Two Way Hard Three | Las Vegas Casino & Design Blog

March 10, 2012

I wrote this in 2006...

Posted by daveschwartz

and, though the article was never published, I sure would like that middle sentence back. See the guilty party after the jump.


It's from a paper I wrote that, for several reasons, never saw the light of day and is now just about hopelessly outdated. The paper's theme was the then-inevitably upwards march of amenities and the like throughout the casino world. Here's the paragraph that seems particularly egregious today:

Since 1992, the average cost of a room on the Strip has soared dramatically from $54.19 to just over $137. With the closure and implosion of two of the remaining budget-minded hotels, the Stardust and New Frontier, and thousands of upscale rooms in the pipeline, within a few years $137 will seem as inexpensive as $54 does today. Rooms have become a major revenue center.

The first and last sentences are still factually correct, though the ADR on the Strip in 2011 was just under $132.

To be fair, I wasn't the only one who didn't count on the recession mooting Echelon and the Plaza and slashing room rates, and I wasn't the guy hiring contractors or loaning capital. But looking at that today makes me wonder what other development that will seem incredibly obvious in a few years we're all missing today. With all the numbers in front of me, $200 average ADRs on the Strip by 2010 seemed like a slam dunk in 2006.

Anyone else want to fess up to retrospective myopia? I think I've learned from my mistake, which is why my analyses of the monthly gaming numbers tend to be distinctly more cautious than some other folks out there.

On the other hand, if anyone wants to call their shot and make a bold prediction for the near future, go ahead. We can bump this a year from now and see how good you were at seeing around the corner.

Categories: About Vegas, Dr. Dave Schwartz
Tags: prognostication, room rates, the future


Comments

Read archived comments (6 so far)
March 10, 2012 4:31 PM Posted by CheapGambler

More of the same (is this a prediction?)

I think you have too look at the environment outside of Vegas. With casinos showing up in Pennsylvania and Ohio, expansion of of other casinos in Biloxi, and a number of municipalities considering gaming to address tax shortfalls, I think Vegas will be rather stable while the industry focuses elsewhere.

I don't think any of this "new construction" would impact Vegas the way it has Atlantic City. Rather, I just think it will just serve to keep prices in check.

If you want bold predictions, it might be better to look at specific gaming companies. With all the discussion and changing laws across the US, and online gaming to boot, one of these companies has to be making the right gambles :-)

March 10, 2012 7:08 PM Posted by Ted Newkirk

I was off the mark on CityCenter. Granted, people who have to take the hike up to see the thing tend to not like it so much. But everyone staying there raves about it. I figured that Jim Murren would be out of work by now for pushing to build the thing. My readers are still screaming at how out-of-place it looks on The Strip.

I had Nikki Beach wrong (and Dr. Dave had it right) although I'll use a mulligan on this. Nikki Beach in Miami and other locations isn't about weekly Britney Spears appearances. It is an upscale glorified pool party with a chill vibe. I thought a perfect dovetail with The Trop. I didn't realize that they were going to try to compete with Encore Beach Club (and fail miserably).

I did nail the ADR thing. My readers were up in arms at both rising ADR's and the projection of a number of even more expensive resorts on the drawing board. I told them not to sweat it and predicted that there wouldn't be enough high-end customers to fill all the new high-end rooms, and that they'd be able to stay at top places for bargain prices. I nailed that one.

It is obviously a safe bet that downtown will continue to be hot. Prices for just about everything on The Strip have chased a significant number of visitors downtown. Add in the "downtown is now cool" vibe and we're going to continue to see growth and gentrification. Tim and Michelle are a perfect example of this: They once shunned downtown. Now they are staying there and doing a website about it.

I will continue to predict that if Nazarian is stupid enough to boutique out The Sahara, he'll fall flat on his face. It is too far from Wynncore to get any overflow crowd (people who want to do the Wynn properties, but stay SBE). I mean, the location is awful. Do SBE type customers really want to look out a the world's largest gift shop?

In addition, the market still has to absorb the new rooms from Lady Luck and Binion's (I've seen the room design photos but I'm not supposed to talk about it) plus that place that Siegel is re-opening on Paradise. Until all of that shakes out and until we know the final fate of F-Bleau, doing something with The Sahara is foolish.

I predict someone will take the shuttered Nevada hotel (south of Golden Gate) and announce plans for it within the next 18 months.

I predict that we're going to have a really flat year for tourism do to a couple of issues:

1. 19% of Vegas visitors were newbies and more thrifty. I could see these people visiting every other year, not 4 times per year.

2. The price of oil is going to hurt. Airfare will be a major impediment to visitation.

I still see hope for F-Bleau, otherwise I believe they would have accelerated the destruction of the property. When the economy gets better, they will decide whether the price of steel makes it worth tearing down, or whether someone is stupid enough to buy it and finish it off. Since it is (almost literally) in my back yard, I'd like to see it come down. But until then, never say never.

I'd love to see more modest development between Circus and Strat. Smaller scale properties, dining, shopping with casinos fronting The Strip. Build a few Bill's and Slots-Of-Fun places that have room for a hotel tower behind them as market conditions warrant. But that is a five year prediction just for the basics.

March 11, 2012 1:11 PM Posted by Jeff in OKC

Golden Nugget bought the Nevada Hotel and Casino site. I noticed while we were staying at the Plaza, in October, that it was painted the same colors as Golden Nugget, and had advertising for GN in the street level windows. I later checked Clark County property records and confirmed the purchase.
My understanding is that salvage steel prices are currently near historically high prices. I think they are going to continue to rise so long as the Chinese economy is solid. I don't know when it will become financially feasible to disassemble the Fountainebleau. But if steel is $100 a ton now, I'm gonna guess it will need to get to $150 to make it work.

March 11, 2012 1:12 PM Posted by Paul Shanahan

I was wrong about Fontainebleau. What I really liked about the Fontainebleau when I first saw the design was the pool deck or the "party deck" that jutted out from the 63-story skyscraper and would look like a long, huge yacht from the Strip. Customers from the Fontainebleau "party deck" would of had a great view of the Strip while they drink and gamble.

Glenn Schaefer was the CEO of Fontainebleau and I really liked what he did with Mandalay Bay when it opened in 1999. The first three years Mandalay Bay was open that place made a fortune and when I viisted then that place was tons and tons of fun.

Unfortunately Fontainebleau was to tall and bulky and obviously to expensive to build with a final cost close to $3 billion dollars. If Fontainebleau would have been maybe 2/3 the size (around 500 feet high or so) it probably would have looked much better.

I think Fontainebleau will eventually be imploded and maybe a more reasonably priced project (around $500 million dollars) will get built there.

March 11, 2012 1:27 PM Posted by Jeff in OKC

So far as predictions for the near future:
I think Fountainebleau will be disassembled in 2013 and 2014.
I think the loss at Cosmopolitan of Las Vegas will not get lower than $100 million per year and it will be 2015 before the MGM asset base recovers to the level that they can absorb the value of Cosmo into their portfolio via an all-stock transaction.
I predict construction on a scaled down and renamed Echelon will resume in 2016, with completion in late 2017.

March 11, 2012 7:10 PM Posted by MattK

Dave, you were certainly not alone in 2006 predicting $200 ADRs by 2010. The major pipeline projects at the time were drawing those same conclusions. You'd be surprised how easy it is to plot '04, '05 and '06 revenue numbers on a graph, connect the dots with a line, and then extend that line outward into a magical future. Billions of dollars were wagered on those assumptions.

This is why I'm bearish on Echelon or F'blue ever making a comeback, and properties like Cosmo or Citycenter ever making money for anyone. These projects weren't built for the go go years of '06 and '07, they were built for the fantasy years of '10 and '11, when people would presumably be buying $200 rooms, $500 Goose bottles in every lounge, and $80 sirloins. Only in the fantasy years can a $4 to $10 billion project be justified.

Predicting the future is hard. I would say there will be a preference for Tropicana / Imperial Palace / (Sahara?) style refurbs of existing buildings rather than new construction.