Las Vegas Universe May Be Shrinking

It's becoming more and more apparent that Las Vegas is not immune to the troubled economy, with financial fallout in the form of troubled resort development projects. While some hotel and gaming companies remain determined to march ahead with projects, others have decided to delay or cancel theirs – signals that the Las Vegas building boom might indeed be over, for now.

Boyd Gaming's mega-resort project, Echelon, is an example of a high-profile development project put on hold until economic conditions improve. On Aug. 1, following the release of its second-quarter earnings report demonstrating significant sales and profit declines, Boyd announced it would delay further construction of its $4.8 billion multiproperty resort venue until next year, assuming improvement in the country's economic outlook and credit-market conditions.

The project was under construction for more than a year, with $500 million already invested in the property, according to Rob Stillwell, Echelon spokesman. Echelon, slated to include five hotel-resort properties and 750,000 square feet of meeting and convention space, was scheduled to open in the third quarter of 2010.

With construction suspended at the 87-acre site, Boyd will decide on the economic feasibility of resuming construction in about a year, Stillwell said.

“This is a change in timing, not in strategy,” Stillwell said. “The delay gives us time to focus on restoring momentum in our core business, and for consumers in general to regain their footing and confidence.”

Once construction resumes, Echelon possibly could open in late 2011, he said.

Storm clouds also are gathering farther south on the Strip, where the $3.5 billion Cosmopolitan Resort and Casino's future might be in peril because of its parent company's financial troubles. If completed as previously scheduled late next year, the 8.5-acre, mixed-use property would include 3,000 hotel rooms and condo units managed by Grand Hyatt and 150,000 sq. ft. of convention and meeting space.

But, according to Aug. 7 news reports, Deutsche Bank AG is set to foreclose on the Cosmopolitan after developer Ian Bruce Eichner defaulted on a $760 million loan. At press time, Cosmopolitan representatives hadn't responded to TSW's requests for comment.

Challenging economic conditions also are having their impact off the Strip.

Last month, World Market Center officials announced construction on its fourth building had been postponed. The $350 million, 17-story, 1.5 million sq. ft. building will be the next phase in the 57-acre home furnishings market's $3 billion, eight-building campus, containing 12 million sq. ft. of permanent and temporary showroom space.

Although Shawn Sampson, co-managing partner, said WMC was merely taking a breather to allow more time to plan the new building's infrastructure, WMC President and CEO Bob Maricich has told other news outlets that real estate and credit market issues have forced everybody involved with Las Vegas projects to be more cautious.

Despite the delay, Sampson said Building D will open in 2010, with an updated groundbreaking date to be announced later this year.

About 25 miles from the Strip is the troubled Lake Las Vegas Resort, whose master developer, Lake at Las Vegas Joint Venture, and its subsidiaries recently filed for Chapter 11 bankruptcy protection, claiming $500 million to $1 billion in debts. The company recently landed $127 million in post-bankruptcy financing to operate and repair the 10-year-old Henderson development as it reorganizes. Surrounding a 320-acre, man-made lake, the 3,592-acre, master-planned residential and resort community also has three hotel properties not included in the filing.

One Strip development was recently scratched all together. The $5 billion Crowne Las Vegas hotel-casino resort project, slated to be built on the 27-acre site next to the Fontainebleau, was called off earlier this summer when its joint-venture developer, LVTI, decided not to exercise an option to purchase the property.

Despite their neighbors' financial troubles, some Strip projects are moving ahead and are on target for scheduled opening dates.

MGM Mirage's $9.1 billion, 67-acre mega-resort, CityCenter, is on track to open in late 2009, according to MGM Mirage spokesperson Gordon Abscher. It will include approximately 7,000 rooms and a tri-level 300,000 sq. ft. convention center.

Other projects closer to completion also are humming along.

At the Las Vegas Convention Center, an $890 million enhancement project is about to commence. With a projected completion date of 2011, the project will expand the convention center from 3.2 million to 3.8 million sq. ft., with exhibit space to increase from 1.9 million to 2.05 million sq. ft.

According to Las Vegas Convention and Visitors Authority spokesman Jeremy Handel, utility work will begin later this month with construction scheduled to start early next year.

On the other hand, both the Las Vegas Sands and Wynn Resorts have in the past also announced intentions to expand or build new convention centers, though neither Sheldon Adelson nor Steve Wynn gave start dates for the projects.

But Wynn's $2.3 billion, 2,000-room Encore is expected to debut this December, while the $2.9 billion, 3,800-room Fontainebleau Las Vegas plans to open its doors in October 2009. Encore and Fontainebleau will have 50,000 and 400,000 sq. ft. of meeting and convention space, respectively.

Harrah's Entertainment is making progress with its $1 billion Caesars Palace expansion, scheduled to be completed by summer 2009.

Tradeshow Week Associate Publisher and Director of Research Michael Hughes said this is simply a challenging time to find funding for commercial construction, no matter what.

“The credit crunch is impacting certain developments and the ability for them to get financing,” Hughes said. “Some projects may need to get restructured as far as investment. It may take new or overseas investors coming in to jump-start some of these projects.”

With the postponement of some developments, rumors of potential problems at others and many still racing ahead to completion, there is little doubt that Las Vegas is feeling the downturn in different ways at different properties.

“I say it's going to be a challenging '08 with a comeback in '09,” Hughes said. “The outlook for Las Vegas is still very good.”