Just five short years ago, Las Vegas was in a tailspin. The Great Recession took a tremendous toll and the U.S. gaming capital found itself at ground zero for the nation’s housing crisis. A long, slow slog followed as Las Vegas lagged behind much of the nation in crawling back into positive territory.
Today, however, things are looking much brighter. The tourists are back and they’re spending money, just not always or as much, on the same things as in the past.
Casino operators are taking note and some are taking action, embarking on new projects aimed at reaching younger customers who may be more interested in seeking out a cool bar rather than a hot craps table.
Caesars Entertainment’s The LINQ is an open-air retail, dining and entertainment district under development on “the 50-yard line of the world-famous Las Vegas Strip,” said Jon Gray, vice president and general manager for The LINQ. The $550 million project is designed to create a critical mass of nightlife, entertainment and dining options in a streetscape location between The Quad Resort & Casino (formerly the Imperial Palace) and the Flamingo Resort and Casino and across the Strip from Caesars Palace.
And while The LINQ is slated to open in December, its crowning glory—the 550-foot High Roller, the largest observation wheel in North America—will not debut until the first quarter of 2014. Once it does open, “we think it will be something everyone will want to try,” Gray said. “It’s a truly unique experience. It will be a spectacle day and night.”
In addition, the area near the High Roller includes several acres of festival space that will be used to hold outdoor events. Caesars Entertainment officials are confident that visitors will flock to The LINQ, Gray said. “We see that the demographics of Las Vegas are changing. What the customer is interested in is changing. The total spend is not all in gaming as it used to be.” Gray noted that the market share of the Gen X and Gen Y demographic groups is expected to climb to more than 50 percent by 2015. The company is making a serious effort to deliver the kinds of amenities and experiences that these customers really want.
“In our view, more rooms and more casino floor space are the last things we need in the market right now,” Gray said. “This is what we need—dining experiences, entertainment and really cool shops. I think Vegas as a whole is recognizing that the customer is changing, and it’s adapting. You can see it in how they’re adding more nightclubs. They’re adding more restaurants. It’s continuing to keep Vegas at the forefront as a destination. People want to come to Las Vegas not just for a good gamble —they want to have a great night out as well. We are a great destination for entertainment.”
It’s a delicate balancing act to ensure that as these experiences are added, they do not alienate core players. Gaming will always remain an important piece of the Las Vegas experience, Gray acknowledged. “That’s at our root. That’s what we’re known for,” he said. “And this will absolutely support our gaming customers. It’s certainly not going to be intimidating for our core customers.”
Offering an outdoor experience is something Caesars Entertainment believes will resonate with customers, Gray said. “You don’t really see that many great outdoor venues. People love the weather here. When they come here from the Midwest where it’s 30 degrees, they love to get outside and enjoy the sunshine.” Add to that a mix of fun dining, shopping and entertainment, and that creates a winning formula. “It’s more about the barhopping, dining and entertainment experience than just being outside,” Gray said.
Just a stone’s throw away from The LINQ, Caesars Entertainment has partnered with New York-based luxury hotel brand Gansevoort Hotel Group and nightlife impresario Victor Drai to launch an intimate urban resort at the location of Bill’s Gamblin’ Hall & Saloon at the intersection of the Strip and Flamingo Road. Following a $185 million renovation, Gansevoort Las Vegas will feature 188 Parisian apartment-style guest rooms including 19 suites, a redesigned lobby bar, ultra-lounge, retail outlets, a 40,000 square-foot casino and a destination restaurant overlooking the Strip.
In addition, the property will include the ultra-hip Drai’s Beach Club and Nightclub, featuring a 65,000-square-foot indoor/outdoor nightclub and rooftop pool experience with panoramic views from high above the Las Vegas Strip. “Gansevoort Las Vegas will be a completely unique, upscale lifestyle experience in Las Vegas,” said Tariq Shaukat, executive vice president and chief marketing officer of Caesars Entertainment, in a statement. “It will set a new standard of fun and modern luxury, which only Gansevoort Hotel Group, Victor Drai and Caesars Entertainment can create. We are confident that Gansevoort Las Vegas will be one of the most exciting destinations in Las Vegas when it opens in 2014.”
Bill Lerner, managing director and principal at Union Gaming Group, said: “Visitor spending on non-gaming sources now accounts for the roughly 65 percent of the Las Vegas Strip’s overall revenues. That’s been growing steadily.” So it makes sense that operators—such as Caesars Entertainment with The LINQ and MGM Resorts International, with its planned 20,000-seat arena and related projects—are focusing on leveraging nongaming amenities.
“It’s really just capitalizing on what the visitor base wants,” Lerner said. “There’s great value with the margins to engage them in nongaming amenities. Think about the nightclub and day club business—the margin story there can be a great one.”
Caesars Entertainment is also taking smart steps by partnering with others on these projects, Lerner noted. “They’re doing thoughtful things. Instead of deploying capital, they’re utilizing their resources in a less capital-intensive and more effective way. That makes a lot of sense,” he said.
The Las Vegas Strip story post-recession continues to show improvement, Lerner said. “We’ve moved beyond cautiously optimistic to positive on multiple fronts.” Visitation numbers are up slightly, and those numbers represent a better mix of customers. There are increasing numbers of international travelers and air travelers, Lerner added. “Those are presumably longer-duration customers with bigger budgets,” he said.
In addition, room rates also are showing upward movement. “The room rate-growth story is exciting. Room rates are improving. We’re even seeing it without much visitation growth,” he said. “Ultimately there are several billion dollars of development in the pipeline, and a significant amount of it is not room-based product.” That’s good news for existing operators, Lerner said. He noted that over the 20-year period ending in 2007, the average rate of yearly room growth was 4.3 percent. Since the recession began, “we’ve had effectively nothing or very little, and over the next several years in aggregate we won’t even have that much,” he said.
That offers plenty of upside opportunity for occupancy and room rates. “That’s high-margin stuff for casino operators who are operating more efficiently than ever,” Lerner said. “The operating leverage that these businesses have is pretty exciting. There’s a great opportunity to capture earnings growth, outsized earnings growth, as a result of all this.”
Among other projects in the works for the Las Vegas Strip are:
MGM Resorts International and AEG’s New Indoor Arena
MGM Resorts International’s partnership with sports venue specialist AEG to build a new indoor arena off the Las Vegas Strip, between MGM’s New York-New York and Monte Carlo resorts. Scheduled to break ground in summer 2014 with a grand opening projected for spring 2016, the 20,000-seat arena will cost approximately $350 million to build. MGM and AEG have selected sports and entertainment venue designer Populous—designer of London’s O2 arena, Berlin’s O2 World arena and Kansas City’s Sprint Center—as the project’s architect of record. In connection with the arena, MGM Resorts has unveiled plans for the experience it is creating surrounding the arena. Plans include new Stripside experiences at New York-New York and Monte Carlo resorts and a public park leading to the new state-of-the-art arena. “All great cities offer vibrant pedestrian experiences and Las Vegas is certainly no exception as The Strip is one of the world’s greatest boulevards,” said Jim Murren, chairman and CEO of MGM Resorts International. “Our vision is to extend the excitement we traditionally create within our world-class resorts outside onto The Strip and ultimately in an entertainment district leading to our new arena.”
Resorts World Las Vegas
Genting Group’s Resorts World Las Vegas is a planned $2 billion hotel and casino complex on the site of the never-completed Echelon resort hotel on the north end of the Las Vegas Strip. Construction on the first phase, which will include 3,500 hotel rooms and space for dining, gaming, retail and convention, is expected to begin in 2014. Also planned for the project are a live panda habitat, a replica of the Great Wall of China, a 7.5-acre indoor water amusement park, tea gardens, outdoor red pagodas, theaters and more. “This is an unparalleled opportunity to showcase what has made the Resorts World brand a globally recognized success for the past several decades,” said Genting Group Chairman KT Lim in a March announcement of the company’s plans.
The Genting Group’s interest in Las Vegas is further indication that Las Vegas has recovered and is worthy of investment, Lerner indicated. Wall Street valuations of gaming companies are up, and the capital spend in the pipeline is in the billions, he noted. “The market is essentially saying the recovery is at hand and there’s more to come,” Lerner said.
“Genting is well-capitalized, and the brand Resorts World is important to them and they want to use it in other places. They want to use it in Las Vegas,” he said. Las Vegas makes sense strategically, Lerner explained. Because of Genting’s experience in Asian gaming, the company may believe it can capture some of Las Vegas’ Asian business, he said. Some have expressed concern that the added rooms and casino capacity may impact Las Vegas, but Lerner is of the opinion that Las Vegas likely would be able to absorb those rooms by the time they are completed.
SLS Las Vegas
SLS Las Vegas, a new boutique resort, will replace the now-shuttered Sahara hotel-casino when completed in 2014. Its owners announced in May that they have landed the necessary $300 million in additional funding they needed to redevelop the aging property. “We see the northern end of the Strip as the future of Las Vegas, and we’re pleased to be positioned at the forefront of that growth,” Founder, Chairman and CEO Sam Nazarian said in a news release announcing the funding. “Las Vegas has recovered steadily in the past year and we’re excited to be able to inject capital back into the local economy through the adaptive reuse of the famed Sahara.”
Developer sbe and real estate firm Stockbridge Capital Group LLC have said they will reopen the property in 2014 under the name SLS Las Vegas.
The SLS Las Vegas will be created in a high-style collaboration among Nazarian, renowned design icon Philippe Starck and James Beard award-winning chef Jose Andres. The property will be Starck’s first Las Vegas resort and his largest hospitality project to date. Once complete, SLS Las Vegas will feature an all-encompassing, mixed-use resort and casino with more than 1,600 guest rooms and suites and a collection of sbe’s acclaimed restaurant and nightlife brands. “Ultimately, we’re taking our proven brands and re-imagining them for SLS Las Vegas in a manner that makes them accessible to a broad audience,” Nazarian said.
sbe, a Los Angeles-based hospitality company that owns luxury SLS Hotels in Beverly Hills and is opening another in Miami, said it will incorporate some of the restaurant and nightclub brands it already operates in Southern California. With Los Angeles being Las Vegas’ top feeder market, Nazarian said he anticipates SLS Las Vegas will resonate powerfully with a clientele already familiar with the brand.
Gray said the SLS Las Vegas project and MGM Resorts’ plans just validate Caesars’ moves. “It’s definitely a testament to what we’ve just talked about,” he said.
Ultimately, Gray said, those companies that can offer customers the most engaging experiences will be successful.
“If you can adapt and offer the customer what they want, you’re in a great position,” he said. “The future of Las Vegas is very exciting. We continue to see a lot of people coming to Vegas and wanting to have a great time.”