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How long will old resorts last?

There has been a flurry of news reports, but so far everything is status quo

BY DAVID MCKEE
BUSINESS PRESS

With Boyd Gaming's announcement of its $4 billion Echelon Place project set to break ground in 2007, the trend toward five-star, multibillion-dollar, condominium-hotel megaresorts continues its inexorable march north along the Las Vegas Strip.

Outposts of old-school Vegas that have recently fallen to the condo-hotel blitzkrieg include the clown-festooned Boardwalk Hotel & Casino, the Westward Ho Casino and its little sister, The Ho. This spring, Harrah's Entertainment is expected to announce redevelopment at the Strip-Flamingo intersection, one that could agglomerate Harrah's Las Vegas, the Imperial Palace, the Flamingo Hilton, O'Shea's, the defunct Bourbon Street Hotel & Casino and even Bally's-Las Vegas into one super megaresort.

Does this onslaught of capital-intensive development exert pressure on pre-Mirage casino-hotels to reinvent themselves? The Hotel San Remo is receiving a facelift and augmentation, reopening on Super Bowl weekend under the Hooters banner, while Tropicana Resort & Casino has -- again -- stopped taking room reservations, leading some Vegas observers to believe that owner Aztar Corp. is serious about redeveloping the site. Maybe.

Circus Circus and other north Strip properties may ultimately be pushed out of the area because of rapidly escalating land prices, which are dooming older, mid-level resorts.

NEW FRONTIER FACELIFT?

New Frontier Hotel & Casino owner Phil Ruffin's $150 million sale of a Bahamas resort last April was taken as a harbinger that a re-do of the New Frontier was imminent, but nothing has been announced.

Likewise, all is quiet at the Sahara Hotel & Casino, but Riviera Holdings Corp. took a stand-pat approach to its signature Strip property last November. A possible takeover by a group of real estate and gaming executives may change all that (see story on page 3).

As for that other clown-themed casino, Circus Circus, MGM Mirage CEO Terrence Lanni has stated that the sprawling hotel/motel/RV park complex makes inefficient use of its acreage. However, a consensus of industry observers agrees that MGM Mirage is unlikely to do anything with Jay Sarno's aging clown palace so long as it has Project CityCenter on its plate.

Echoing previous comments by Lanni, MGM Mirage spokesman Alan Feldman says the Circus Circus site has 27 acres of open-air parking and low-rise buildings "that are not efficient at all." But he says the aforementioned consensus is correct and "that question (of redevelopment) is, at a minimum, five years away. Currently, the market is served extremely well at all ends," Feldman said, and Lanni has gone on record, saying that one of the attractions of the Mandalay Resort Group portfolio was that it gives MGM Mirage a presence in all price niches of the Strip market.

CB Richard Ellis analyst Carlton Geer isn't quite buying MGM Mirage's official stance. "They've have a lot of plans that none of us is privy to," he said.

"It's still a good earner for them," Curtis said of Circus Circus. "Right next to them might be the last real bargain bastion, Slots A Fun," he chuckled.

Dave Schwartz, director of the Center for Gaming Research at UNLV, speculates that "MGM might have their hands tied because they may have agreed not to knock (casinos like Circus Circus and Excalibur) all down and build them all upscale." (Feldman flatly denies that there is any such agreement.)

"I think they want to adhere to Steve Wynn's vision of being the General Motors of the Strip," Schwartz said, "where you've got rooms in every price point."

Down at the New Frontier, "we're seeing a significant amount of [residential] investment by (Donald) Trump on that site," reported Brian Gordon of Las Vegas-based Applied Analysis. "We have yet to see any definitive plans out of Ruffin."

"If the residential portion wouldn't work out," added Los Angeles-based stock analyst Saul Leonard, "that project would be very, very suspect."

'TOO MUCH SMOKE'

Geer is more sanguine, saying that Ruffin will do something; it's merely a question of when. "There's been too much smoke not for there to be a little fire," is Las Vegas Advisor Publisher Anthony Curtis' summary of the consensus. While he doesn't go as far as "Doug" on the ratevegas.com blog, who wrote, "The Frontier will look like a trailer park surrounded by luxury if something isn't done," Curtis allows, "I can't see (leveling) a Frontier and putting up a Frontier-style property" in its place.

Although Aztar Corp. filed redevelopment schematics for the Tropicana with Clark County last July, earlier this month it was reported that the company had retained noted casino designer-developer Tony Marnell to come up with a plan of his own. Aztar would neither confirm nor deny the arrangement.

"In the current environment, having a particular contractor on board -- particularly one of (Marnell's) magnitude -- indicates some redevelopment plans are in place," Gordon said. However, Leonard couldn't disagree more. "Just because they signed Tony doesn't mean anything. A lot of things still have to come to fruition."

Those may include whether Aztar can definitely commit to the project after years of public vacillation. "They've been doing it so long that I have a hard time getting any kind of read on them," said Curtis. "I'm almost bored to sleep by that property. They never seem to pull the trigger over there."

Geer believes Aztar eventually will. Meanwhile, he thinks it's missing a business opportunity but capital availability might be an issue. "(Aztar) is not the type of company that moves precipitously, so they're going to continue to evaluate it," Leonard agreed. He noted that Aztar's pursuit of a casino license in Pennsylvania could lower the priority of the Tropicana still further.

Gordon expects a joint-venture development on the site, while Schwartz goes still further, observing that the strong performance of Aztar's Atlantic City Tropicana could make the company an attractive takeover target. MGM Mirage and Harrah's are possibilities, he said, but their hands are already full. Instead, he thinks a non-Vegas operator like Ameristar Casinos might enter the fray, especially since "the real value is with the land and the location."

The bottom line, for Curtis, is that the price of prime real estate is driving the redevelopment bus. "What's pushing these (mid-tier) places out is land values. They can't stand up to an offer that maximizes their return more than anything they can do." He cites the Imperial Palace, one of the last of the mavericks on the Strip. "They couldn't turn their back on what they were able to get from a buyout."

dmckee@lvpress.com | 702-871-6780 x318

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