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Best of Liz Benston

Gaming Guru

Liz Benston

Looking in on: Gaming

27 May 2007

When the folks behind the much-touted W hotel pulled the plug on the project at Harmon Road and Koval Avenue, Starwood Hotels and Resorts said its Las Vegas partners deemed the project unfeasible because of rising construction costs and financing requirements.

But it was Starwood's change of heart - driven more by its global business strategy than the Las Vegas market - that killed the deal, financial analysts say.

Enthusiasm for W faded after a more risk-averse management team at Starwood worried whether it could sell its 3,000 condominiums. There was also concern that Starwood would need to invest additional upfront money, should the partnership decide to offer more hotel rooms versus condo units. (Selling condos helps developers defray construction costs, while hotel rooms make money over the longer term.)

The brisk sale of more than 700 condos couldn't sway Starwood bosses eyeing a bigger goal: spending as little money as possible. Like other hotel competitors, Starwood is more interested in collecting fees from lucrative management contracts with deep-pocket investors that can build properties on their own.

The company still wants to open a W brand in Las Vegas, which "continues to be one of our most requested destinations," Starwood spokeswoman K.C. Kavanaugh said.

• • •

Losing the W brand doesn't spell failure for Edge Group, the local partner, because it still can profit by selling the land if it decides not to develop it with new partners.

Another "failure turned success" involves investors in the proposed Maxim magazine-branded hotel. Many rightly predicted Concord Wilshire would flip the land next to Circus Circus instead of building the Maxim, which was doomed by pricey financing, lack of experience and an investor's conviction for bank fraud.

Concord Wilshire purchased the land for about $90 million and sold it for $131 million to MGM Mirage less than two years later. The same investor made $19 million on the sale of nearly 5 acres behind Bally's, which was purchased for $16 million, then flipped to Bally's owner , Harrah's Entertainment , for $35 million a few months later.

Likewise, a partnership between developers Related Group and Centra Properties cancel ed the well-publicized Las Ramblas project and sold 21 acres to Edge Group for $202 million in 2004, nearly three times what the sellers paid a year ago.

And last year, hotel owner Gary Tharaldson made $109 million after a land swap with Boyd Gaming Corp. yielded $280 million. Tharaldson and his business partners had paid $171 million for the land six months earlier.

With that kind of profit in flipping properties, why worry about developing them?

• • •

MGM Mirage won't be speaking at the annual New York Gaming Summit next month. That's no surprise, because the company has backed out of a $170 million deal to build a racetrack casino at the Aqueduct Raceway in Queens.

The cancellation follows four years of regulatory red tape and controversy after employees of the private, nonprofit New York Racing Association, which operates the track under a state franchise, were charged by federal prosecutors in a skimming and tax-evasion scheme. And then there was the casino contract, which was awarded to MGM Mirage without being put out to bid. That angered competitor Donald Trump, who rose (or fell) to the challenge by running newspaper ads comparing the racing association to mobster Al Capone.

Years-old controversy and unresolved delays are mere flies on the company elephant.

"We were a much smaller company when we first looked at the NYRA deal," MGM Mirage spokesman Alan Feldman said.

What would have become the largest and potentially most lucrative racetrack casino in the country is small potatoes now that MGM Mirage has more than doubled in size, with major casinos under way in Las Vegas, Detroit and Macau.

"This was just taking up too much of our time," Feldman said.