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Caesars Seeks Added Foot Traffic With Expansion

LAS VEGAS -- Caesars Palace took another step in polishing its tarnished image with the signing of a lease Tuesday for the long-promised, 175,000-square-foot expansion of Forum Shops at Caesars.

Park Place Entertainment Corp. and Simon Property Group Inc. are paving the way to generate added foot traffic for Caesars Palace and meet demand from upscale retailers.

Gaming industry insiders, however, voice caution that the project could add to construction-related problems that have plagued Caesars for the past six years.

Deutsche Bank analyst Marc Falcone said the mall expansion is going to affect the performance of Caesars Palace for the next 18 months "but we were impressed with Park Place's fourth quarter despite (current) construction disruptions and believe it can be sustained throughout 2003."

At Fulcrum Global Partners, an independent Wall Street investment research firm, gaming analyst Joe Greff said investors know construction disruptions will continue and will have an impact that has already been discounted.

"The question is whether the aggregation of construction projects will drive meaningful cash flow and earnings growth. Most investors are taking a wait-and-see attitude," he said.

Simon Group Executive Vice President Art Spellmeyer said construction disruption is being minimized.

Plans call for two temporary entrances. The first is being created now. The second will open this summer and will be used for 12 to 14 months.

The phased construction of a three-story entryway on one of the busiest corners in the world complicates the construction project, he said.

The completed entrance, designed to increase foot traffic into the property, "will read retail."

It will be uncharacteristic of Las Vegas with three stories of glass windows looking out on the Strip to display the retail experience offered inside, Spellmeyer said.

"Until now, you could walk by the entrance and never even know the Forum Shops were there," he said.

Construction on the expansion started a month ago and completion is scheduled for the fall of 2004.

The expansion is also intended to meet demand for space at Forum Shops that has generated a waiting list of upscale retailers and restaurants, Spellmeyer said.

For example, Joe's Seafood, Prime Steak & Stone Crab (of South Beach fame) and Donald Pliner have already committed to the expansion.

There is always a danger that such tenants will decide to locate elsewhere if space is not made available, he said.

"Ever since we opened in 1992 and expanded in '97 ... we've continually been trying to move retailers around, but now we'll have enough space for the next round of tenants," Spellmeyer said.

Caesars Palace President Mark Juliano said the expansion of the Forum Shops and the other construction activity that has proved disruptive is part of a master plan and grand design to increase foot traffic.

"The great thing about this project is that it is self-contained on land we used to valet park cars. It generated no cash and no foot traffic," he said.

Work is under way on a 500-stall parking structure to replace the ground level valet parking.

"The construction of the Forum Shops won't interfere with any foot traffic into the casino, or our front door," he said. "And going to Phase III to take the shops out to the Strip made a whole lot of sense to us," Juliano said.

At Bear, Stearns, Falcone said: "The (current construction) disruption now is around the Colosseum. They are doing all they can to maximize the benefits from the Colosseum and to get the maximum benefit for the opening of the show (March 25)," Falcone said.

The Forum Shops at Caesars opened in May 1992 with 283,000 square feet of leasable space. A second phase, which increased the Forum Shops' size to 500,000 square feet, was completed in August 1997.

The Simon Group, a real estate investment trust headquartered in Indianapolis, Ind., announced earlier this month it will become sole owner of The Forum Shops.

Through its subsidiary partnerships, it currently owns or has an interest in 242 properties with 183 million square feet of gross leasable area in 36 states.

Park Place Entertainment owns, manages or has an interest in 27 gaming properties operating under the Caesars, Bally's, Flamingo, Grand Casinos, Hilton and Paris brand names.

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