The Strip: Venetian Finds Buyer for its Mall

LAS VEGAS -- After years of toiling in the Southern Nevada suburbs, the nation's second-largest shopping center owner on Monday stepped up to Las Vegas' brightest stage with its reported $1.5 billion acquisition of The Venetian's Grand Canal Shoppes and future considerations.

In the process, it may have lined Las Vegas Sands Inc.'s coffers with enough cash to self-finance the near-term expansion plans of Chairman Sheldon Adelson.

General Growth Properties, a Chicago-based real estate investment trust, has for years operated two of the area's most successful retail centers, Las Vegas' Boulevard and Meadows malls. However, Monday's deal with Venetian parent Las Vegas Sands has thrust the company squarely into what's already one of the world's most lucrative retail corridors.

"We feel that Las Vegas is going to continue to grow and be strong," John Bucksbaum, General Growth's chief executive officer, said Monday, citing recent surges in local convention activity as well as projected tourism growth. "With the new tower that's proposed next to The Venetian and (Steve) Wynn's new project, this is really becoming the new center of the Strip."

Bucksbaum said the success of his new center's two closest competitors, Columbia, Md.-based Rouse Co.'s Fashion Show and Indianapolis-based Simon Property Group's Forum Shops at Caesars inspired his company's move.

"History has shown that the Forum Shops, Fashion Show and Canal Shoppes are the places that 36 (million), and hopefully soon, 40 million (Las Vegas-area) visitors love to go to," Bucksbaum said. "That's part of the experience of Las Vegas."

Once Monday's transaction is completed, a step that's expected to occur sometime before mid-May, General Growth will pay approximately $766 million for the nearly 5-year-old Grand Canal Shoppes, an approximately 500,000-square-foot mall that now averages about $900 in sales-per-square foot.

The company also agreed to pay at least $250 million for space inside The Palazzo, which is the working title for a new resort Adelson tentatively plans to open in 2006 on what is now vacant land just north of The Venetian.

That final payment could be comparable to the Grand Canal's sale price, thereby raising the total value of Monday's deal to more than $1.5 billion. Bucksbaum declined to confirm that figure, calling it "a bit of an unknown" based upon as-yet undetermined elements of the mall's proposed second phase inside The Palazzo.

"That ($250 million) number could grow, but we hope that it does because that means the performance on Phase II is better," Bucksbaum said.

Las Vegas Sands President Bill Weidner on Monday cited the potential $1.5 billion figure, a price that's well above the $400 million target price many analysts initially expected Las Vegas Sands to fetch for the mall.

Though that asking price was surely boosted by the addition of the new owner's right to build at The Palazzo, Weidner said the high dollar figure is also a testament to the strong performance of The Venetian and its adjacent Sands Expo and Convention Center.

"If The Venetian was not as strong a product as it is, performing as well as it is, we would not have been able to attain that kind of a price," said Weidner, whose company in February reported a record 2003 net income of $38.2 million, reversing a loss of $38.4 million the previous year.

Weidner added the sale does "many, many things" for Las Vegas Sands, including creating the potential to pay down existing debt, finance its second Las Vegas resort, expand operations in the Chinese enclave of Macau, or pursue other opportunities.

"It totally changes the character of the company and its balance sheet," said Weidner, whose company was widely rumored to be considering a public stock offering to help cover its expected growth.

Las Vegas Sands entered the shopping center business largely as a means of drawing more visitors into The Venetian's hotel and casino. What began as an afterthought instead developed into an extremely successful element of the company's overall financial performance and later turned into a "trophy project" desired by some of the world's best-known mall operators, Weidner said.

A source close to the deal said General Growth's bid topped that of The Mills Corp., an Arlington, Va.-based mall operator with no current holdings in Nevada.

Bucksbaum said it's too soon to speculate on what will become of Grand Canal's current local management team, which is employed by third-party management company Forest City Enterprises of Cleveland. Weidner thanked that company for its role in making Grand Canal such a success.

Weidner said General Growth's extensive portfolio, which includes 172 regional shopping malls in 41 states, should bring added leasing experience and capability to Grand Canal and its planned expansion.

Patrice Duker, spokeswoman with the New York-based International Council of Shopping Centers, on Monday said General Growth has recently expanded its portfolio across the nation, particularly in tourism-heavy markets. She praised Monday's move, saying it illustrates the company's commitment to adding "different and unique" developments to its holdings.