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Best of Liz Benston

Gaming Guru

Liz Benston

Looking in on: Gaming

5 March 2007

LAS VEGAS, Nevada -- Neon may be nice but water's better.

If you've ever been pitched a "beachfront" view of the Strip by a real estate broker and balked, you're not alone.

Research by economist and real estate consultant John Restrepo indicates that most condo buyers prefer views of lakes and oceans to views of casinos.

The market for high-rise condos in Las Vegas will never be as big as it is in cities such as Miami, San Diego, Chicago and Vancouver, Restrepo says. What they have in common is lots of water, something that Las Vegas - for all its pools and fountains - will never boast.

"There's a much bigger market that will buy waterfront views before they will buy a Strip view," Restrepo said. "There's a reason why those cities have a lot of high-rise towers. There's something about water. It's calming, it does something for people that neon lights can't do."

That Las Vegas has 14 high-rise condo towers under construction and eight more that have broken ground but haven't begun building upward "isn't bad at all" given its lack of ocean views, he said. The 14 towers represent 6,665 of 71,519 units, or 136 projects, planned or proposed through 2012. Many of the proposed projects are "at best trying to gain their footing and at worst are on life support," plagued by high construction costs, mismanagement, lack of experience, financing problems and poor locations, Restrepo said.

• • •

It doesn't pay to be shy. Two buyout firms vying to take Harrah's Entertainment private filed license applications last week with the Nevada Gaming Control Board for 11 top executives who will undergo the accounting equivalent of a strip search to obtain a Nevada casino license.

The applicants include two rock stars of the leveraged buyout world: Leon Black of Apollo Management and David Bonderman of Texas Pacific Group.

Historically, private equity firms have avoided lucrative casino investments in order to avoid regulatory probing into personal and financial details. But several private equity firms have survived the process and are eager to tap into casinos' cash-rich real estate.

Icing on the cake is a newer form of low-cost financing involving taking out loans secured by property. Called mortgage-backed securities, these loans play a big role in both the Harrah's purchase and the management-led takeover of Station Casinos. The loans can be cheaper than bank debt but as a downside, can restrict owners from significantly modifying their properties.

The private equity firms buying Harrah's haven't determined which properties would be secured by these loans but analysts say they will probably be those casinos with the least potential for redevelopment. The buyers will use the properties, representing a third of Harrah's earnings, to borrow about $7.25 billion of the $17.2 billion purchase.

• • •

A proposal by Venetian executives to dismantle the Las Vegas Convention and Visitors Authority didn't gather much steam among the governor's tourism and gaming industry advisers.

But a second idea is meriting serious discussion.

The proposal involves speeding up the regulatory approval process for slot machines and other technology to make Nevada more competitive with other states. Some Indian tribes in California, for example, allow their casinos to beta-test slot technology while it is on the floor and available for play. Behind the scenes, some slot manufacturers have suggested that Nevada replace or supplement its government-run slot testing lab with for-profit labs that work with tribes and other state governments and can test machines more quickly.

The proposal comes even as Nevada regulators have reduced turn-around times by streamlining the regulatory process and improving communication with slot companies in recent months.

Casinos and slot makers that are becoming more dependent on newfangled technology to generate profit have a big interest in getting their products to market faster.

"This is something we've been talking about and pushing for a long time," Station Casinos President Lorenzo Fertitta said. "It's something that can generate tax revenue for the state and keep Nevada competitive."

How gaming companies will appease regulators reluctant to give up quality control to third parties remains to be seen.