Tuesday, May 23, 2000 | 10:54 a.m.
Copyright 2000 Las Vegas Sun
The New Frontier hotel-casino, set for demolition this summer, will live on through at least the end of the year.
Phil Ruffin, owner of the 58-year-old north Strip property, said Monday that he's placed plans for a San Francisco-themed resort on indefinite hold. In January, Ruffin announced he planned to implode the Frontier by July to make way for "City by the Bay," a 2,500-room, $800 million themed resort.
But that's been delayed, Ruffin said, by unfavorable conditions for raising cash. Ruffin plans to finance the resort through a combination of bank debt and bonds.
"We're still looking for the money at a decent price," Ruffin said. "The capital markets are very hard, and money's very pricey. We're not in any great hurry to jump off on a deal where the numbers don't make sense. When you borrow $800 million, the interest rates make a heck of a difference.
"Alan Greenspan (chairman of the Federal Reserve) certainly isn't helping things."
Ruffin said he couldn't say when the project will proceed, but said it "will absolutely not be this year."
"It is delayed until I don't know when. The Frontier will continue to operate as is."
One issue that is not factoring into the delay, Ruffin said, is casino designer Mark Advent's pending lawsuit against Ruffin. Advent is demanding $900 million in damages from Ruffin, claiming the developer is stealing his concept for a San Francisco resort.
"We'll probably reach an agreement on that deal soon," Ruffin said. "The problem is getting the money."
It will take four months to prepare the Frontier for implosion, Ruffin said, and another 30 to build the new resort. That means the Strip won't see the proposed resort open until late 2003 at the earliest.
The Frontier's 900 employees faced layoffs when the Frontier was shut down and imploded, though Ruffin had promised they would have first crack at the 3,000 jobs to be created by the new resort. Ruffin's purchase of the Frontier in 1998 ended a bitter six-year Culinary Union strike against the Elardi family, former owners of the property. Ruffin paid the Elardis $165 million for the Frontier.
Andrew Zarnett, gaming analyst with Deutsche Banc Alex. Brown, said financing isn't necessarily a problem for all gaming operators.
"It's the same as always ... money's always available for the better projects," Zarnett said. "It depends on the leverage, how much equity he's putting into the transaction, who his management team is going to be. Anywhere on the Strip where you have a big project backed by a solid management team will be able to get financing.
"Clearly, financing in general is dictated by the market you're entering, and it's obviously not as good as it was several years ago."
Steve Altman, bond analyst with Duff & Phelps in Chicago, said Ruffin faces a "herculean" task in raising money for a new development, since he's never developed a Strip resort from scratch before.
"There's just not a lot of available capital right now for the Strip, at least for new projects."
By comparison, MGM Grand Inc. on Monday sold $710 million in high-yield bonds to finance its acquisition of Mirage Resorts Inc. -- $210 million more than planned. The MGM Grand bonds carry an effective interest rate of 10 percent.
"That's MGM Grand, that has a substantial portfolio of properties, as opposed to Phil Ruffin, who's trying to do a one-project deal," Altman said. "That would require him to pay a lot higher (interest rates) over what an MGM could do."
A critical step in the future of the high-yield market for gaming companies, Altman said, will come with the opening of the Aladdin in August.
"The Venetian's had problems, but it's now doing rather well," Altman said. "The Aladdin will be the next test."
Despite the difficulties Ruffin's facing in raising cash at reasonable rates, the developer remains committed to eventually razing the Frontier and building a property that can be more competitive with other Strip properties.
The need for that kind of development has been raised, Ruffin said, by Steve Wynn's purchase of the Desert Inn and the Rouse Co.'s decision to move forward with the long-awaited 1 million-square-foot expansion of Fashion Show Mall, which includes the addition of Nordstrom as a tenant.
Ruffin's Frontier sits directly north of Fashion Show Mall, and across the street from the Desert Inn.
"We have to put a new resort there to complement the north end of (the Strip)," Ruffin said.
"We're delighted Steve Wynn bought (the Desert Inn), and the Fashion Show Mall is just another plus. We think the north end will be totally revitalized."
Wynn's eventual plans for the Desert Inn "will equal the Bellagio, in my opinion," Ruffin said. "It will be something spectacular."
Altman agrees that Ruffin must create something new at the site in order to remain viable over the long-term.
"Once (the Las Vegas market) softens, properties like that will have a difficult time trying to stay open," Altman said.
archive
