Movers, shakers, real estate makers up the ante on Vegas

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Its being called the Manhattanization of Las Vegas. Virtually every major hotel and casino on the Strip is expanding, remodeling or refurbishing its property -- and this time the buildings arent just developing out in the typical theme-park manner. Instead, Vegas is going vertical in the tall steel-and-glass tower style reminiscent of the more sophisticated offerings found in New York and Los Angeles.

Construction cranes dot the landscape and not just in the Central Strip but downtown and along the Southern Strip, Harmon Corridor and surrounding Valley neighborhoods. With approximately 100 towers and 37,000 units planned to go up in the next five years, even a 50% success rate would represent an unprecedented high rise boom thats flat-out scary, though perfectly in keeping with the citys bountiful growth.

At the epicenter of this latest transformation is Vegas trendsetter MGM Mirage, whose two mammoth projects, the Residences at MGM Grand Las Vegas and the much-talked-about $5 billion, 66-acre CityCenter, will inject roughly 5,000 residential condos directly onto the Strip.

Its becoming hard to look at MGM and say were a gaming company, said Alan Feldman, senior vice president of public affairs at MGM Mirage, jokingly overstating the case in order to make his point: At $16 million to $20 million an acre, Las Vegas real estate has become some of the most valuable in the world. Indeed, since the post-9/11 tourism swoon, average annual revenue growth for Vegas casinos has been 6%, while real estate values on the Strip have doubled each year.

Feldman credits the citys new high-end restaurants, Broadway theater imports and luxury stores with raising Vegas valuation, and yet the tremendous energy surrounding real estate is misleading to the extent that MGM and Harrahs dominate the Strip.

Las Vegas has become an enormous niche market, not one market but many, said Hal Rothman, a University of Nevada-Las Vegas professor of history and author of Neon Metropolis: How Las Vegas Started the Twenty-First Century. The real action will be with the specialty niches such as Hard Rock and the Palms and private residential possibilities (condos) that may extend the Strip and, in the process, bring in new constituencies.

All tourist markets ultimately become real estate markets, Rothman said. The only question is what kind of market youll be. We were on the way to becoming a retirement market; we may take a turn in quite another direction.

The Miamification of Las Vegas

From a tourists perspective there may be more offerings, but on average Las Vegas is becoming more expensive.

Just in the last year the average daily room rate increased 15% from $89 to $102, with vacancies still hovering around the 90% mark. Live entertainment shows, such as the new Broadway imports and the highly successful Cirque franchise, are not only expensive to produce; theyre also expensive to see. Zumanity tickets range from $65 to $125. The price of a Mystere ticket has nearly doubled to $88 since it opened in October 1993. O tickets start at $99 and peak at $150.

Its not surprising then that Luxury towers on the Strip start at $1 million for a two-bedroom condo, or that condo-hotels such as the Residences at MGM Grand are on track to sell all 1,727 units before even the first of their three towers are finished. Still, the rush to buy is also the byproduct of a nationwide condo crush whose Miami-based epicenter seems to have made its way over to Sin City.

Knowing South Florida so well, we said this has to work, said the Residences sales director, Dan Riordan, who works for Miami-based developer Turnberry Associates, MGMs 50/50, joint-venture partner.

Turnberry practically invented the luxury condominium in Florida, and with its Turnberry Place tower that opened in 1999, it broke Las Vegas near-quarter-century high-rise drought, thus ushering in this latest transformation.

Other Miami-based mainstays have followed, including the Related Co., developers of Icon, and Arquitectonica, the architectural firm behind the Cosmopolitan. Then, of course, theres Donald and Ivana Trump, each with his and her own tower, and condos with names such as Sky, Cosmopolitan and Metropolis.

Vegas is turning into a second-home market a la Miami -- which has historically drawn upon Northeasterners and Latin American money -- and why not, asked Riordan, theyre both younger cities that are tourism-oriented.

Indeed, both Las Vegas and Miami have no income tax, plenty of year-round sunshine, marketable amenities -- the ocean and the Strip -- and an unending sense of hedonistic possibility.

The new wave

Whats changing, Rothman argued, is the drift toward capturing the high-income retiree dollar, a new baseline to which hotel-casino operators have been reorienting since the late 1980s.

Gamings growing win is offset by its ongoing diminishment as part of the local mix, as we become more and more an entertainment destination that offers gaming rather than the other way around, Rothman said.

Indeed, since 1983 theres been a 10% realignment away from gaming to the point where it now only accounts for roughly half of the states total revenues, according to Somer Hollingsworth, president of the Nevada Development Authority.

Gambling by itself never made Las Vegas successful, said Feldman matter-of-factly, as if relating a commonly known axiom: In fact, gambling now accounts for less than half of MGMs total revenue; hotel rooms account for roughly 22%, retail 10%, food and beverage 12% and entertainment 8%.

True, the odds are against the gambler and yet the houses take is not always as great as one would think. The house take on some games, like keno and Caribbean stud, approaches 30 cents on every dollar gambled, but on their most popular games the house gets a smaller take.

For example, the casinos keep about 20 cents for every dollar spent on roulette. For baccarat, they keep about 13 cents; craps, 12 cents; blackjack, 11 cents. And for slots, one of the lowest takes for the house, only 6 cents stay with the casino. So the house may always win, but the margins arent nearly as good as they are in the restaurant and entertainment sectors.

Consider that the average visitor to Las Vegas last year spent $193.92 on food and drink, $254.18 on accommodations, $83.53 shopping and $44.79 on shows, for a total of $576.42 over about four days, according to the Las Vegas Convention and Visitors Authority. By comparison, the average visitor who gambled had a gaming budget of about $500.

Its no surprise, then, to understand why Las Vegas is turning into a turbo shopping mall, as Feldman put it. In essence, the range of amenities and opportunities available to visitors has become more sophisticated, thus making the Las Vegas brand more appealing not only to the tourist, added Feldman, but to Wall Street and real estate investors.

Are we not becoming a real estate developer that specializes in casino resorts? asked Feldman, half in jest.

CityCenter

If the natural evolution away from gambling leads to increased real estate values and skyscraper living, it doesnt necessarily follow that Las Vegas is going to depart from its themed showcase formula. Manhattan this is not.

While its true that at CityCenter, for example, MGM is positioning the casino 900 feet deeper into the site and upping residential privacy and services, theres still little reason to believe that this new urban landscape represents some sort of permanent lifestyle evolution.

When you fly in here youll see theres nothing growing out there, said Keith Schwer, an economics professor at UNLV. Las Vegas is still largely a service-based economy, said Schwer, with much of the current development being fueled by investors and second-home buyers who are looking for long-term diversification and a healthy return.

Still, the graying of the valley has opened up economic options unavailable and unanticipated even a decade ago.

Gated communities dot the suburbs and have even arrived on the Strip. Its a trend thats gaining momentum along the Southern Strip, with the Park Avenue, Loft 5 and Urban Village the best examples of self-contained communities that are skewed toward elite urban living environments for the baby boom generation.

Surely the hospitals, medical offices, insurance facilities and laboratories that cater to the retirement economy cant be too far behind, said Jimmy Foster, who, as president of Blue Tipping Group, a full-service sales and marketing company, represents several condo developments in the Southern Strip and downtown areas. Foster said he expects a downtown shift within three to four years as local professionals who live in high-end, suburban areas watch condos come to fruition and see an opportunity to live closer to work and the resort corridor.

Still, all roads do lead back to Rome or, in this case, to MGM/Mirage, with the success of its CityCenter project -- the most expensive private development ever in the U.S. -- the heavy hand that must come off well if this latest transformation is to take hold.

CityCenter is a massive undertaking equivalent to New Yorks Rockefeller Center, SoHo and Times Square areas combined.

With more than 18 million square feet of space consisting of a 4,000-room hotel-casino, three 400-room boutique hotels, approximately 550,000 square feet of retail shops, dining and entertainment venues and 1,650 units of luxury condominium, hotel-condominium and private residence clubs, the implications for Las Vegas cannot be overstated.

There arent very many cities that have a castle across the street from the Manhattan skyline and just down the road from the Egyptian pyramids, said Feldman, pointing out the extent to which CityCenter will depart from the existing protocol.

No one has ever taken a look at 66 acres in the middle of a city and said, What if we get an all-star team of architects together ... and build what normally would take a couple of decades or more, said Feldman.

How do we organize this so that, in addition to visual context, we have a rational plan for how its going to function? he asked. How do we do this so that there isnt a train wreck?

To contact the reporter who wrote this article, send e-mail to [email protected].

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