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Best of Liz Benston

Gaming Guru

Liz Benston

How many new rooms? Let's just say, a lot

18 February 2008

LAS VEGAS, Nevada -- Before the financial markets sputtered and the economy soured, the folks paid to promote Las Vegas boasted that within a few years, more than 40,000 new hotel rooms would sprout on the horizon.

A Strip executive now doubts even half that many will be built, with the result that tens of thousands of expected new jobs won't be created. It's a prospect that other executives, school and housing planners and economists in town have yet to get their minds around.

The Las Vegas Convention and Visitors Authority, however, is standing by its projections — that even with the December opening of Palazzo (3,068 rooms) and the Trump condo-hotel tower next month (1,282 rooms), an additional 41,208 rooms are on construction timetables to 2012.

And that's nothing. It has a second list, projecting 33,066 more rooms with undetermined completion dates. This "tentative" list includes projects that are thought to be no less speculative than some on the first list, the only difference being that certain developers have announced when they intend to complete their buildings and others have not.

So how many new rooms will be built in the valley: 20,000, 41,000 or — goodness sakes — 74,094?

And why should we care?

Such numbers not only mean bragging rights but drive assumptions that are used by lawmakers and other government officials for planning purposes. According to state Demographer Jeff Hardcastle, each hotel room translates into 1.5 direct jobs (those at the property) and at least one indirect job in the community (more teachers, doctors and bankers, for example).

So 74,000 new rooms can lead to more than 185,000 new jobs — and 20,000 rooms would result in about 50,000 jobs. The difference is huge and is sure to trigger head-scratching, debate and anxiety.

The lower room estimate was made this week at a forum in Los Angeles by MGM Mirage Chief Financial Officer Dan D'Arrigo, who says he is not a pessimist but a realist.

"Not everything always gets built here in Las Vegas," D'Arrigo later said in an interview. "People have to look at what's financed right now to get built. The credit markets are no longer white-hot like they once were. The banks will be picking their spots over the next couple of years and financing those developers that they're most comfortable with, have relationships with, and those projects that make the most sense financially."

Some projects might be canceled, but others may simply be pushed out a few more years, he said.

"These buildings are a lot bigger, more intricate and expensive today than they were a few years ago," D'Arrigo said. "We used to be able to build a resort in a 20- to 30-month time period."

The company's CityCenter development, including five high rises, is expected to open in late 2009 after 36 months of planning and construction. And that's an aggressive timetable.

That 40,000 room number has always been a moving target, subject to monthly, even weekly, changes in plans that may or may not be related to the economy. It's even more of a wild card now because of the uncertainty of the condominium market, where demand has slowed.

The visitors authority says its rooms list isn't intended to be precise, though it is comprehensive.

It includes all announced projects that haven't been formally canceled. That leaves a lot of wiggle room for projects that are more speculative than others.

"We're not going to speculate on projects that may or may not get built," visitors authority senior research analyst Kris Tibbs said. "Unless we've been told through a company's news release that a project is not going to happen, then it's on the list."

Some bullish projections from years ago included as many as 100 condo towers across town — several of those on the Strip. Fewer than half of those initial proposals came to fruition and only one condo tower has taken shape on the Strip. A few others are built or under way a block or two away.

Rather than building an entire project at once, developers are now exploring building their projects longer-term, in phases.

"These (rooms) are coming, but I think they will come in phases," said broker Bruce Hiatt of Luxury Realty Group in Las Vegas. "We just don't know what the numbers will be yet. It's a real moving target."

D'Arrigo sees organized chaos in the development process, where others might see chaos.

"The market has a unique way of working itself out as supply and demand dynamics play out accordingly," he said.