Monday, Sept. 24, 2001 | 9:39 a.m.
The Las Vegas gaming industry faces challenging times ahead, perhaps tougher than any period since the Strip's modern building boom began in 1989.
Expectations of plunging visitor counts because of terrorism fears have prompted temporary halts in at least two Strip expansion projects -- the addition of a 900-room, $475 million hotel tower at Caesars Palace, and the construction of a 1.8 million-square-foot, $235 million convention center at Mandalay Bay.
"I think I can speak on behalf of most companies in the gaming industry who were considering capital investment in Las Vegas when I say everything is back on the drawing board, to see if it makes sense in the current environment," said Bear Stearns gaming analyst Jason Ader.
But calling a halt is not an option for the city's two newest resort casinos -- the $265 million Palms, opening near the Strip on Nov. 15, and the $300 million Green Valley Ranch Station Casino, set to open in Henderson about one month later. So for both, the plans are exactly as they were two weeks ago -- open on schedule, and hope for the best.
"I haven't changed anything," said George Maloof, president of the Palms. "You have to move on. We'll be opening full blast, absolutely."
"We don't have any plans to change anything," said Glenn Christenson, chief financial officer of Station Casinos Inc. "As market conditions change, we'd consider whatever modifications need to take place. So far, we're going forward with the exact same plan as before, and the same optimism with the project."
The companies really don't have much choice, said Andrew Zarnett, gaming analyst with Deutsche Banc Alex. Brown.
"If you hadn't hired any of your people yet, you could postpone your opening," Zarnett said. "On the other hand, you have capital costs that are already incurred, and you're still going to pay interest expenses. Given the amount of capital already deployed in these projects, it's very difficult (to halt)."
The Palms has hired all but 200 to 300 of the 2,500 employees that will work at the property. Green Valley Ranch still has most of its 1,150 positions available.
Station and its partner, the Greenspun family, each own 50 percent of Green Valley Ranch with Station managing the property. Each also owns about 6 percent of the Palms. The Greenspun family owns the Las Vegas Sun.
Both new casino hotels cater first toward local residents, though the Palms is counting on significant business from tourists as well.
While that insulates Station from a direct hit as air traffic and visitation falls, it doesn't protect the company entirely, Christenson said. About 25 percent of Las Vegas residents work in the gaming industry, and Station could be hurt if Strip casinos continue laying off workers for an extended period.
"That will of course have some impact on what we're doing," Christenson said. "It's very hard to give much visibility as to the direction of the market, because there's so many things up in the air. If there's a lot of layoffs, that's a problem."
Layoffs are under way at numerous Las Vegas casinos, including some operated by Mandalay Resort Group and Park Place Entertainment Corp. Those are two of the three largest employers on the Strip; the largest Strip employer, MGM MIRAGE, plans to begin layoffs within a couple of weeks.
Because of the uncertainty facing the Las Vegas market, both the Palms and Green Valley Ranch face tough starts, Ader said.
"It's going to be tough, a very challenging environment when they open," Ader said. "It's going to get a bit worse before it gets better. Longer term, these will be successful projects. I do think there's a market for both products. We hope there will be some normalization by 2003. If that's the case, both those assets will be well-positioned."
Green Valley Ranch, Station's eighth big Las Vegas-area hotel-casino, is also one of its most ambitious. It is positioned just south of the Beltway on Green Valley Parkway, at the north end of Henderson's Green Valley Ranch residential development.
It isn't the biggest Station property -- its 2,500 slots are roughly the same as Palace Station, and trail the 3,000 slots at Boulder, Texas and Sunset Station. It does have certain elements similar to other Station properties, such as its 10-screen movie theater and six-restaurant food court.
But it also has elements decidedly different from other Station properties. The main casino lies below the images of a sky at twilight, with dark wood beams over the table game pit. Detailed tile floors are located at the entrances. Hotel rooms start at 500 square feet, and feature minibars, safes and complimentary robes.
Its seven main restaurants -- "accessible, affordable, comfortable," as General Manager Mike Mecca describes them -- come from well-known chains: Trophy's, a sports-themed restaurant located near the property's sports book; Border Grill, a Mexican restaurant owned by Susan Feniger and Mary Sue Milliken, who have a cooking show on the Food Network cable channel; Bull Shrimp, a steak and seafood restaurant owned by restauranteur Gustav Mauler; Il Fornaio, an Italian restaurant; The Original Pancake House; Fado, an Irish pub and restaurant; and Feast Buffet.
Facing the Beltway, in the rear of the property, is the eight-acre backyard, featuring a pool, tennis courts, spa and lounge. The centerpiece is an outdoor amphitheater, surrounded by a three-acre vineyard. Green Valley Ranch is in talks with northern California winemakers to produce a Green Valley Ranch wine from grapes grown in this vineyard.
"It's an experience, a resort experience, unique to Las Vegas," said Mecca. "I think this will be one of the few pool areas open beyond seven at night."
Yet Mecca emphasizes this is still a Station property, calling it "the value-priced luxury hotel."
"We have, in every way, made this resort local-friendly," Mecca said. "We will do everything Station is known for to accommodate the locals. Everything is geared toward making the folks in this neighborhood feel like this is their private club."
Green Valley Ranch, however, is located just a few miles away from Station's two Henderson properties -- Sunset Station and the Reserve. And it's expected, at least initially, Station will see some business from both properties diverted to Green Valley Ranch.
But the 40-acre site that is home to the casino has long been targeted for gaming development by the Greenspuns' real estate company, American Nevada Corp.
"Someone was going to develop that property going forward, and we'd prefer it be Station than someone else," Christenson said.
In the near term, Sunset and the Reserve will lose business to their new sister casino, Ader believes. But over the long run that effect will diminish, Ader said, because Green Valley Ranch is aiming at a higher end market -- the one living within 3 miles of the property.
"I think it's complementary (to Sunset and Reserve)," Ader said. "It's going to be slow in the early years, but ultimately will build up to returns comparable to their other successes. In five to 10 years they'll have the dominant property in that market."
Near the Strip, the Maloofs are making a play for the hip young market with the Palms.
The Palms contains some elements similar to the Fiesta, the North Las Vegas locals casino where the family made its entrance into the Las Vegas gaming market. The 95,000-square-foot, 2,200-slot casino will be filled with slots and video poker machines with "generous ... payouts, and liberal player rewards." There is a 14-screen movie theater, a 450-seat buffet that will have price points similar to those found at the nearby Orleans and Gold Coast, and Sunrise Cafe, a 24-hour coffee shop. Fiesta restaurants making a second appearance at the Palms include Garduno's Mexican Restaurant and the Blue Agave Oyster and Chile Bar.
But the Fiesta never had a baccarat pit, as the Palms does. And it has restaurants meant to rival those on the Strip: Alize, a French restaurant residing near the top of the 42-story tower; N9NE, the second location of the famed Chicago steakhouse; Little Buddha, a Chinese and sushi restaurant developed by the owners of Paris' Buddha Bar; and Ghostbar, a high-end lounge 450 feet above Flamingo Road. Perhaps no sight in the casino is as unique as the lobby of Little Buddha, a red foyer filled with hundreds of Buddha statues.
There is a three-level nightclub, "Rain," with waterfalls doubling as projection screens, a central stage surrounded by a water trough meant to resemble a miniature version of the Bellagio fountains, flamethrowers positioned on a truss high over the floor and seats that resemble waterbeds.
Outside, at night, the pool deck converts into "Skin," an outdoor nightclub. Pool parties are becoming popular in Las Vegas, Maloof reasons, so why not design the pool deck with that in mind?
Ader described the target audience as "a more affluent version of the Hard Rock's customers."
"The Palms will be going after that L.A. entertainment industry-type customers," Ader said. "It's a new place, and there is a segment of the market, particularly the L.A. market, that has to be at the newest place. If it's as good as the Maloofs have planned, I think they'll take business from the Hard Rock."
No one expects the crowds patronizing the Palms -- or Green Valley Ranch, for that matter -- will be the sizes expected less than a month ago. But both properties do have an advantage, Zarnett said -- the safety of a strong balance sheet.
"The question is, do they have the liquidity to hand the early phase of operations?" Zarnett said. "The answer in both cases is yes. Station has great liquidity, and we know based on the amount of cash the Maloofs have in their project (85 percent equity investment) that they have liquidity as well.
"They have the resources to ride through the storm."
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