Thursday, Nov. 1, 2001 | 10:38 a.m.
International real estate giant TrizecHahn Development Corp. hails its massive Desert Passage mall on the Las Vegas Strip as "the world's most exotic marketplace."
When the mall opened in August 2000, TrizecHahn had good reason to brag.
The mall at the Aladdin resort hotel-casino cost a stunning $260 million and is 1.3 miles long encompassing 475,000 square feet. It attracted positive reviews from retail observers because of its authentic re-creation of the exotic desert lands of the ancient spice and trade routes.
Shoppers and diners could visit 160 mostly high-end shops and restaurants as they journeyed through its "Lost City," the "Morocco Gate," the "India Gate" and the "Merchants' Harbor."
The Desert Passage tenants include several prestigious businesses new to Las Vegas, such as a satellite Commander's Palace restaurant out of New Orleans and the Blue Note Jazz Club, making Desert Passage a must-see attraction for tourists and local Las Vegas residents alike.
Desert Passage appeared to be ready to compete with the Forum Shops at Caesars and the Grand Canal Shoppes at the Venetian for the title of best mall on the Strip.
But what Desert Passage tenants and TrizecHahn didn't know when the Aladdin opened was that the Aladdin itself -- a key feeder of customers to Desert Passage -- was destined for bankruptcy because of its failure to attract enough customers to compete with the other billion-dollar megaresorts on the Strip.
TrizecHahn says Desert Passage "had a strong first year" with an average of nearly 50,000 visitors per day, 90 percent of its space leased and has "met every sales target" with sales averaging $600 per square foot per year -- 70 percent higher than the national average.
"We are very happy about where we are right now and very confident about the future," said Andrew Blair, Toronto-based TrizecHahn's chief operating officer.
But George Connor, Colliers International's retail analyst, said the mall didn't meet some tenant expectations.
"Desert Passage hasn't met expectations yet. Given the rents they were asking, which is in line with what the Venetian's (Grand Canal Shoppes) is asking, Desert Passage tenants generally were anticipating sales of between $900-$1,000," Connor said.
But he also noted that the Grand Canal Shoppes, when it first opened in June 1999, had sales of about $700 a square foot, compared with its current sales of about $1,000.
Connor said Desert Passage's foot traffic and sales should increase once five of its restaurants and clubs, which he described as mini-anchors, open in the next six months.
They are Prana, Kass Bah, Cheeseburger at the Oasis, Oyster Bay and Todai. In addition, a new tenant that recently opened is United Colors of Benetton, while two more expected to open soon are H20, a health and beauty shop and Aldo, a shoe shop.
"While it's typical for first-year sales to not reach the full potential of the project and that it takes time for the mall to become a destination in itself, in Desert Passage's case, that's accentuated by not having its five mini-anchors or traffic generators opened even after a year of the mall's opening," he said.
"Also the mall isn't fully leased or occupied yet. Several tenants that had signed leases a year ago had expected the mall to be substantially leased" Connor said. "There's always a one- to two-year ramp-up period expected as a mall builds recognition and shopping patterns in the community. But (Desert Passage's) ramp-up period is slowed because of the (unopened) restaurants.
"No doubt there is some disappointment that several restaurants on the Harmon Street corridor haven't opened yet. But things are probably at their lowest right now and should improve with the redesign of the Aladdin's entrances to make it more user friendly."
But it's unclear what is happening with one of the expected restaurants, Kass Bah, which was supposed to open by year-end as a Harmon Avenue anchor. It was sued Tuesday by Desert Passage for failing to open as allegedly agreed to on April 13.
Kass Bah is also accused of failing to keep its restaurant free of liens and of not paying Desert Passage for the costs of settling and discharging numerous liens filed against the restaurant over unpaid construction costs.
Desert Passage, which said it had repeatedly postponed Kass Bah's rent commencement date and made loans to help Kass Bah complete construction of its restaurant, also sued to force Kass Bah to pay rents, late charges, utility and other maintenance fees.
Kass Bah officials could not be reached for comment.
Connor said Desert Passage will likely have a brighter future if the Aladdin is improved -- perhaps under new ownership by an established gaming corporation like Park Place Entertainment Corp. or MGM MIRAGE.
"A potential change of ownership of the Aladdin ... especially if Park Place and MGM MIRAGE are potential buyers of the property, will likely attract more business guests, as opposed to just walk-ins," Colliers' Connor said. "Park Place and MGM have very good reservation systems and could bring high-quality business travelers and upper-middle income players to the Aladdin and subsequently to the mall."
TrizecHahn acknowledges the Aladdin faced challenges since its August 2000 opening, and sees the bankruptcy reorganization as an opportunity to strengthen the $1.2 billion megaresort.
TrizecHahn's Blair said "A fresh start for the Aladdin with a strengthened financial structure can only add even greater value to (Desert Passage) as a whole."
"If you look at all the amenities -- Desert Passage, the location on the Strip, the Theatre for Performing Arts, the London Club -- this project as a whole has tremendous value and a combination of attractions and advantages that is unique on the Strip," he said.
On the mall's future, Blair said: "We are exactly where we expected to be in terms of sales and traffic after the first year, and this business is going to continue to build as people get more familiar with the advantages that Desert Passage offers; its location, the many amenities of the project, the easy access, and the incredible collection of tenants."
Though Desert Passage is involved in litigation with several tenants, it maintains it "doesn't need to improve its relationship with its tenants."
"Our tenants are our partners, we have group and individual merchant meetings on a regular basis, and every single day, our people are out there talking to the tenants, seeing how things are going, sharing ideas on how to build business even further. It's a very active and positive process and relationship," Blair said.
Indeed, some key Desert Passage tenants are happy with TrizecHahn and its marketing and management of the mall.
Josef's Brasserie is among several tenants that reported healthy sales. The French restaurant cited its good location and promotional activity.
Phil Sabol, general manager, said business remained healthy even in the aftermath of the terrorist attacks.
"We're located halfway to the Aladdin Theatre of Performing Arts, next to a food court and fountains where lots of people rest," Sabol said. "What helps is the tenants get together once a month to discuss promotions.
Sabol said the restaurant typically serves about 260 customers a day.
Build-a-Bear Workshop is another tenant pleased with Desert Passage.
Maxine Clark, Build-a-Bear's chief executive in St. Louis, said Desert Passage has "exceeded (the company's) expectations in its advertising drive."
But she said business at the Las Vegas store has slowed down slightly since Sept. 11's attacks compared with other Build-a-Bear stores nationwide.
"This is because so many of our customers fly to Las Vegas from foreign countries. Our customer base is 70 percent local and 30 percent tourist. We're now working with the mall to advertise and reach out more to the locals," she said.
But not all of Desert Passage's tenants are happy. TrizecHahn has been busy with lawsuits over disputes with four former tenants, seven current tenants and one prospective tenant.
Blair downplayed the significance of the lawsuits, saying only 3 percent of the mall tenants are in litigation with Desert Passage.
TrizecHahn said the lawsuits with four former tenants include litigation with tenants that filed for bankruptcy protection or didn't open for reasons that had nothing to do with Desert Passage. It said claims against Desert Passage by two other tenants were not credible to the court and those tenants were evicted.
One claim in court, by Casablanca Clothier, a men's fashion store, was that the "demographics of the customers to Desert Passage were totally off base and ... grossly overstated."
But Desert Passage disputed the allegation, saying Casablanca's assertions regarding traffic and sales were "not substantiated by any quantifiable and statistically objective information."
Some tenants attributed what they allege is insufficient quality and quantity of foot traffic to inadequate marketing plans, poor accessibility of the Aladdin from the Strip and an absence of allegedly promised anchors like Nordstrom and Planet Hollywood hotel-casino.
"When the mall first opened, foot traffic was running at 100,000 plus a day. But we're down to 55,000 as of June. We need more traffic than that," said Stephen Schatzman, president and chief executive of the Havana Republic cigar retailing chain, which has a store in Desert Passage.
"There are a lot of people walking in but not enough people buying. Desert Passage doesn't have the high-profile Fifth Avenue designer stores that are located at other Las Vegas Strip malls," Schatzman said from Havana Republic headquarters in Fort Lauderdale, Fla. "As a result, many merchants have adjusted their merchandising plans to appeal to a different demographic, that is, one with less disposable income."
Schatzman said Havana Republic's Desert Passage is a success, though the Aladdin hasn't delivered enough high-end customers. In many cases, he's lured high-rollers from competing casino resorts such as Bellagio to visit his Desert Passage shop.
Casablanca Clothier said in court papers, the mall had allegedly promised to include "famous anchor tenants (including Nordstrom)" and the nearby construction of a Planet Hollywood hotel-casino.
But TrizecHahn's Blair denied the allegations, saying "We never expected a Nordstrom."
Nordstrom eventually signed up as an anchor tenant for the competing Fashion Show mall and Planet Hollywood filed for Chapter 11 bankruptcy protection and abandoned the concept for a hotel-casino in Las Vegas.
Casablanca also challenged the mall's claims that Desert Passage's projected sales per square foot are comparable with other Strip malls. While the Forum Shops and Grand Canal Shoppes list sales per square foot of $1,200 and $1,000 per foot on average each year, respectively, Casablanca said its sales average $300 per square foot and Desert Passage allegedly averages $450.
But Desert Passage disagreed, saying its retail consultants found Casablanca's allegedly slow sales aren't due to the lack of traffic but due to its "overly aggressive and hovering sales personnel, ineffective and cluttered window displays, poor visual merchandising and unclear and/or misleading advertising mailers."
Some tenants also complained about the presence of kiosk retailers, which they say not only cheapened the image of the upscale mall but also presented unfair competition for the higher-end retailers.
But TrizecHahn's Blair disagreed. "The kiosks are an amenity of Desert Passage and most of our tenants think these add to the mall. Most of these kiosks are very popular with our customers."
Addi Galleries, which was evicted and is fighting back rents, said it left Desert Passage in June and is now at the Fashion Show Mall partly because the "quality and quantity of shoppers at Desert Passage was insufficient" to support its business.
Steve Addi, owner of Addi Galleries in Las Vegas and Reno, said "We moved because of the higher ratio of buyers at Fashion Show mall. They're also bringing in big-name department stores like Nordstrom and Bloomingdales as anchors, which would bring in more buyers, unlike the case of Desert Passage, where Aladdin was supposed to be the anchor," he said.
Not only did the Desert Passage violate an alleged promise to not lease space to competing art galleries, Addi said its store front was cheapened and access was blocked by the presence of a retail kiosk that sold $10-$15 hats in front of the gallery.
But Desert Passage disagreed, saying the kiosks weren't blocking Addi's storefront and that it had allowed the gallery to remain on its premises without paying rents for several months in hopes that Addi's business would improve.
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