Analyst: Resort financing will challenge developers

David Strow

Friday, Jan. 5, 2001 | 11:01 a.m.

New World LLC now owns 77 acres of land on the southernmost tip of the Strip, with frontage spreading for a half-mile across the street from Mandalay Bay.

On Thursday, company principals discussed their optimistic plans -- landing joint venture partners to develop up to three themed hotel-casinos on the site, along with possible retail or entertainment space.

"Our excitement lies in the planning potential of this land," said New World principal Bob Unger. "This is basically the front door of Las Vegas."

But their efforts come at a time of waning investor confidence in the Strip. Fears that Las Vegas' visitor growth is tapering off has shaken the stocks of the city's largest operators, and capital for new gaming projects and acquisitions has been drying up. And that, gaming industry observers say, could make their efforts challenging.

"It's a fairly difficult capital environment," said Marc Falcone, gaming analyst with Bear Stearns. "Not a lot of people are willing to put a lot of money into Las Vegas right now. There's a perception that Las Vegas is slowing, and that will make a lot of people reluctant to invest in new properties in that market."

Unger and partner Barry Fieldman have had experience in Strip development, developing the $200 million Showcase Mall near the MGM Grand. But they don't have gaming development experience, and that will make finding cash more difficult, Falcone said.

"They're not the typical Strip players," Falcone said. "They would probably be in a situation where they'd face a more challenging environment than (more established developers), because they have less expertise."

New World's principals are Unger, Fieldman, Howard Bulloch and David Gaffin. The partners did not disclose their individual ownership stakes in New World.

Efforts to raise cash for gaming investments have proved difficult for even the largest of players recently. In late December, PH Casino Resorts Inc. -- an affiliate of Colony Capital of Los Angeles -- was forced to yank a $625 million, high-yield bond offering off the table because of poor market conditions. As a result, plans to acquire Pinnacle Entertainment Inc. for $1.3 billion were delayed indefinitely.

And on Wednesday, Park Place Entertainment Corp. announced that its deal to sell the Las Vegas Hilton to Los Angeles developer Ed Roski is in jeopardy, apparently because Roski is having difficulty coming up with cash to consummate the deal.

"Right now, financing is pretty difficult," said William Schmitt, gaming analyst with CIBC World Markets. "There are other, higher-quality locations that will get funding sooner. The Tropicana site (owned by Aztar Corp.) will probably happen in one form or shape, as well as the Boardwalk property (owned by MGM MIRAGE, located just south of the Bellagio)."

But Unger believes if the project has quality, the cash will follow.

"I think there's always money for new projects, if they're priced right, revenue projections are conservative, and it's innovative," Unger said. "It's based on the quality of the project."

The developers say they have several factors working in their favor. Fieldman pointed out that New World didn't incur any external debt in acquiring the land -- so it won't have to meet heavy interest payments while it's seeking out partners and it won't have to rush into a deal.

Second, several key approvals are already in place for the land. Most of the land is already zoned for gaming development, and the Federal Aviation Administration has ruled that buildings on the land -- located just west of McCarran International Airport -- may rise as high as 425 feet. The land lies adjacent to one of McCarran's runways.

This FAA ruling caused some controversy. The land parcels do not lie in the way of McCarran's primary east-west runways. But McCarran officials expressed concerns that buildings of that height could interfere with planes approaching under poor weather conditions.

Randy Walker, director of the Clark County Department of Aviation, said this situation comes up when poor visibility forces pilots to use their instruments, rather than sight, to approach McCarran. These approaches are made from the south, on the north-south runway closest to the New World sites.

If pilots cannot see the runway from a distance of one mile or a height of 1,000 feet, they must abort their landing and return to a holding pattern. The aviation department expressed concerns that high buildings on the land could interfere with those landings, Walker said, and asked the FAA to re-examine its the decision. The FAA again ruled in favor of the higher buildings.

"The FAA has determined it poses no hazard to air navigation (at McCarran)," said Jerry Snyder, spokesman for the FAA's Western-Pacific region. "We do not give permits to build. The county has the sole authority to do that. We determine whether having a building there would cause a hazard to aircraft navigation.

"Mandalay Bay is taller than the one proposed for FAA review. The assessment is (the New World proposal) does not interfere with instrument landing systems or any flight minimums."

Even Walker said he doesn't view the dispute with the FAA "as a really big deal."

"The probability of anything happening is so small that you take the building into consideration and work around it," Walker said. "It will never be a problem. The impacts are so minimal that we can't in good conscience say it can't be done.

"The Stupak tower construction (the Stratosphere) was a much bigger impact than this thing is going to be. This is a pebble in the ocean compared to what the Stupak tower was."

With all these issues addressed, will the far south Strip location work? Fieldman, with his expertise in retail development, said he wouldn't attempt a retail development at the site now, because demand isn't there. But he and his partners say the site is logical for development, because it is the closest site to the millions of passengers coming through McCarran each year.

Neighbor Mandalay Resort Group could make that easier -- the owner of Mandalay Bay owns several huge land parcels south of its newest hotel-casino, and has targeted that land for eventual development.

But Falcone says location may prove yet another challenge for New World's visions.

"Mandalay Bay is finally coming into its own, but that's almost two years later," Falcone said. "There's a lot that would argue that location may not be the best location for new development."