While MGM Resorts' decision to offload the Bellagio and
Circus Circus made headlines earlier this month, it was the sale of the latter
Las Vegas casino-hotel that has spurred the most industry buzz, primarily
because it comes with a sizable block of underdeveloped land.
The separate deals, announced Oct. 15, include a transaction
in which MGM and the Blackstone investment group will form a joint venture to
purchase the Bellagio, with the property to be leased back to an MGM
subsidiary for $245 million annually.
Circus Circus, on the other hand, has been acquired for $825
million by Phil Ruffin, owner of TI (also known as Treasure Island) and co-owner of
the Trump International Hotel in Las Vegas.
"In terms of the Bellagio, it's a simple REIT [real estate
investment trust] deal, where MGM will continue to operate the property," said
Steve Gallaway, managing partner for Global Market Advisors, a casino gaming,
hospitality and sports betting consulting firm.
"But the Circus Circus deal is very different," he added. "The
sale makes sense mainly because the property never really fit into MGM's
portfolio anyway. It simply came along as part of MGM's acquisition of Mandalay
Resort Group in 2005. But because Circus Circus has 102 acres in total, approximately
half of which isn't developed, there's a lot of opportunity there."
Located at the northern end of the Strip, Circus Circus
includes a 10-acre lot for recreational vehicles and 37 acres of
adjacent festival grounds.
Ruffin told local news outlets that he plans to turn the
festival area into an entertainment venue, a move that John Restrepo, principal
of Las Vegas-based consultancy RCG Economics, said is in line with Sin City's
"continued move toward offering more of an integrated tourist experience,"
comprising music, sports and shopping, among other nongaming components.
"The land is also quite rare and valuable," Restrepo added. "When
it comes to the more urbanized part of the Strip, Circus Circus has the last
piece of prime [undeveloped] real estate."
David Schwartz, associate vice provost for faculty affairs
at the University of Nevada, Las Vegas, said that Ruffin's takeover of Circus
Circus also comes as excitement surrounding development activity on the North
Strip heats up.
"In that same area, you have Resorts World getting ready to
open up as well as the Sahara rebranding, so there's a lot happening there,"
Schwartz said. "If you look at the trends, you definitely have a lot more
construction going on at the north end, and historically, that has been a
really strong indicator of increased occupancy. And with that critical mass,
you get the possibility of even more projects happening."
Other key North Strip developments include the Drew Las
Vegas, a 3,719-room, tri-branded complex that is set to open in 2022, and the
expansion of the Las Vegas Convention Center, which is expected to be completed
by the end of next year.
But with much of the ongoing development surrounding the
North Strip skewing upscale or targeting business or convention travel, Circus
Circus, with its relatively affordable room rates, is something of an outlier.
Ruffin has said that he plans to retain the brand's price point.
"Circus Circus was built in 1968, and in the '70s it became
one of the first properties to pioneer not only a family-friendly approach but
also a budget-friendly approach," Schwartz said. "It's got more than 50 years
of history behind it, and that's a brand you really want to keep because people
know what it's about."
Stowe Shoemaker, dean of the William F. Harrah College of
Hospitality at the university, agreed.
"In addition to having the advantage of a great location on
the Strip, Circus Circus has huge brand recognition and offers huge price
value," he said. "It's iconic."
Meanwhile, Circus Circus' accessibility also gives it solid
footing among more budget-conscious travelers, who nowadays are increasingly
hard-pressed to find reasonably priced accommodations on the Strip.
"If you look at how fast the U.S. economy’s growing and then
look at the fact that Vegas has only grown 0.6% this year in tourism, it's
[inconsistent]," said Gallaway, who pointed out that markets like Nashville and
Austin are enjoying near-double-digit growth. "And I think the reason is that
Vegas is out-pricing itself for many consumers. However, for Circus Circus, I'm
willing to bet a good portion of their business is driving in. So, if there's
an economic downturn, I think Circus Circus will do just fine."