Gambling is nothing new to Las Vegas. In fact, it’s the backbone of this glitzy city. What is new to Vegas, however, is that many investors who bet on the Las Vegas market a few years ago are realizing that they may not be getting their money back.
When loans were abundant and a lack of liquidity was merely what bad dreams were made of, investors stateside and overseas flocked to Las Vegas to plunk their money into a number of properties and land parcels that dotted the Strip.
Harrah’s Entertainment Inc., the largest casino operator on the Strip, knows a thing or two about the seemingly sure bets that Las Vegas had to offer. Through its wholly owned subsidiary, Harrah's Operating Company, Inc., the entertainment company has acquired seven hotels and casinos in Las Vegas, starting with the Rio Hotel and Casino in 1999, continuing in 2005 with Caesar’s Palace, Bally’s, Paris, the Flamingo (including the attached O’Sheas Casino), and Imperial Palace, and ending in 2007 with the Barbary Coast Hotel and Casino, which Harrah’s re-named Bill’s Gamblin’ Hall & Saloon. That same year Harrah’s reported that its third-quarter profits, which encompassed numerous other properties throughout the United States and world, were $244.4 million.
MGM Mirage is faring better than Harrah's Entertainment, but not by much
This year, Harrah’s reported a third-quarter loss of $129.7 million, a 6.8 percent loss over last year. In Las Vegas, Harrah’s experienced a 27 percent loss in earnings and an 11 percent decline in revenue, as compared to 2007. To relieve some of the debt the company is experiencing, Harrah’s announced in early December that it was refinancing $4 billion of bonds that were set to mature in 2010 and 2013 for new notes that will mature in 2015 and 2018.
MGM Mirage, the Strip’s second largest casino operator, isn’t faring much better. At an investor’s conference held in mid-November, MGM Mirage, which owns the Bellagio, MGM Grand, Circus Circus, Mandalay Bay, Excalibur, Luxor, New York-New York, and Mirage, among others, announced that it intended to sell off some non-core Las Vegas assets, including large parcels of undeveloped land, in order to gain liquidity and explore other markets such as Vietnam. These parcels stretch all the way from the south end of the Strip near Mandalay Bay to the north end near Circus Circus. Most are adjacent to MGM Mirage-owned properties.
In addition to these sales, Terry Lanni, the company’s CEO, announced his retirement last month amidst reports of academic dishonesty. Perhaps the biggest move the company has made, however, is selling the Treasure Island Hotel and Casino to famed Las Vegas investor Paul Ruffin for a mere $500 million in cash and another $275-million mortgage.
Another big-name investor along the Las Vegas Strip is Steve Wynn. He opened the $2.7-billion Wynn Las Vegas in 2005 when times were still good. Ironically, he opened his second major Strip property, the $2.3-billion Encore, on December 22, when many argue times couldn’t be worse in Las Vegas. Though the occupancy rates at the Wynn Las Vegas are being hit just like every other hotel and casino, Wynn has spoken openly many times about his ability to provide the full financing for every project he completes before the ground is ever broken. This, Wynn has noted, has prevented both himself and his company, Wynn Resorts, from being pulled into the lending debacle or accruing any debt—an admirable position for a company so deeply vested in the Strip.
Another issue Wynn has discussed openly is his willingness to sacrifice profits in order to save employees. Wynn has noted that he would rather fill every room and keep his employees working than rent fewer rooms at a higher price point and save on excess workers. Layoffs, Wynn has said, can destroy employee morale, which can take years to rebuild once the market turns around.
In fact, Wynn just hired 5,000 new employees to staff Encore. This, combined with the 12,000 additional people that the Nevada Department of Employment, Training and Rehabilitation anticipates the Strip’s current and upcoming resorts will soon hire, may provide a little relief to a city that is experiencing a 7.9 percent unemployment rate.
Despite reports by the department that Nevada is not expected to begin the recovery process until mid-2009 or 2010, many projects are still moving forward—with completion dates that coincide with the market’s predicted recovery. Though no one can truly predict whether this bet will pay off, investors in these casino and hotel properties, which are on and off the Strip, may fare better than investors who participated in recently completed projects.
Commercial propertyinvestors on and off the Strip may fare better than those who invested in recently completed residential projects |
Consumer confidence is low, loans are hard to come by and the market is likely not far from bottoming out. Many investors who have the cash or credit to enter this once thriving marketplace are attempting to do so to fill the void. As of October 2008, there is more than $16.5-billion-worth of casino and hotel developments that are currently under construction and anticipated to open in 2009, according to the Las Vegas Convention and Visitor’s Authority. The authority also noted that another $3.9 billion in developments are in some phase of construction and scheduled to open in 2010.
Some of the significant projects that are expected in 2009 are the M Resort, Spa and Casino, the Planet Hollywood Towers, Fontainebleau Las Vegas, and the expansions of the Hard Rock Hotel and Golden Nugget. Despite venturing into other markets overseas, MGM Mirage is scheduled to deliver CityCenter, a $9-billion resort that will include a hotel, casino, residential opportunities and a retail district that should provide another 12,000 jobs to Las Vegas.
Significant projects that are already underway and set for a 2010 opening include the Courtyard by Marriott and SpringHill Suites, which will both be located near the Tropicana and Interstate 215, the Crowne Plaza, aloft Las Vegas and the Cosmopolitan Resort and Casino, a $1.5-billion condo hotel that will reside on the Strip between MGM Mirage’s Bellagio and its new CityCenter.
