Jeff Simpson is back and this time around he's sharing his prescription for some of the most famous assets on The Strip and nearby.
How do you think these properties can survive the downturn? Share your thoughts in the comments.
After reading Hunter's thought-provoking piece "Let the Bummer Years Begin" (Oct. 27) I thought I would explore what the next decade will be like for the Las Vegas Strip and what operators should do to improve their prospects.
First, what I think is most likely to happen. Big picture, I believe the economy will improve within a couple of years and that Americans will eventually resume most of their prior patterns of spending and consuming, although the memory of the recent recession may prompt more caution, saving and value-seeking. The aviation business will continue consolidating, ceding more business to Southwest Airlines and new startups, with air capacity into Las Vegas suffering because leisure travelers are less willing than business travelers to pay higher airfares. Asian casino markets will grow fast enough that the notion that Las Vegas is the casino center of the world will seem quaint.
On the Las Vegas Strip, property values will stay low until revenue streams, especially those from hotel rooms and the casino floor, rebound. I will be shocked if anyone opens a new resort in the next five years and it wouldn't surprise me if it's more than 10 years after Cosmopolitan opens until a new resort premieres.
Carl Icahn certainly isn't going to spend $1.5 billion or more to finish Fontainebleau. If, in the unlikely possibility someone wanted to buy it from him and finish building it, it could eventually open, but I believe the likeliest scenario is that Icahn implodes it, sells the scrap and holds or sells the property.
I was dubious about Sam Nazarian's plans to redevelop the Sahara before the economy cratered so I certainly don't expect him to do so during the next decade. I wouldn't be surprised to see him lose control of the property or sell it, sooner rather than later. Any buyer would likely be a bottom feeder looking to make a Tropicana-style real estate play, buying the Sahara for peanuts, whether or not it planned to spend a bit to prop up revenues.
I don't expect Boyd Gaming to resume construction of Echelon during the next decade -- but, if it does, I think its scale will be greatly reduced and its target customers won't be the at the very top of the market.
I expect Wynn Resorts to wait to develop any of its Strip property until the market has rebounded sufficiently to absorb the recent capacity increases and resorts have more pricing power for their hotel rooms. It wouldn't surprise me if Steve Wynn decided to buy a nearby property to bank for eventual development, allowing him to take advantage of low land prices and to delay development of the golf club. I'd rate the Plaza (old Frontier) site as the likeliest purchase, with Boyd's Stardust/Echelon site the next most likely. Although I believe Steve Wynn has no interest in selling his company I think it would be the best possible casino company that the notoriously acquisitive Harrah's Entertainment could want, with its Macau concession and top-of-the-market holdings in both Macau and Las Vegas. If the economy improves and Gary Loveman can persuade his company's deep-pocketed owners to dig deep enough, it might make sense for HET to see if it can buy out Wynn or at least buy part of his company.
Harrah's will continue spending as little as possible managing its Las Vegas operations. If the market improves the company will likely sell the Rio but it also may try to buy other attractive assets that become available, whether in the Las Vegas locals market, on the Strip or elsewhere.
MGM Resorts' future is probably hardest to predict. The company has some great assets but has a boat-load of debt. Its biggest asset is probably its half-stake in its Macau subconcession, but Bellagio and the huge upside potential of CityCenter are also valuable. If Jim Murren can time the market well enough, scrape enough quarters out of the furniture and buy out Dubai World's CityCenter stake before the market rebounds, MGM would stand to realize all of CityCenter's tremendous upside. A Strip market turnaround would be a huge boost to MGM Resorts because the company has so much mid-market and budget capacity (ranging from Mandalay Bay at the top to Circus Circus at the bottom) and could allow the company to pay down (or at least keep current on) its debt. I believe MGM Resorts will be able to overcome CityCenter's troubles and avoid bankruptcy, as I think the company will, Harrah's style, be able to persuade creditors to delay and reduce MGM's debt payments until economic conditions improve.
Las Vegas Sands has clearly executed a flawless cliff dive and climbed back up to the top of the mountain. Its Singapore casino has been an apparent gold mine and, if LVS can avoid squabbles with the Macau government, its ambitious operations in the Chinese enclave should continue to grow and grab a sizeable chunk of the amazingly robust Macau market. Sands' Strip operations seem less and less significant to the overall strength of the company and I'd be surprised to see additional development by the company in Las Vegas unless the market rebounds more than I expect. I do expect LVS to do something with its halted Stripfront condominium project, possibly reducing its height and building fewer units and/or converting it to hotel rooms, Cosmopolitan- or Vdara-style.
As for Cosmopolitan, I've long wondered about Deutsche Bank's ultimate plans for the property. Although the owner has incredibly deep pockets, I don't believe it wants to be a long-term owner in the casino business. I like what I've seen of the Cosmo and its management seems hip and media-savvy, but I expect the property to struggle to generate the kind of return Deutsche Bank would normally expect from the size of its investment and believe that the bank will eventually bail on the property, selling it at a considerable loss before the decade is half over.
As for my advice to operators during the next decade, I'll start at the top of the market, which I consider to be, in order: Wynn/Encore, Bellagio, Aria/Vdara/Mandarin Oriental, Venetian/Palazzo and Caesars Palace. Cosmopolitan will likely earn a spot in this group.
• Don't scrimp on quality. Even when times are tough, protect your brand.
• Embrace youth-oriented trends like bottle-service nightclubs and daylife pool scenes and their big-money cabanas but do it in a way that doesn't alienate the older folks who fill up your suites and your gaming floor.
• Remember that the customer comes first, even the smaller-spending customers. They may be tomorrow's big spenders. Emphasize superior customer service to all, even the nongambling visitor.
Next is advice for the very wide middle-tier of properties, which I consider to be Mandalay Bay, MGM Grand, Mirage, New York - New York, Paris, Planet Hollywood, Monte Carlo, Luxor, Treasure Island, Rio, Flamingo and Harrah's.
• When times are tough, lower prices on entertainment, spas and food and beverage to give customers a taste of the some of your better amenities.
• Don't go crazy with cost savings and reducing the number of amenities, especially restaurants. A 4,000-room hotel with only a few non-fast food restaurants is a joke. (Luxor, this means you. MGM Grand is a great example of doing F&B right. Mmmm, Craftsteak.)
• Don't run away from your theme; embrace it.
My advice for the two youth-oriented properties, Palms and Hard Rock:
• Be hip, but don't be so hip that regular folks feel unwelcome.
• Your locations make locals-market appeal a natural, so continue making a strong effort to tap that market.
• Continue embracing celebrities, as our culture worships them, but try to discern between the cool stars and the jerks. Avoid the jerks.
Last is my advice for the budget-oriented properties, which I'd rank as follows: Tropicana, Bally's, Excalibur, Imperial Palace, Stratosphere, Circus Circus, Riviera and Sahara.
• Cleanliness, cleanliness, cleanliness. Keep everything very clean, from the parking garage to the casino to the buffet to the hotel rooms. Especially the hotel rooms. There are far too many gross hotel rooms in Las Vegas.
• Make your casino floors and entertainment venues fun and exciting so your guests will want to stay and play at their own resort instead of using it as a dorm and taking their spending elsewhere.
• Improve your properties one area at a time, do it right, and then move onto the next project. Renovate and refurbish and spend as much as you need to keep the place fresh.
-- Jeff Simpson, November 2010