LVCVA moves ahead with convention center addition

The board of the Las Vegas Convention and Visitors Authority voted Tuesday to sell $150 million in bonds, marking its second attempt to fund a 1.3 million-square-foot expansion of the Las Vegas Convention Center.

But this financing attempt will probably cost $20 million more than the initial sale, first negotiated in July.

After a brief debate, the board voted unanimously to proceed with the revenue bond financing package. The bonds are expected to be priced next week with a consortium led by Morgan Stanley Dean Witter, which won the first bidding process in July.

The project is expected to be complete around October 2000 -- originally, LVCVA officials hoped to open the new space in March.

In this attempt, the price for the bonds will be identified through a negotiated sale, rather than competitive bidding. Under terms of a negotiated sale deal -- a rare move for the placement of municipal bonds -- the terms of the deal, such as interest rates, will be negotiated by LVCVA President Manny Cortez.

Cortez warned, however, that he won't be able to negotiate as good of a deal this time, for the same reasons that caused Morgan Stanley to pull out of the original financing deal this summer.

In July, the bonds carried an interest rate of 5.4 percent a year. Now, the LVCVA's bond counsel told the board, the interest rate will probably be 6.2 percent -- adding an estimated $1 million a year in interest costs over the 20-year lifespan of the bonds. LVCVA officials stressed, however, that those costs will come from room taxes, not Clark County taxpayers.

Cortez says that can't be avoided, because the market will expect higher returns for the raised risks the bond issue faces. Although the Venetian lost a battle in court to block the sale of the bonds, it still plans to appeal the ruling to the Nevada Supreme Court.

And proposed federal legislation, introduced by Majority Whip Tom DeLay, R-Texas, could restrict the use of tax-free bonds for projects like the center's expansion. DeLay's bill is still pending.

Both factors compelled Morgan Stanley to delay the bond offering in July. And because both risks still exist, the interest rate for the bonds would probably exceed 7 percent if priced through a competitive bidding process, Cortez said.

"If we went out for a competitive bid ... we'd be getting pretty close to the going rate for taxable bonds," Cortez said. "If there's a $150 million issue, and a similar one that doesn't have these threats ... which one are you going to buy?"

A negotiated sale should save the LVCVA at least $3.5 million, the order authorizing the bond sale states.

"If the market is adequately prepared and prospective investors educated, which can be done through a negotiated sale, it may be possible to negotiate to sell the ... bonds on favorable terms in these particular market conditions," the order said.

The fact that only one bidder was apparent raised concerns among some board members.

"How can we create the sense of competition when there's only one bidder, and they know they're the only bidder?" said Steve Greathouse, senior vice president of operations at Mandalay Resort Group.

Guy Hobbs, the LVCVA's bond adviser, responded that Morgan Stanley had presented "the most aggressive bid going forward," and was still eager to work with the LVCVA.

When the financing was originally arranged in July, the LVCVA maintained that several conventions would leave Las Vegas if the expansion didn't occur, simply because they needed more space than was available.

The parent company of the Venetian, which owns the Sands Expo Center, responded by filing a lawsuit claiming the expansion was nothing more than an unfair, tax subsidized effort to steal business from its convention center. It argued that the bond issue should be voted on by Clark County residents before proceeding.

The Venetian believes it bolstered the case against expansion by signing up most of the at-risk conventions to new, five-year contracts.

"It just seems odd to me that they needed to build 1.3 million square feet of space to keep these shows in town," said Andy Abboud, director of government relations for the Venetian. "Now that they're not leaving, somehow they determine they now need the same amount of space at the same price."

Cortez, noting that the Venetian had "graciously" secured the conventions, argued that didn't change the need for expansion.

"That's great, because it leaves us open to bring in new conventions that have never been in Las Vegas before," Cortez said. "That makes the expansion even more critical than it has been in the past.

"Our hotels keep adding new rooms, and it becomes even more important to keep these groups."

Cortez said the authority was actively negotiating with a number of interested convention officials, but declined to go into specifics.

"If that (new conventions) is truly the case, then it would be a step in the right direction," Abboud said. "But how do they need to know the expansion needs to be that size if the shows aren't signed?

"Why not just sign them then build it? That's the logical, responsible thing to do. Why are they so obsessed with going ahead with a building they can't fill?"

But an LVCVA spokesman said that business can't be booked until the center's expansion is funded and underway.

"We wouldn't sign anybody before we sold the bonds and proceeded (with construction)," said Rob Powers. "When we announced we would add a million three ... even before we marketed the space at all, we were approached by two dozen groups that would be interested in using that space.

"We're turning away business now because we don't have the space. If we know the building is going to be built, we can start penciling people in. That space will be filled. There's no question about that at all."

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