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Howard Stutz
 

The Strip: Growing north

12 March 2007

LAS VEGAS, Nevada -- Almost two weeks after the Sahara was seemingly given a new lease on life, demolition crews are preparing to blast away the last remnant of the Stardust.

The separate events have gaming analysts and real estate speculators trumpeting current and potential redevelopment opportunities centered along the Strip corridor north of Convention Center Drive.

Boyd Gaming Corp. is getting set to unveil designs this spring for the $4.4 billion Echelon Place project, which will replace the Stardust with five hotels containing 5,000 rooms, a 140,000-square-foot casino, 750,000 square feet of meeting space and 30 dining, nightlife and entertainment venues. The Echelon footprint is expected to take up almost three-quarters of the 87-acre site.

Meanwhile, Los Angeles-based SBE Entertainment Group, in partnership with San Francisco-based Stockbridge Real Estate Funds, last week announced its agreement to buy the 55-year-old Sahara from the family of the late casino pioneer William Bennett. The price was not disclosed, but sources close to the transaction estimate the 17.45-acre Sahara site fetched between $300 million and $400 million.

SBE is formulating designs for the Moroccan-themed 1,720-room hotel-casino. The plans are expected to include a makeover and add restaurants and nightclubs.

Between the mile-long stretch that separates Echelon and the Sahara, the possibilities are boundless.

"There is no question the natural push is now to the north," Las Vegas real estate consultant John Restrepo said. "If the buyers do a major redo to the Sahara, that will move things along."

Brian Gordon, a partner in Applied Analysis, a Las Vegas-based financial consulting firm, said Echelon and the Sahara could spur a development wave between the two locations.

"The majority of the investment activity is or either will soon be under way," Gordon said. "That part of the Strip could have some major activity."

North Strip redevelopment has been a topic deliberated by observers since the April 2005 opening of the $2.7 billion Wynn Las Vegas at the site of the former Desert Inn. It marked the first new resort construction north of Spring Mountain Road in decades. Since then, Wynn has started building Encore, a $2 billion hotel-casino that will open in 2009.

Redevelopment speculation has centered on aging anchor casinos on the Strip's north end, including the 51-year-old Riviera and its 26 acres, which have ostensibly been on the market for the past three years. Talks have also involved Circus Circus, which opened in 1968 and was bought by MGM Mirage as part of the $7.9 billion buyout of the Mandalay Resort Group in 2005. Circus Circus covers 68 acres, including the hotel-casino, a low-rise motel, the Adventure Dome theme park and a recreational vehicle park.

Other building activities include an association between the developers of Turnberry Place and gaming executive Glenn Schaeffer, who have been planning a Las Vegas version of Miami's Fontainebleau since 2005 on a 25-acre site that once held the El Rancho and Algiers casinos.

In the meantime, a Texas investor surfaced last year as a possible buyer of the 26 acres on which the Wet 'n Wild theme park once stood. He has floated designs for a 4,000-room hotel-casino with a 1,888-foot tower.

Also available are two empty parcels still owned by the Bennett family that weren't part of the Sahara sale: 26 acres on the Strip's west side across from the Sahara and an 11-acre parcel east of the Sahara off Paradise Road.

"Everybody is starting to look around to see what value is out there," said John Knott, executive vice president of the Global Gaming Group for CB Richard Ellis, which handled the Sahara's sale.

Knott said a remodeling of the Sahara could be the first step in enhancing the last of the four major streets -- Sahara Avenue, Spring Mountain Road, Flamingo Road and Tropicana Avenue -- that cross both the Strip and Interstate 15.

"Sahara (Boulevard) is the only one of the four that has not been fully developed into its full potential on all four prime corners," Knott said. "We think this is a magnificent start in that direction."

Restrepo said he first pitched an idea on master-planning the Strip's north end to the Howard Hughes Corp. in 1991, when he was advising the company's chief executive. Proposed developments at the time were laid out on a map and Restrepo said there seemed to be a void northward.

"Maybe I was some kind of visionary, but we were 15 years too early," Restrepo said.

Terry Fancher, the executive director of Stockbridge, a private equity fund that will have majority ownership in the Sahara, thought the Strip's north end offered the best redevelopment opportunities. He said the company considered other potential deals with SBE.

"If this had been on the south end of the Strip, we wouldn't have done the deal," he said. "The Sahara is a landmark asset and the growth is heading north. There are going to be many opportunities for investment on this end of the Strip."

Fancher and Sam Nazarian, the co-owner of SBE entertainment, believe the north Strip's expanding high-rise condominium market, which now has more than 2,200 units sold or under development, will provide a customer base for a redeveloped Sahara.

Near the Sahara, Turnberry has 777 units at Turnberry Place and is building 636 units at Turnberry Towers on a site adjacent to the empty 11-acre parcel.

Allure, on Sahara Boulevard, with 428 units and Sky, on the Strip with 409 units, are both under construction.

"That's a tremendous potential customer base for the Sahara," Nazarian said. "We want to tap into it."

Restrepo, however, cautioned that the casino needs to have other marketing options. Very few of the high-rise condo owners, he said, are year-round Las Vegas residents.

Gaming analysts believe the Sahara deal could finally spur a transaction to sell the Riviera, which fell in and out of deals twice last year.

MGM Mirage representatives said they have no plans to sell Circus Circus or redevelop the site, at least until after the company's $7 billion Project CityCenter, under development on the opposite end of the Strip, is completed in 2009.

"Circus Circus has been successful and we'll certainly take a look at a redevelopment plan down the road," MGM Mirage spokesman Alan Feldman said. "I think a sale of the Sahara gives us some encouragement for that end of the Strip. We like to see new money come into Las Vegas. It gives the market a continued vibrancy."

Fontainebleau representatives are not ready to discuss plans for their project, spokesman John Marz said. The resort is expected to have 2,929 hotel rooms and 959 condominium units, a 735-foot high-rise hotel tower, a casino, restaurants, meeting space, show rooms and other amenities, according to documents filed with Clark County.

Knott, who is still trying to sell the two vacant parcels for the Bennett family, said their value will increase as the Sahara is redeveloped. Both are suitable for casinos.

He thought the 26 acres could be worth $20 million an acre while the smaller parcel was worth at least $10 million an acre.

Deutsche Bank gaming analyst Bill Lerner said the estimated Sahara sale price, between $17 million and $23 million an acre, is setting the bar for other potential Strip land acquisitions.

"Given the size of this parcel, we believe it serves as a good comparable for incumbent Las Vegas Strip operators with existing undeveloped or underdeveloped parcels and better located than the Sahara," Lerner said.

The Strip: Growing north is republished from CasinoVendors.com.