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Credit Crunch Deals Vegas a Losing Hand

Wednesday, 06 Aug 2008 05:18 PM

LOS ANGELES -- Some casino developers are folding in their cards as a chaotic U.S. credit market deals them a losing hand on the building boom that has turned much of the Las Vegas Strip into a construction zone.

Developers are waking up to the fact that expansion is coming at the same time would-be gamblers are grappling with sky-high gasoline and airline ticket prices, while the mortgage debacle has made banks wary of overextending themselves.

"A slowdown is probably wise and prudent given the circumstances," said Carlton Geer, head of the global gaming group at commercial real estate broker CB Richard Ellis.

Work is under way to add more than 40,000 luxury hotel rooms to the Vegas gambling corridor — about one-third more than today.

One major project has already been mothballed and credit problems have delayed, or threatened to delay, several others.

Boyd Gaming Corp last week placed on hiatus of at least nine months on its partially built $4.8 billion Echelon project, located toward the north end of the Strip on the site of the storied Stardust resort.

Boyd tied its decision to an inability to arrange financing for two key joint venture segments of the project.

Meanwhile, Las Vegas has seen a steady decline in gambling revenue this year -- including a 16 percent drop in May — and summertime hotel room prices have been slashed in an effort to attract tourists and conventioneers.

No. 2 casino operator MGM Mirage (MGM.N: Quote, Profile, Research, Stock Buzz), which is in the midst of building the $9.1 billion multiuse CityCenter project located between its Bellagio and Monte Carlo resorts, said on Tuesday it had secured commitments from lenders for more than half of the $3 billion it and partner Dubai World are seeking.

The companies have so far spent about $4.2 billion on CityCenter and will need to raise another $2 billion before the "city within a city" opens late next year, according to Chief Financial Officer Dan D'Arrigo.

"The Echelon delay certainly improves the prospects for CityCenter. Now they have at least a two-year head start," said Robert LaFleur, an equity analyst at Susquehanna Financial.

But MGM acknowledged it has no plans to break ground on a previously announced multibillion dollar Strip resort to be financed by partners Kerzner International and Istithmar Hotels, a unit of government-owned Dubai World.

The project, to be located on a 40-acre parcel owned by MGM, had been slated to open in 2012.

In addition, MGM has canceled plans to develop a housing and casino project on more than 100 acres in Jean, Nevada, about 25 miles southwest of Las Vegas.

Next to CityCenter on the Strip, construction is continuing on the Cosmopolitan Resort & Casino, even though senior lender Deutsche Bank AG (DBKGn.DE: Quote, Profile, Research, Stock Buzz) foreclosed on the project after developer Ian Bruce Eichner defaulted on a $760 million loan.

Other Strip resorts nearing completion include Wynn Resorts Ltd's Encore, adjacent to Wynn Las Vegas, which will open in December and, a bit further to the north, Fontainebleau Las Vegas, which is slated to open in October 2009.

"They are still moving forward, but I think that Fontainebleau could have some trouble," said Geer, noting that the condo-hotel market in Las Vegas remains "on vacation."

Another site at the northern end of the Strip — the former Wet n' Wild water park — was put up for sale earlier this year after a group led by Australia's Crown Ltd balked at investing more capital in a planned casino.

Geer said the site is currently under option to another group, but there are no plans to develop it until the market changes.

Israel's Elad Group, owner of New York's famed Plaza hotel, plans to import that brand to the Las Vegas Strip in the form of an $8 billion mixed-use resort and has said it expects to break ground later this year.

The real estate developer, which paid a record $34 million an acre to acquire the site from the owner of the New Frontier casino, did not respond to a request for an update on its plans.

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LOS ANGELES -- Some casino developers are folding in their cards as a chaotic U.S. credit market deals them a losing hand on the building boom that has turned much of the Las Vegas Strip into a construction zone.Developers are waking up to the fact that expansion is coming...
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