By Kate O'Keeffe
Only in Las Vegas would the sale of a plot of land that
currently holds a Walgreens and a Travelodge Motel be called
Project Jackpot.
But if the 18-acre site on the Las Vegas Strip draws a high
price, it will be one of the strongest signs of optimism yet for
the city since the financial crisis hammered the U.S. casino
industry.
The owners of the site, next door to the MGM Grand, say they are
putting it up for sale after receiving expressions of interest in
the past few months, said Jeff Schaffer, managing partner of
Spectrum Group Management LLC, which took control of the
once-bankrupt property in 2010.
The attempt to sell what owners are billing "the last available
site of any size located in the heart of the Las Vegas Strip" comes
as investors place new bets on a return to Las Vegas's 2007
heyday.
On Tuesday, Malaysian developer Genting Group broke ground on a
$4 billion Chinese-themed casino-resort expected to open in 2018.
The resort, which plans a panda exhibit and a replica of the Great
Wall of China, is a reincarnation of a project abandoned in
2008.
Another project will be developed next door by Crown Resorts
Ltd---the casino company controlled by Australian billionaire James
Packer--investment firm Oaktree Capital Management LP and former
Wynn Resorts Ltd. executive Andrew Pascal.
This week also saw the end of an era on the Strip when the
60-year-old Riviera casino-hotel shut down. It will be imploded to
make way for a $2.3 billion revamp of Las Vegas's convention
center.
Las Vegas's recent ups and downs make it difficult to estimate a
price for the Project Jackpot site. An appraiser valued the site at
$750 million in 2007. By the next year, the previous owners had
written it down to less than $220 million. Genting in 2013 spent $4
million an acre to buy the site that it just broke ground on,
compared to the $34.7 million an acre a developer paid in 2007 for
empty land on the Strip.
After limping along for years, the Strip last fiscal year
surpassed its precrisis peak by all key revenue metrics except for
gambling, which these days accounts for less than 40% of total
revenue, according to the University of Nevada Las Vegas.
Visitor numbers hit an all-time high too, growing 3.7% to 41.1
million during calendar year 2014, according to the Las Vegas
Visitors and Convention Authority, buoyed by lower gas prices and a
drive to increase airline capacity.
Las Vegas is a relative bright spot in the global casino
industry. Gambling revenue is down 37% this year in the Chinese
city of Macau, which generates seven times the gambling revenue of
the Las Vegas Strip. The decline, driven by China's corruption
crackdown, has hurt earnings of the big casino operators and raised
concerns about the industry's $20 billion-plus expansion plans in
the city.
The long-term optimism of the developers who are investing
billions in Las Vegas doesn't match the weak recent performance in
the city. Gambling revenue on the Las Vegas Strip was flat in the
first quarter compared with the previous year, dragged down by a
9.6% drop in March. Revenue per available room on the Strip fell
12.5% in March and 1.5% during the first quarter, albeit facing a
tough comparison.
Steve Wynn, Wynn Resorts Ltd.'s chief executive, offered a
bearish outlook during his company's earnings call last week: "What
will the second quarter look like in Las Vegas? Weak. Did you hear
me? Weak." He added: "This notion of a big recovery is a complete
dream."
After confirming with the president of the company's Las Vegas
operations, Mr. Wynn went on: "Do you hear that? Now here's two of
us saying we would be thrilled if non-casino revenue was flat in
the second quarter as it was in the first. My guess is that that's
going to be a struggle."
Las Vegas Strip gambling revenue faces more risks in the coming
months as revenue from baccarat--the preferred game of the same
Asian highrollers who have abandoned Macau--continues to slip, said
Todd Jordan, an analyst at Hedgeye Risk Management LLC. Mr. Jordan
said the numbers have only gotten worse since he called the
recovery a tepid one in a February report "Vegas Baby Yeah?
No?"
Las Vegas was also hit by the bankruptcy of the largest unit of
Caesars Entertainment Corp., once the world's largest gambling
company, in January, though most of its Strip properties were
excluded from the filing.
Spectrum's Mr. Schaffer said asset-management firms, real-estate
investment trusts, institutions and Chinese investors had expressed
interest in the Project Jackpot site, a hodgepodge of shopping,
parking lots, chain restaurants and a motel.
The site was originally supposed to be transformed into a
multibillion-dollar Elvis-themed casino-resort. Entertainment mogul
Robert F.X. Sillerman's company defaulted on the $475 million
mortgage in 2008, and lenders led by Spectrum, a New York-based
distressed investor, took control of the site after a bankruptcy
court approved their plan in 2010.
Last weekend, Las Vegas reconfirmed its place as a global
entertainment destination when the MGM Grand, next door to the
Project Jackpot site, oozed with VIPs from Beyoncé to Tom Brady who
flocked to the Mayweather-Pacquiao fight, the richest boxing bout
in history.
A private jet terminal at Las Vegas's McCarran International
Airport had to divert planes to another airport after cramming more
than 500 planes into its parking lot--150 more than Super Bowl
weekend, said MGM Resorts International chief executive Jim Murren
on a Monday earnings conference call.
"We're still counting all the money," he said.
Write to Kate O'Keeffe at kathryn.okeeffe@wsj.com
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