Friday, June 2, 2017 | 2 a.m.
Intense speculation has surrounded SLS, the Strip resort purchased last week by Alex Meruelo and Meruelo Group, since it opened in 2014.
The casino was not a new structure — rather a renovation of the old Sahara, Las Vegas landmark since 1952. But it was the last new resort to open on the Strip since the Cosmopolitan first welcomed guests in 2010 (Lucky Dragon, which opened last year sits west of the Strip, half a block from Interstate 15).
Like the Cosmopolitan, SLS positioned itself as a casino for the hip, but some observers questioned if it would succeed given its location. Since it’s surrounded by vacant lots and unfinished resorts, there’s not much pedestrian traffic near SLS. Unlike resorts in busier sections of the Strip, few tourists are likely to visit SLS on a whim.
Initial results were not good. In 2015, after which the casino stopped publicly announcing financial results, SLS reported a net loss of $122.7 million for the first nine months of the year.
Management did some tweaking — ditching the buffet, adding live music, changing leadership and entering into a partnership with Starwood Hotels & Resorts Worldwide (which afterward merged with Marriott) to bring the W hotel brand to one of SLS’s hotel towers.
With no financials to examine, there’s no way for anyone outside the company to know if the changes worked. That Stockbridge/SBE Investment (which owns the SLS via subsidiary SB Gaming) sold the property may be some indication.
Now, speculation turns to what’s in store now that Meruelo Group owns SLS.
The new owners aren’t revealing any plans they may have. Andrew Diss, director of government affairs for the Grand Sierra, the Reno resort also owned by Meruelo, said they’ll start in-depth due diligence and planning once Nevada gaming regulators OK the deal.
He did say, however, that SLS’s location was not discouraging.
“We welcome it,” Diss said. “The increasing development and revitalizing of the north end of the Strip is something a lot of people have been waiting on, and we want to be a part of that resurgence on that end. People feel like there’s this empty gap when they leave Las Vegas Boulevard South and we want to be part of the resurgence along with Resorts World, Lucky Dragon and the Convention Center.”
To get a feel for what might happen, the Las Vegas Sun spoke to several industry experts and observers to get their take on the property and what approach might work.
The real estate pro
Michael Parks is a senior vice president at real estate firm CBRE and part of the company’s global gaming group, which specializes in casino real estate transactions. He helped broker the initial sale of the SLS property (when it was still the Sahara) from Northern Trust and Gordon Gaming to Stockbridge.
As is expected of a real estate executive, Parks cited the positive aspects of SLS’s location and thinks playing to those strengths might be a good strategy.
“How to make it a success is more of an operations question than a real estate question, but the property is a good piece of real estate,” he said. “Because it’s on the north end of the Strip, it has great access from Sahara to Interstate 15.
“It’s also got the monorail stop there, which provides access to the rest of the Strip and, most importantly, to the Convention Center. Taking advantage of the monorail stop and figuring out how to take advantage of meeting space at the property would be a good idea.”
The casino academic
Anthony F. Lucas is a professor of gaming at UNLV’s William F. Harrah College of Hotel Administration and has worked for Harvey’s Resort, Harrah’s, MGM Grand and Palace Station.
Lucas said he’s always liked the nongaming aspects of SLS. “It’s competitive, interesting and compelling.”
But he said the new management will have to address the two major prerequisites for success on the Strip: slots and hotel operations.
“They don’t have amenities like (MGM Resorts International) and some of the bigger operators of integrated resorts, so they don’t get all the cash flow contributions from all the nongaming amenities. They’re not operating at that level. So they need to be strong in hotel operations and slots.”
The slot aspect may be attainable given the company’s experience operating the Grand Sierra in Reno, he says, but the hotel side of things could be a challenge.
“Occupancy is one thing, but occupancy at a competitive average daily room rate is another. In other words, if you play the game, you can get occupancy up by dropping the room rate but that doesn’t get you where you need to go.”
One way to get that better room rate is to appeal to convention customers, who are less price-sensitive than other Las Vegas visitors, he says.
“Meeting and conventions are also supercritical on the Strip,” he said. “It helps you get your average room rate higher. You’ve got to have sufficient meeting space, so they’ve got to get that business right as well.”
John DeCree is the director and head of research for Union Gaming Group and spent 10 years in capital markets researching the gaming industry.
“What that property is missing is a strong base of casino customers,” DeCree said. Emphasizing the locals market might be one way to get that business, he said.
“As far as it relates to locals, a single asset like SLS, which doesn’t have any other assets in the market, may find it difficult to compete with companies like Red Rock or Boyd that have strong player databases. Focusing on how to get casino customers into that building would be key to turning it around.”
But, DeCree says, it has been done before by another Strip property, if not in that exact manner. “It was something the Cosmo was able to do over the last couple of years,” he said. “It was able to ramp up its casino business.”
Christopher Jones is the director of equity research and covers the gaming industry for the Buckingham Research Group. He says the experience operating the Grand Sierra in Reno may be valuable.
“The attempt by the original SLS owners to appeal to California driving customers — that strategy didn’t really work. When you talk about Reno, it’s certainly a more spread-out market and slightly more promotional. There’s a mix of locals and out-of-town customers from California,” he said.
“So they are probably a little more used to that sort of environment instead of expecting a constant flow of California driving traffic to do the trick,” he said.
Jones said one other recently discussed change to the casino might also help.
“I agree with some that probably changing the name (might make a difference),” he said. “I heard that they might change it back to the Sahara. That makes more sense if you’re trying to attract more locals and older Las Vegas business.”
The industry observers
Ken Adams is the executive editor of the gaming business website CDC Gaming Reports. He also is the publisher of the Nevada Gaming Almanac, as well as several other gaming industry newsletters and publications.
If the SLS does need a mix of locals and tourists to survive, Adams says the Meruelo Group’s Reno experience would prove useful. That’s because the gaming market in Reno relies far more on a mix of locals and tourists than the Strip does.
Even the SLS’s isolated location matches the new owner’s experience with the Grand Sierra, which is located away from Reno’s downtown corridor or any other casinos, Adams said. “They seem to be comfortable with that sort of isolation and operating a large piece of property.”
Anthony Curtis runs the gambling consumer blog, the Las Vegas Advisor. Curtis also expects that the new operators may try to appeal to value-oriented customers, something he saw when he visited the Grand Sierra himself.
“I would assume that because they run the joint in Reno, and that’s very similar to a locals Vegas place or a downtown Vegas place, that they’re gonna go that route, a value route,” Curtis said.
“They’re going to use the tactics that work for them in their home market. And this is a good thing for the consumer. What it will do to the higher-end restaurants in the SLS, that’s what everyone’s asking. But places tend to stick with what they know, and the place in Reno is not a high-end place.”