxury residential and hotel towers where the Harley-Davidson Cafe sits at the corner of Harmon and the Strip. Two years later, the cafe still stands and there are no signs of construction.

Developers involved with both projects could not be reached for comment.

Harrah's Entertainment also holds land along Harmon, but any plans are not being revealed.

John Restrepo, principal of the Las Vegas real estate consulting firm Restrepo Consulting Group, said traffic flow and sewage must be addressed to accommodate all of the proposed high-density projects.

"I think the issues facing the Harmon corridor are not so much demand and popularity," Restrepo said. "I think the bigger issues are going to be more physical constraints as they relate to infrastructure."

The Clark County Department of Public Works already plans to widen Harmon Avenue from two lanes in each direction to three from the Strip to Paradise Road. Plans to widen Harmon from the Strip to Koval Avenue were in place but have been delayed until Project CityCenter's completion in 2009.

Clark County Public Works spokesman Bobby Shelton said that as development unfolds developers will be required to contribute to off-site improvements to help with traffic flow in and out of their developments.

Restrepo added that traffic flow on Koval Lane and Paradise Road, in addition to Harmon, must be considered.