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Chris Jones

Strip Real Estate: New Owners Plotting Use of Land

2 May 2006

LAS VEGAS, Nevada -- One of the largest pieces of undeveloped land near the Strip has been sold, and its new owners are promising to build an iconic resort that befits its setting along "the gateway to Las Vegas."

Just don't expect something eye-catching to break ground soon.

David Edelstein, a prominent New York developer who co-owns the Desert Passage at Aladdin shopping center, said he's part of a group that on Monday paid more than $200 million for 63 vacant acres on the west side of Interstate 15 near Russell Road.

The off-Strip parcel, in the shadows of Mandalay Bay and Luxor, is big enough to house multiple hotel-casinos, a shopping center and accompanying high-rise towers, much like MGM Mirage's planned $7 billion Project CityCenter and Echelon Place, a similar $4 billion development planned by Boyd Gaming Corp.

Unlike the backers of those two Strip projects, however, Edelstein said his group will wait a while before it decides what to place on its prized new holding.

"There's a ton of development going on now that's driven construction prices up," Edelstein said. "There's a shortage of manpower, labor and good managerial power out there. It's prudent that we sit and wait to see how the market shakes out."

Edelstein's company, Tristar Capital, and RFR Holding, a German investment firm led by Aby Rosen and business partner Michael Fuchs, jointly control a one-third interest in a limited liability corporation called Weststate Holdings.

Starwood Hotels & Resorts Worldwide, the White Plains, N.Y.-based hotelier whose brands include Sheraton, Westin and W Hotels, controls another third, as does The Edge Group, the Las Vegas company that's developing a W hotel-casino near the intersection of Harmon Avenue and Koval Lane.

Edelstein said the site could house up to 10 million-square-feet of mixed-use development, "everything from hotel-casino, residential condominium, hotel condominium, retail and convention space." He ruled out placing a new convention center on the site, however, due to its proximity to the Mandalay Bay Convention Center.

The land offers easy access to the Strip by way of Russell and Hacienda Avenue (which becomes Mandalay Bay Drive east of Interstate 15). Perhaps more importantly, drivers heading into town from Southern California will easily notice anything that arises on the site, he said.

"Anything built there will have a wide-open view, just like Mandalay does of everything on the Strip and I-15," Edelstein said. "You can build something that's iconic there. That's one of the reasons we jumped on it."

Reagan Silber, co-chairman of The Edge Group, said the land "really screams" for a destination-style resort complex.

"You could call it 'The Gateway to Las Vegas.' It's the front entrance ... and you would hope you can create something there that stands the test of time like that little sign," Silber said in reference to Betty Willis's famed "Welcome to Fabulous Las Vegas" sign on Las Vegas Boulevard South near Russell.

"If we can do this well, (the development) will be something that years and years from now people will recognize when they pull into town," he added.

Edelstein said the deal was worth $201 million, though Silber valued it at $1 million more. It took more than 16 months to complete due to a lengthy due diligence process, Silber said.

The development will likely house two or three Starwood brand hotels, though Edelstein said it's too soon to speculate; Silber said he expects the partners will wait one to three years before making a firm decision on what to develop.

MGM Mirage spokesman Alan Feldman said Monday his company is interested in learning more about Weststate Holdings' plans, but, "In general, development in the Mandalay neighborhood would be welcome."

Edelstein's group bought the land from Los Angeles-based Weststate Land, which in October 1988 paid more than $5.7 million to complete a land deal that included more than 58 acres west of Interstate 15 and north of Russell Road.

The company in February 2004 acquired an adjacent 4.2 acres for $8.3 million, which gave it nearly 63 acres of contiguous, hotel-casino-zoned property in the shadows of Luxor and Mandalay Bay.

When "For Sale" signs popped up early last year, one local real estate expert suggested the land, if sold in its entirety, could command between $440 million to $750 million based upon a sales price of $7 million to $12 million per acre. Others suggested the price would be closer to $3 million per acre based upon recent land sale values.

Sibley said the actual cost of approximately $3 million per acre was lower because the price was set "before the run-up."

A Clark County planning manager last year said the site would not be affected by Senate Bill 208, a 1997 law that limits the expansion of neighborhood gaming sites. It could also include apartments or other mixed-use developments under its current zoning classification.

Edelstein said he does not expect development there will be impeded by unreasonable height restrictions despite its proximity to McCarran International Airport. The Hotel at Mandalay Bay stands within a 489-foot tower just across the freeway.

Edelstein and RFR, collectively known as Boulevard Invest, purchased Desert Passage from Chicago-based Trizec Properties for $240.5 million in December 2003. Later this month it will reveal a new name and theme for Desert Passage, whose Middle Eastern bazaar atmosphere will be recast to coincide with the Aladdin's continuing transformation into Planet Hollywood.