Wednesday, March 2, 2011 | 12:03 p.m.
The luxury hotel market hasn't recovered enough for a boutique hotel designed by celebrity chef Charlie Palmer to be built at downtown's 61-acre Symphony Park.
That was the news that Richard H. Kaufman, one of the hotel developers, brought to the Las Vegas City Council Wednesday morning.
"Regarding our property on site G at Symphony Park, people ask us, 'When are you going to start?'" Kaufman told the council. "And my answer remains the same. Nobody wants to start sooner than we do, but the hotel and economic situation needs to improve before that can happen."
"Do you have any bad news?" Mayor Oscar Goodman said, getting laughs after Kaufman gave a rundown of the economic factors in the hotel industry that have continued to stall the proposed 426-room, non-gaming hotel.
Kaufman's presentation was a formal requirement by the council, following the city's decision in February 2010 to give the developers a two-year delay, with the possibility of extending the delay for four years.
The developers have put up a $484,348 deposit on the land.
"I think what we can glean from your presentation is that we are going to recover, but it's going to be slow," said Councilman Steve Wolfson.
Wolfson thanked Kaufman for maintaining the interest in the Symphony Park project.
"You can see what's happening in Symphony Park — wonderful, wonderful things," Wolfson said. "It's going to be a magnificent area for Southern Nevada to enjoy ... We look forward to one day, you coming in here to say 'We're breaking ground on such and such a day.'"
The Charlie Palmer hotel is planned for undeveloped property adjacent to the Smith Center for the Performing Arts, which is under construction in the park, the former Union Pacific rail yard that was acquired by the city.
Kaufman is the president of City-Core Development Inc. and a principal in Palmer-City-Core Union Park Hotels LLC.
Outside the meeting, Kaufman said the developers' commitment to Symphony Park is still very strong.
"If we had not wanted to be there we would have left a while ago," he said. "But we have made a commitment that rather than buy another property here in town, we'd rather wait and do the right thing in Symphony Park. What's happening there is amazing and we want to be part of that."
He said he didn't have a timetable in mind for when construction might begin.
"It's a multi-pronged issue. You need to see banks lending, investors investing, our work force working and our nation and our global economy traveling to Las Vegas and meeting and eating and drinking and staying in hotel rooms the way they used to," Kaufman said.
During his presentation, Kaufman went over some of the economic factors that pertain to the hotel market.
He said that the market for new, for-sale high-rise condominiums is non-existent. Housing prices remain lower than replacement costs, he said.
"And while interest rates remain relatively low, the outlook for real price increases in attached condominiums is gloomy," he said. He said his plans no longer include any condominiums for sale in the hotel.
On the two coasts, in markets like San Francisco, Los Angeles, New York and Seattle, a plethora of hotels are coming up for sale because of foreclosures, he said.
Hotels are being sold by lenders or investors who purchased pools of loans and are liquidating the assets for pennies on the dollar, he said.
Many hotels took out loans to renovate in the last decade only to have their average daily rate drop with the recession, Kaufman told the council.
Hotel occupancy has also fallen with the economy. And those hotels have been unable to afford their newly inflated debt payments, he said.
"Lenders have little or no interest in owning these hotels and are selling them to the highest bidder," he said. "This phenomenon is affecting large and small hotels and occurring in most service categories, two- through five-star."
He said in comparing the 2009 and 2010 Las Vegas hotel market, visitor volume increased 2.7 percent, with the largest gains made in the budget and mid-market travel levels.
Las Vegas' inventory of rooms have been flat, he said. Although some room inventory was added in the chain-affiliated budget and mid-market properties, significant market was lost on the lower-end transient market level, he said.
"One new luxury hotel was added at the end of 2010," he said, referring to the Cosmopolitan.
Citywide, hotel occupancy dropped 1.1 percent and was complemented by a 2 percent increase in ADR, which grew only 98 cents in 2010, he said.
"This, however, represents a 29 percent decrease from 2007, when ADR was $132 a night," he said. "Today that number is just under $94 a night."
All segments struggled to maintain ADR, with the luxury segment placing additional marketing behind both occupancy and ADR, he said. Also, ADR is somewhat skewed because of the phenomenon of resort fees, he said.
In Las Vegas, there was a 14 percent decrease in conventions and meetings held, a drop of more than 1,300 conventions during 2010, he said.
"For our market segment, the 14 percent decrease is a major concern and is a key indicator that the luxury travel segment has not recovered yet," he said.
For the luxury market, occupancy has been somewhat flat, Kaufman said.
"But we believe that occupancy has probably bottomed out in the Las Vegas market," he said.
Today's figures indicate a 5 to 10 percent decrease from their peaks in 2007, he said. Hotel room rates have also remained somewhat flat between 2009 and 2010, he said.
"In the luxury market they are down 35 to 50 percent from 2007 levels," he said. RevPAR (revenue per available room), which is the product of ADR multiplied by occupancy, decreased in the luxury market and shows a lack of discretionary spending by Las Vegas visitors, Kaufman said.
In terms of financing, both small regional banks and large national banks are starting to lend money again — but primarily only on the best properties and with much more cautious guidelines, he said.
"Banks are, unfortunately, doing the opposite of what we wished they would do," he said. "They are lending less when prices are low and more when prices are high."
Banks aren't lending for the construction of new luxury hotels in Las Vegas, he said.
And that will probably remain the case until three factors change — the global economy strengthens, unemployment drops and replacement costs must be less than fair market value, he said.
"It would be cheaper to purchase a hotel today than to build one," he said. "This is because hotel prices have fallen as rates in occupancy have dropped. However, construction prices have not fallen as drastically. Union labor rates have not dropped significantly. And materials have dropped some, but not meaningfully."
He said subcontractor traffic has gone down, but is expected to return to a more normal level by the late part of this year, he said.
"If hotels have dropped by at least a third in value, construction prices have not dropped by as much," he said. "Values must increase or construction prices must decrease before new buildings will occur. The exception, of course, is in the public sector."
He said the outlook for 2011 in the Las Vegas luxury market is that the convention and meeting market will be stronger, but not robust.
Occupancy levels will grow primarily and room rates will follow slowly in 2011, he said. And, he said, if the overall economic recovery improves, the FIT, or the fully independent traveler, and RevPAR will increase at a higher rate.