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Rod Smith

Gaming Industry: Experts See Land as Key Deal Asset

23 June 2004

MGM Mirage's plans to buy Mandalay Resort Group would set the company up to be the primary Strip developer for the next 15 years, company executives and industry analysts said.

If MGM Mirage's $7.9 billion offer for its rival gaming company is completed, the emerging company will end up with more than 100 acres in four prime sites north of Russell Road. MGM Mirage Chairman Terry Lanni said recently work is already under way to evaluate the sites' development potential.

Industry insiders said the properties -- two now owned by MGM Mirage and two owned by Mandalay -- and the near-monopoly they would give the new company along the west side of the Strip are critical factors for the long-term development of the company.

However, sources close to MGM Mirage majority owner Kirk Kerkorian said the land was incidental to his plan to purchase Mandalay.

Instead, they said he was primarily interested in acquiring strong, income-producing assets while interest rates are still near record lows.

"(The land) isn't important. Kirk looked at picking up cash-producing assets in a low interest rate environment," a source close to Kerkorian said.

Still, the source conceded that the real estate adds value to the Mandalay deal even though it wasn't a significant factor in Kerkorian's calculations.

But Hal Rothman, chairman of the history department at the University of Nevada, Las Vegas, said the Strip real estate is likely to prove pivotal in the long-term development of the emerging gaming giant.

"It's tremendously important. It's part of the Monopoly-Risk game Kerkorian is playing. The raw land consolidates the MGM-Mandalay empire and makes it unassailable," he said.

"Even if it takes them 15 years to develop, it eliminates all other competitors from the area (on the west side of the Strip from Russell to Spring Mountain roads except for Caesars Palace)," Rothman said.

Furthermore, University of Nevada, Las Vegas professor and casino industry expert Bill Thompson said the land, as a side part of the buyout deal, means the surviving company won't have to buy Strip land, unlike its primary competitors.

"They'll have the space for new towers and for support facilities, whatever they want to develop. And the land is like money in the bank," he said.

Lanni said in a recent conference call with analysts that his company is serious about evaluating plans for developing the landbanked real estate.

He discussed four sites in particular as being valuable: the land between the Bellagio and the Monte Carlo and the site now occupied by the Boardwalk Casino, both now owned by MGM Mirage; and the land across from Luxor and the site south of the Mandalay Convention Center, both now owned by Mandalay.

"I mean, we all should have bought property back in '77 when I joined this industry. We could have just taken a dart gun and just taken anywhere and done well with it. But the Strip property is so valuable," Lanni said.

The taxable value of the four sites he named has increased to $2.4 billion, up 26 percent from $1.9 billion five years ago.

"Mandalay Bay has that wonderful site toward Russell Road of 22 acres. And we are very excited about that potential," Lanni said.

"We're going to look at the plans that they have in mind for that, because that's a natural growth area," he said, referring to what Mandalay executives have dubbed Project Z.

Lanni also pointed to the 15-acre site across the street from the Luxor on the east side of the Strip.

"That is of great interest to us," he said.

Mandalay also owns a half dozen casino sites along the Interstate 15 corridor south of Sunset Road, which Lanni expressed no interest in.

However, he added, "obviously, the additional land that our joint venture would control are of interest to us as well as the 55 acres which we have talked about here in the area between Bellagio and Monte Carlo.

"So, I don't know of any company, as we combine these two companies, that has the quality of real estate assets, the quality of existing physical assets and the people assets," Lanni said.

Thompson raised one warning flag.

"For now, Las Vegas is golden. But you'll have to see how it plays out. If the cycle stays high for five years, they'll be able to develop whatever they please. When the cycle heads south, everything will head down," he said.

Gaming Industry: Experts See Land as Key Deal Asset is republished from