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December 15, 2017

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What are the prospects of retail on the former New Frontier site on the Strip?

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Steve Marcus

A view of the former New Frontier casino site Tuesday, Nov. 3, 2015, on Las Vegas Boulevard South.

It’s a 20-year-old question that investors have spent billions trying to answer: What, if anything, can get built on the site of the New Frontier?

Experts speculate that a new retail center could work, maybe a bigger version of the Park, MGM Resorts International’s $100 million district between New York-New York and Monte Carlo, with condos and apartments. Or even some kind of attraction, one similar to Topgolf or the High Roller Observation Wheel (though that’s been tried and abandoned, too).

Almost anything could end up at the site on the Las Vegas Strip north of Spring Mountain Road, experts say, except a casino.

The problem with a casino, they say, is that there is little appetite among investors to put up the billions needed to build a resort that would have to compete with gaming giants such as Wynn Resorts, Las Vegas Sands Corp., Caesars Entertainment and MGM Resorts International.

About a month ago, the latest concept for property, the Alon project, all but officially died when Crown Resorts Limited, the owners of the site, put the land up for sale for $400 million.

Alon had been a partnership between Crown Resorts and a local team headed by casino veteran Andrew Pascal. The project’s failure demonstrates how difficult it is to get a new large-scale resort built on the Strip.

“The Alon group was as good a team as any to execute a hotel-casino resort on the Strip, and they could not find the financing necessary to push that project into fruition,” said Mike Mixer, executive managing director of the Las Vegas office of commercial real estate company, Colliers International.

The recent past, gaming analysts say, will tell you all you need to know about the appetite investors have for building new Strip resorts, especially on the north Strip.

“It’s difficult to finance a multibillion-dollar project on the Strip given what the last few projects have done, including CityCenter and the Cosmopolitan,” said Fitch Ratings gaming analyst Alex Bumazhny. “Even though those projects have become profitable, looking at just the return on investment, it’s been disappointing. And those projects are in prime locations.”

But problems with the site go back even further than Alon, which is only the latest concept to be announced with fanfare and excitement just to fizzle out over time.

Phil Ruffin, now owner of Treasure Island, bought the property from the Elardi family in 1997 for $165 million. At first, Ruffin had plans to build a $700 million San Francisco-themed resort.

Then he changed course and proposed a $2 billion Swiss-themed resort called the Montreux, which would house the Montreux Jazz Festival and an observation wheel to be called the “Las Vegas Eye.”

Ruffin never pulled the trigger on the Montreux, deciding he didn’t want to take on the debt. And in 2007 he sold the land for $1.24 billion to El Ad Group, an Israeli firm with plans to build a $6 billion Strip resort on the site to be called The Plaza.

El Ad got as far as imploding the New Frontier but was unable to get the financing needed to build something in its place. And in 2014, it sold the land to Australian businessman James Packer’s group for $280 million.

So with a casino resort seemingly unbuildable, what could come next? Mixer says retail is a distinct possibility.

Development costs are much lower, he said, and several recent high-dollar sales of Strip shopping centers proves the retail market in Las Vegas is growing.

“These (buyers) are savvy investment firms that need to provide a growth story to continue to sell stock and validate their investments,” Mixer said. “And if they didn’t see a path for growth in those multibillion-dollar investments on the Strip, they probably wouldn’t be buying them.”

A list of recent transactions seems to support Mixer’s theory. There were at least four major sales of Strip shopping centers last year

Crystals was sold to Invesco Real Estate and Simon Property Group

The Miracle Mile Shops at Planet Hollywood was sold to Institutional Mall Investors LLC.

Wynn Resorts sold almost half its interest in Wynn Plaza

General Growth Properties Inc. sold 50 percent of the Fashion Show mall

Michael Parks, senior vice president of the Global Gaming Group of CBRE, the commercial real estate firm selling the land, said both retail and gaming are plausible uses for the site. CBRE is, in fact, reaching out to all kinds of developers, he said.

“We are marketing the site not only to gaming developers but to high-class development firms from around the world,” Parks said. “There is a pretty comprehensive marketing push on this assignment.”

But one of the people charged with making those investment decisions says if there is any new retail built on that parcel it will have to be something special.

Michael Fisk is the head of strategic transactions for TH Real Estate, the firm that controls 50 percent of the Fashion Show, 50 percent of Grand Canal at the Palazzo and 87 percent of Town Square.

Fisk confirmed his firm in bullish about Las Vegas retail. “We’re very happy with (our investments),” he said. But the Strip, he said, already has enough retail. “Really, I would question what else is needed on the Strip that’s not already there.”

A project would have to be very special, he said, to lure tenants away from existing retail properties.

“It’s possible someone could do something like an indoor ski resort or something like the Triple Five guys are talking about doing in Miami (a $3 billion retail theme park near Miami Lakes and Hialeah),” Fisk said. “A huge project with things you wouldn’t typically find in a traditional mall.”

Projects like that, of course, also tend to be very expensive. And given the state of the retail industry in the country right now, getting money for a new mega-mall could be just as difficult as getting investors to back a mega-casino.

“It’s very difficult to get financing given the press about retail right now,” Fisk said. “Construction financing in general is not that easy to get in the U.S. And banks are being very careful. I think it would be tough to get it financed.”

While not familiar with the particulars of Las Vegas, retail analyst J. Rogers Kniffen agreed with Fisk and said new retail development anywhere in the country has to be unique to have a chance.

“The ones that get done are experiential and mixed-use with stores but also apartments and then retail tied into them,” Kniffen said. “So you’re not just depending on the walk-in buyers. Even so, it’s really hard to get math to work on that.”

Mixer agreed that it would be difficult, but if any place could come up with a new take on retail it’s Las Vegas.

“I think it would have to be evolutionary for retail development, but there are some creative folks out there who could take retail development to the next level. And that site warrants a special project.”

“I don’t think building what we already built will work. And we’ve seen great development here. The Forum Shops (at Caesars Palace) has stood the test of time,” Mixer said. “But there could be something new we haven’t seen yet that might be appropriate for the site that is still retail-oriented. Someone comes out with a new hook and something special that hasn’t been done before, but that is not quite as capital intensive as a resort.”

This version of the story is updated with remarks from Michael Parks.

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