Two Way Hard Three | Las Vegas Casino & Design Blog

August 1, 2008

Breaking News: Boyd Delays Echelon

Posted by detroit1051

This was rumored the past few days. It's too bad for Las Vegas and the North Strip. I hope they can resume construction in a year or so. BYD's Conference Call is at Noon today, so we'll get more information then.

NEW YORK, Aug 1 (Reuters) - Casino operator Boyd Gaming Corp (BYD.N: Quote, Profile, Research, Stock Buzz) said on Friday it has decided to delay construction of its new Las Vegas Strip casino called Echelon and suspended quarterly dividends.

The company also posted lower second-quarter profit as the U.S. economic slowdown reduced gambling revenue.

The company also said it has decided to delay the construction of Echelon due to the challenging economic environment. It plans to resume construction in three or four quarters, assuming credit market conditions and economic outlook improves.
Boyd Delays Echelon


Read archived comments (21 so far)
August 1, 2008 5:20 AM Posted by detroit1051

BYD investors are enthused about the move and expect share price to rise. Frequent comment is BYD should have done this months ago before the steel started going up. How do you mothball unfinished construction???

August 1, 2008 6:19 AM Posted by Brian Fey

This is just shocking. I just heard this on CNBC, and ran to my computer. I thought it had to be an error, and they were just delaying the shopping center phase. You have to really wonder, how a project can go this far, and then just stop. I can't understand how these projects don't have full financing in place before they start. And I also can't imagine they can't hold the cost when they sign the contract, or at least hold it wihtin a small percentage. This is actually very sad for Las Vegas. I can't believe the stock is up 30% on this news.

August 1, 2008 6:54 AM Posted by detroit1051

Brian, it looks now from a statement from Morgans Hotel Group that they may use the delay to pull out. I never understood how Morgans' boutique properties fit in with a mid-market Boyd. The only Morgans' hotels I've been in are in Miami Beach, Delano and Shore Club. They seem like they'd fit better with Palms or Hard Rock (which they're involved with).
I bet Echelon isn't delayed three or four quarters as BYD said, probably more like three or four years until the economy and credit markets get better. This is bad news for Fontainebleau, CityCenter North and even Wynn/Encore. There won't be critical mass on the North Strip for years to come.
Times they are a-changin'.
Here is Morgans' statement:

August 1, 2008 7:08 AM Posted by mike_ch

Hate to say I told ya so, but...

People were talking about Boyd as a takeover target for a while now. Now that they stopped chasing money after more money, they're going up.

There's no reason to be building at lightspeed in Las Vegas right now. The economy is in bad shape, and the construction industry has been playing a highest-bidder game for a while now. Give it a rest for a while, and maybe things will pick up and the construction companies will start lowering their rates.

The people looking the most foolish right now are Turnberry. Fontainebleau is quickly filling up the strip skyline, and for what? To open a 4,000 room hotel at the same time CityCenter opens anotehr 4,000 rooms in a questionable future market?

August 1, 2008 7:55 AM Posted by Brian Fey

I said a year ago, I thought Boyd, might be getting in over their head with this project. It was a huge and ambitious project for a company with a Market Cap of what's now just 1 Billion dollars. I don't think in the long run this will have much of an effect on Wynn or Encore. The extra people would help the floor traffic somewhat, but Wynn has clearly shown, they are doing ok, being surrounded by almost nothing. MGM is in no position to aquire them, Wynn wouldn't be interested I don't think, as he has plenty of land already. I wonder if LVS would be interested. The best thing at this point, would be for someone to buy them, and try to finish the project. Clearly Boyd's well has run dry. That would explain the construction stop, and dividend being cut. Because delaying this project does not make sense. First of all, it won't be dont for a few years anyhow, and by then, things should be much improved. Secondly, delaying this by a year or so, will only have the project costing much more to build due to the huge inflation we have seen on many building items.

August 1, 2008 9:44 AM Posted by detroit1051

This story on the LV economy was written before the Echelon announcement, but it raises the possibility of less of a pop from Encore than many expect from new properties.
Wynn is in good shape with the golf course development. He can delay it indefinitely if things don't improve by the time he plans to pull the trigger next year.

August 1, 2008 9:56 AM Posted by Mike T

My neighbor pours concrete at the Echelon site. This is ridiculous; they could have made this decision eight months ago, and left the place a dirt lot while they figure out what to do. Now all of those construction workers are going to be looking for work while seven floors of a hotel tower frame sits on that site for a year or longer.

August 1, 2008 9:58 AM Posted by Mike T

I also thought that if the former Circus Circus Enterprises could build Mandalay Bay, a property that at the time was way over their heads, then Boyd could pull off Echelon. I guess not.

August 1, 2008 12:03 PM Posted by Richard

I think Vegas has big problems. I live there 35 years. I also live in AZ. I'm amazed at the expansion of Indian gambling. In AZ. there are about 15 locations. Then I pick up a casino magazine and there are casino ads for Indian casinos in almost every State.
Then there is gasoline and air fuel.
****I don't think Las Vegas has a gameplan for high gas costs or Indian gaming. Does anybody know what the gameplan is?

August 1, 2008 12:35 PM Posted by Jeff in OKC

Looks to me like there's no money out there for well run companies to borrow for construction. Or expansion. Or acquisition. If MGM is having trouble lining up their money, the rest of the world is out of luck. I don't think Boyd will be bought. I think they're well run, with little "Increased effencies" upside, the money isn't available, and gaming suddenly looks very unsexy to investors.
I sure hope the money is in place for my Sahara makeover:).

August 1, 2008 2:02 PM Posted by GregoryZephyr

Regarding the financing issue. For the most part, construction financing is not like getting a single lump-sum of money that the developer starts spending. While the total amount is approved by the bank, the actual release of funds occurs as construction goes on in stages. Most construction financing agreements contain various covenants that allow the bank to either halt the distribution of funds or curtail them for various reasons. My guess is that BYD's cashflow isn't meeting certain thresholds or the bank is raising the interest rates on future funds (the rates are often variable) to a point that BYD thinks they can't make a go of it. Once construction is complete, the total amount financed is typically converted to a fixed loan (or paid off as would be the case of a condo tower). Note that I don't have any specific inside info on BYD so I am just speculating. At least the Vegas climate is relatively conducive to exposed construction. I don't think much harm will come to the structure even if it sat uncompleted for several years.

August 1, 2008 3:37 PM Posted by David McKee

"How do you mothball unfinished construction???"

Boyd says they are trying to brainstorm that out even as we speak.
At least somebody's working the problem, unlike Pittsburgh, where there's a serious possibility the semi-finished Barden casino could devolve into a rusting derelict.

August 1, 2008 4:32 PM Posted by mike_ch

Brian: Boyd is running out of their market. They have a good thing remaining with the remaining coasts after they gutted or sold the ones that aren't profitable, an almost iron-clad monopoly of the Hawaiian tourism market downtown at Cal/MSS, and Sam's Town is busier than the places nearby at almost all hours (though if Cannery East ruins that then they might have a problem.) There's also Borgata, which has been very good for them.

They would be better off selling the property and getting out of the Strip game, but I don't know to who.

As for the incoming crunch, I feel there is enough room for this town for ONE place to be successful with the high-end players. And it's pretty obvious that Steve Wynn is determined to make sure his property wins at least by a nose over the other competitors.

The properties I think we'll be feeling sorry for are Palazzo, Bellagio, and Fontainebleau. Wynn will not allow them to get ahead of him and they'll have to go lower-end than they hoped for or will be staring at empty rooms. If the gas crisis continues they could be staring at empty rooms even when things are cheap. CityCenter is too hard to predict. It's closed enough on it's property that it almost seems too sure to fail with a built in guest list, though fate tends to find a way.

I still think LVS is in good shape because of Macao. MGM, well, it really depends on their next play since they banked way too much on Las Vegas in their current state. I don't think we'll be seeing CircusCenter for a VERY long time.

Station, Harrah's, and others who basically need a successful Las Vegas to keep the lights on? Good luck, you're gonna need it.

August 1, 2008 6:16 PM Posted by Spartacus

So what does this say about other future projects such as Plaza and Trump 2? Boyd owned the property outright before construction and still couldn't finance the construction. The New Frontier sold for 2.2 bln just for the land. Hard to believe that project will get underway anytime soon.

August 1, 2008 8:34 PM Posted by mike_ch

I went by the property tonight. Aside from some trucks moving dirt and other things around, it was a ghost town. Pretty crazy too. Not only is the hotel footprint there but you can see the shape of a showroom, convention space, and the parking garages were coming along.

Oh well, I guess.

August 2, 2008 6:44 AM Posted by Brian Fey

Not to be a know it all, but The Frontier sold for 1.2 billion, not 2.2 billion.

August 2, 2008 4:22 PM Posted by Jesse

All this talk about how the North end would be the new "Center Strip".....

It won't happen for years to come, if that. And, it hurts Steve Wynn more than anyone else. He shouldn't have gone North.

August 2, 2008 4:28 PM Posted by Glenn

The land is too valuable to sell. They still have very good equity on lucrative Strip land, with or without stalled construction. It actually seems like a smart move to suspend things for a time, while still accumulating the equity and value of their existing holdings.

August 2, 2008 9:03 PM Posted by Ed

I guarantee you that if they had known this was going to happen, they would have never demo'd the Stardust.

That being said, let's hope this doesn't turn into a giant rusting skeleton on the strip.

August 3, 2008 6:27 PM Posted by Jeff Simpson

It may be possible that the delay of Echelon will hurt Wynn's resorts, but to say he shouldn't have "gone north" is ludicrous.

First, he paid a quarter billion dollars for about 200 acres at the DI. He couldn't have done that kind of a deal anywhere else close to the Strip.

Second, his current hotel, WLV, is already the top property in the city in terms of average daily room rate. There's no reason to expect Encore will be less successful -- at the north end of the Strip.

Third, Wynn's neighborhood is already strong. He's next to Palazzo/Barneys and Venetian, across the boulevard from Fashion Show and pretty darn close to Treasure Island and Mirage.

Fourth, it's probably a mistake to weigh too highly the value of foot traffic from other resorts. The lion's share of WLV gaming win undoubtedly comes from guests comfortably situated in his villas and the Tower Suites.

Fifth, Fontainebleau is under construction and -- barring any unexpected Echelon-style delays -- will be boosting north-Strip activity within a year and a half.

As far as Echelon goes, the delay decision can fairly be blamed on terrible credit markets. If Boyd can be blamed for something it would be for partnering with Morgans and not wrapping up a financing deal when times were much better.

August 15, 2008 1:42 PM Posted by steve_c

Too bad they just can't nix the whole boutique hotel deal and maybe just complete the main tower (perhaps even scaling that back some) with the shopping mall and casino scaled back some. It seems like such a shame to just let this project fall through the cracks.

Hell, I'd be happy with Boyd just completing whats already there and add a main "mega resort" later...

...but I guess pure economics weigh out silly pipe dreams.