The $1.3 billion Aladdin Hotel & Casino complex, about to begin construction, is the fifth such megaproject to be launched in the last year on the crowded Las Vegas strip.
Despite market concerns that development is becoming oversaturated, developers and market watchers remain positive on the commercial possibilities for Las Vegas. They believe there is room for further expansion and renovations, provided developers have the right hooks to lure visitors in and astute financing deals to ensure quick returns.
The new Aladdin Hotel & Casino will be a 34-acre resort, casino and entertainment complex. It will feature a 2,600-room hotel embellished under a “Legends of the Arabian Nights” theme; a “music” theme hotel with 1,000 rooms as part of a joint venture with Planet Hollywood International Inc.; several casinos; seven restaurants; and a shopping mall.
Four other megaprojects are under development.
Circus Circus Enterprises Inc. is building a $900 million, 4,000-room hotel-casino resort called “Mandalay Bay,” with a South Seas tropical theme. It will feature waterfalls, terraced gardens, a surfing beach with Hawaii-style waves, a swan island and a shark exhibit.
Hilton Hotels Corp. is spending $760 million constructing its 3,000-room “Paris” hotel-gaming project, which will include a 50-story replica of the Eiffel Tower and reproductions of Paris landmarks such as the Louvre.
Then there’s the $1.2 billion “Venetian” project, with its Renaissance Venice theme, that will have 6,000 all-suite rooms, a casino and a Billboard Live entertainment complex.
And Mirage Resorts Inc.’s “Bellagio” is a $1.8 billion hotel-casino project that will add 3,000 rooms, overlooking a manmade lake inspired by Lake Como in Northern Italy.
Together, the projects will add about 20,000 rooms to the existing 106,000.
They’ll join other splashy properties–one with its own amusement park and another with a volcano that explodes several times daily–in trying to outdazzle each other.
Market-watchers predict visitors will flock to the new megadevelopments — possibly at the expense of older, less-modern hotels.
In 1997, 30.5 million visitors traveled to Las Vegas, up 2.8 percent from the previous year, according to Rob Powers, public relations director of the Las Vegas Convention and Visitors Authority.
To attract even more visitors, the city’s airport, McCarran International, is undergoing a two-phase expansion. The first phase, to open in June, will add 26 gates to the 58-gate airport, allowing the airport to accommodate up to 42 million passengers a year, said Debbie Millett, a McCarran spokeswoman. The second phase, whose timing hasn’t yet been determined, will bring 24 additional gates on line, boosting the airport’s passenger capacity to 55 million a year.
Although the airport passenger capacity will be there, it’s up to the airlines to decide if they want to fly into Las Vegas or increase the number of flights they offer.
“Why would they?” said Bear Stearns & Co. analyst Jason Ader, who is bearish on the market. “They’re in the business to make money, and Las Vegas is the least-profitable of the top 30 markets for them to fly into because it’s made up mostly of leisure travelers who are on discount fares.”
Twenty-two airlines, as well as charter flights, serve Las Vegas, said Millett, the airport spokeswoman.
With $7 billion being spent on new projects and 20 percent more rooms being added, the city needs to bring in 6 million more people each year just to keep the occupancy rate constant, Ader said. He calculated that 90 to 100 more flights a day would be needed to fly in the additional 6 million people.
Although 25 percent of the city’s visitors come by car from Southern California, Ader dismissed suggestions that more travelers may choose to drive.
“Have you seen that two-lane highway between Las Vegas and Los Angeles? It’s a parking lot on weekends. It takes 10 hours to drive it, when normally it would take five,” Ader said. “Air transportation needs to improve for them to be profitable.”
Other market-watchers disagreed.
“Las Vegas is spoiled by an immensely high occupancy rate, and even if it’s down slightly from last year, it’s still the highest in the country,” said Bjorn Hanson, Coopers and Lybrand’s lodging and gaming specialist.
Hotel-occupancy rates slipped 3.4 percent in 1997 to 90.3 percent, but that is still well above the national occupancy rate of 64.5 percent in 1997, according to a Coopers & Lybrand report. The national rate is expected to decline to 63.6 percent in 1998.
Analyst John Rohs of Schroder & Co. believes the market needs some breathing room to absorb the roughly 20,000 rooms that will come onstream over the next two years before new megaprojects are launched.
But Westwood Capital’s Daniel Alpert, who along with partner Mark Sunshine came up with the financing ideas behind the Aladdin Complex, said he believes there’s room for redevelopment and even more megaprojects if the right deals are worked out.
Alpert and Sunshine are no strangers to the world of high finance. After meeting at the University of Pennsylvania in the mid-’70s, the two met again at Oppenheimer & Co., where their exploits into cutting-edge investment banking became legend.
In the early 1990s, the two became the first to perform original commercial mortgage-backed securities transactions using pools of commercial real estate, according to Alpert. In 1991, they handled a large pool of commercial properties that were owned by a number of borrowers. In 1992, they handled a pool that was owned by a single borrower.
Combining Alpert’s real estate expertise with Sunshine’s debt-securitization skills, the two stepped out to form their own company in June 1995.
Since forming Westwood, the two have focused much of their real estate dealings in the Las Vegas market.
