We learned yesterday that all of the financing details for the soon-to-open SLS Las Vegas are in place. Well, actually, they aren't, and that's what makes this interesting.
To read the press accounts, you'd believe that they were ready to start painting over at the former Sahara. A look at the property suggests that this isn't so. It's not only inactive--it's dilapidated. SBE didn't even show the effort of taking down the Rick Thomas wrap that decorates the south flank of one of the towers. It just doesn't appear that this is a property that's about to be reborn as a hotel that's "just below luxury."
Which, by the way, would make a great album title.
And the financing announcement, as others have said, isn't really much of an announcement: SBE needs to borrow at least $415 million of the $744 million needed to remake the Sahara into SLS Las Vegas. These days, there's not exactly a long line of people waiting to loan money to build more hotel rooms in Las Vegas. So this is far from a done deal.
But there's always the possibility that it might happen and, just like a stopped clock is right twice a day, eventually something probably will be built on that land, "vindicating" Sam Nazarian. Of course, it's highly unlikely that it'll happen in 2014.
If you're wondering why I'm so bearish on the prospects of the SLS Las Vegas, here's why: the plans don't make sense to me. SBE wants to spend $744 million which for about 1,600 rooms and a few amenities. This is in the awkward in-between place, above the range of the Tropicana's $165 million makeover but less than the $4 billion or so the Cosmopolitan cost to build. Which sounds great, if you're a "lets meet in the middle" kind of guy, but in fact just means that you don't get the savings of more modest renovation but also don't get the benefits of completely new construction. And it's difficult to see how this prices out.
Now I'm going to break out some numbers, with the caveat that these are very, very speculative, and not at all my projections of what the property would do financially.
With 1,622 rooms and an ADR of $200, the SLS would pull in $118 million in room revenues a year, with 100% occupancy.That's being pretty generous, since the Bellagio, which is definitely luxury, is starting at $149/night on Expedia right now. Of course, the SLS would have a casino, dining, and nightclubs as well, so lets say that rooms only represent a quarter of the property's total revenues. That gives me a best-case scenario of $474 million in annual revenues, which looks pretty good, until you consider that we haven't accounted for any expenses yet. Payroll will probably eat up about 33% of that, so we're down to $365 million. Then you've got to account for comps (probably about 26% of gaming revenues), cost of sales, and other expenses. Which tells me that, even if everything broke perfectly, it's tough to project out how this makes money, particularly when the project is carrying a debt load of $415 million.
To be fair, I've been wrong before. I was very, very skeptical of the Plaza's chances of reopening Downtown. It wasn't until I personally saw the work happening in the rooms (and a ballroom filled with Fontainebleau furniture) that I changed my tune. Maybe I'm missing something here.
On the other hand, maybe I'm not. Back when the mini-casino idea in Atlantic City was first mooted, I looked at the numbers and decided it made absolutely no sense. But no, press reports insisted, Hard Rock wants to spend $300 million on a mini-casino!
So I looked at the numbers more closely, and decided that, instead of building a mini-casino for $300 million, you'd be better off buying the Trump Marina and renovating it. That was back in March 2010. In February 2011, Landry's bought Trump Marina for $38 million and is currently renovating it into the Golden Nugget Atlantic City. Hard Rock recently announced that its mini-casino will be "delayed," or might not happen at all. Not really surprising.
A few years ago, it seemed like the market would support anything in Las Vegas. That was never really the case, but smart people convinced themselves it was true. There is room for growth in Las Vegas, and undoubtedly something new is going to be built, maybe sooner than we think. I just don't think, for the reasons explained above, it's going to be the SLS Sahara.