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Best of Liz Benston

Gaming Guru

Liz Benston

Beholden to no one, South Point owner shuns cuts

14 October 2008

LAS VEGAS, Nevada -- There's the corporate way of cutting payroll costs in a downturn. And then there's the Michael Gaughan way, which is, well, not cutting payroll.

Gaughan is one of the rare executives in Las Vegas who hasn't laid off rank and file employees during the downturn. As the sole owner of one casino, he has the luxury of acting alone, without running his decisions by a board of directors and without fear of reprisals from Wall Street. Gaughan, whose Coast Casinos chain merged with Boyd Gaming Corp. in 2004, bought his South Point casino from Boyd when he exited the company in 2006.

Gaughan says he's never laid off workers in an economic downturn, though he wasn't able to find jobs for some Coast change employees let go as a result of the spread of coinless slot machines.

Business is up slightly from a year ago because the property has attracted new customers. Those numbers would look better, Gaughan said, if he had cut some jobs..

Still, employees are needed to serve customers, even if those customers are spending less than before. Making people fear for their jobs isn't a good business strategy, especially when customers are tight with their money, he said.


Some new hotel operators in Las Vegas have never built or owned hotels. They're brokers who are managing condo-hotel units for absentee owners seeking higher rental income than condo-hotel developers offer through their own rental programs.

Luxury Suites International, perhaps the largest of its kind, manages more than 120 units at MGM Grand's Signature towers and is negotiating to manage units at Platinum, Palms Place and CityCenter's Vdara. The company has its own housekeeping, hotel reservations, marketing and operations departments.

Condo owners are seeking out third parties that let them keep a greater percentage of rental income, which is split with the management company. (Luxury Suites says it charges less than half of the roughly $1,400 a month MGM Mirage charges to run the Signature units.)

"We're a smaller company, so we don't have the overhead MGM Mirage does," Luxury Suites spokesman Dan Shumny said.

Condo buyers must be cautious when using third parties, said Bruce Hiatt of Luxury Realty Group, which is not a competitor. A Luxury Suites competitor has offered subpar cleaning and maintenance, resulting in more wear and tear on rooms. Those units are ultimately worth less when clients sell, eating up rental profits, he said.

Third parties often generate more income by renting rooms more frequently, Hiatt said.

Shumny said his company charges owners a maintenance fee to repair worn items. Renters are charged for items that are stolen or damaged, he said.

"Owners tell us that we are increasing their cash flow and managing their properties better," co-founder Candace Bailey said.


Nevada's largest condo-hotel project, the Trump International Hotel & Tower, has faced the full force of the housing slump as banks curtail mortgage lending.

About 280, or 22 percent, of the tower's 1,282 units have closed escrow as of a week ago, according to the Clark County assessor. About 62 units have closed since July 1 and the median price per square foot of those sales, excluding multiple-unit sales, is $1,098 from that date through Sept. 30.

Management has taken back a few hundred units, mostly from speculators and others with little chance of closing, and is renting those to the public, along with the others that have closed. Those units can be sold once the market rebounds.

Trump has a construction loan of a few hundred million dollars, which is small compared with most others on the Strip, said Jack Wishna, who owns a stake in the tower with developers Donald Trump and Phil Ruffin. Lenders are aware that closings are slow and that developers are willing to cover potential shortfalls, he said.

"If a bank says, 'I'll lend you 50 percent,' some buyers wonder where they're going to get the rest. But that's enough for some to close."

Some have the cash to close but are waiting for the economy to rebound, he said. They can take their time because neither banks nor management is forcing them to close.

Though that sounds like good news, many observers question the viability of a building that has been mostly vacant since it opened in March.