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Best of Howard Stutz

Gaming Guru

Howard Stutz

Development: The next wave

16 October 2006

LAS VEGAS, Nevada -- 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.

"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."


"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."


"Highly speculative as currently planned given the site configuration."


"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?"


"Las Vegas Sands needs this additional room capacity. It's clearly moving as planned; sufficient capital and a great location."


"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."