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Rod Smith

Nature of the East

23 November 2005

Manhattan and Miami developer Bruce Eichner, for now, seems to be the odd man out on the Strip.

To quote the song Frank Sinatra made famous, Eichner is developing the $1.8 billion Cosmopolitan his way, breaking new ground for the Strip projects in ownership, financing, size, room density, retail mix, hotel branding and condominium development.

The big question is whether Eichner can import a model developed on the East Coast and make it work here, thus proving that his ideas aren't so odd after all.

Eichner's idea of trying an East Coast development model here isn't new. But it may be the first time someone's tried it since Jay Sarno did 40 years ago when he opened Caesars Palace.

The name Cosmopolitan, like the name Caesars, already has its own intuitive brand identity. It's reminiscent of trend-setting Cosmopolitan magazine, founded by Schlicht & Field in 1886, and sums up in a word a lifestyle to which many prospective patrons aspire.

Jim Medick, chief executive officer of MRC Group, Nevada's largest market research company, said this is another classic case of a brand taking center stage over a theme. He said the Cosmopolitan brand will appeal to both affluent baby boomers and older well-to-do members of Generation X, consumers in their 20s and 30s. Gen-Xers, along with the convention market, are fast-growing markets in Las Vegas, he said.

Emphasizing a brand may pay off for Eichner, Medick suggested.

"When all the credible themes seem to be taken, the smart move is to go beyond the theme and promise an experience," Medick said. "The Cosmopolitan image is in a unique position to fill that niche in Vegas. Experience, attitude and perception are important to everyone, but ever so much more to the affluent set."

Eichner's model will be new to the Strip in many other key ways.

The Cosmopolitan is privately owned and financed, unlike any other hotel-casino on or under development on the Strip. There is no initial public stock offering or bond financing behind it.

The project's 5.5 million square feet will be on the smallest site of any major resort development, just 8.5 acres on the Strip's west side at Harmon Avenue. It will have more rooms per acre and more money invested per square foot of developable land than any other resort on the Strip, ever.

His retail complex, which will open directly onto the Strip like a funnel to draw in customers, will include a mix of stores and shops designed to appeal to the 55,000 pedestrians who walk past each month, not the upscale shoppers targeted by the Forum Shops at Caesars Palace, the Grand Canal Shoppes in The Venetian or the arcades in the Bellagio and Wynn Las Vegas.

The Hyatt hotel in the project will be only the second branded hotel on the Strip. The other, The Four Seasons, is hidden on the top five floors of Mandalay Bay.

Eichner said the partnership with Hyatt, with its reservation system and its gold passport database, will be critical in generating casino customers and filling the hotel Mondays through Thursdays.

Medick said one of the most expensive areas of operation for a Las Vegas property is its reservation system.

"This is something that other hotel properties in any other city do not have to worry about. You can book a Marriott or a Hyatt in any city with one phone call to one number," he said. "Eichner did a most impressive feat when he not only got the use of Hyatt's worldwide reservation system and database access -- something no other Las Vegas property has -- he did so without having to hang the Hyatt flag, thus keeping the Cosmopolitan looking more elite and upscale than even the finest Hyatt."

Finally, the Cosmopolitan will feature condominiums, the first such units built directly on the Strip.

Sales of the condominiums in the Cosmopolitan will anchor the development's financing, so that when it is completed, Eichner will only have to finance $100 million of the total $1.8 billion price.

Eichner said recently that this is a small enough chunk that he could pay the monthly nut out of his retail operations alone if need be, making it the first development package on the Strip financed with one bank loan package.

Deutsche Bank analyst Andrew Zarnett said with the Cosmopolitan, Eichner has "first mover advantage" in addition to a great location.

"When he bought the land, people said it was ridiculous. Now, 12 months later, they say it was a great deal (for just $10 million)," he said. "Eichner had great vision to realize he could do a Manhattan-style development with the density and verticality necessary."

Zarnett said the Cosmopolitan will be a win-win for Las Vegas and for Eichner.

"Hyatt is a nonentity in Las Vegas today. They'll bring in a client base Las Vegas is missing," he said. "Plus, 1,900 condo owners will add to the visitor mix. And the density will be good for Las Vegas because there's just not as much Strip property as there used to be."

Eichner said the city and the site will help the Cosmopolitan. Las Vegas allows projects on a scale unachievable anywhere else, he said. And site constraints required that the property be developed vertically rather than horizontally, paralleling the style of development in other major cities.

"One of the major paradigms Las Vegas will embrace is people moving vertically in a space rather than walking long distances," Eichner said.