Caesars Palace launches another construction job

Tuesday, Oct. 28, 2003 | 11:07 a.m.

For a resort that redefined opulence on the Las Vegas Strip, Caesars Palace is lacking much of its curb appeal these days.

Concrete construction walls have blocked access from Flamingo Road for more than two years, while green mesh and chain-link fence line the property's edge facing the Strip. An expansion of the Forum Shops mall that won't be open until next fall has spawned another set of construction barriers at the northern part of the resort's Strip frontage, offering glimpses of rubble and clouds of dust.

Inside the property, heavy machinery roars behind temporary walls near the Forum Shops at the northernmost part of the casino, drowning out ringing slot machines. Tourists who pick their way to the front entrance are greeted with a construction wall to their immediate right, creating a narrow passageway from the front casino area that eventually spills into a second, newer casino to the north.

That wall will come down next week when Caesars Palace will unveil a new casino floor in place of a previously unused courtyard. The floor will create a wide walkway through the center of the property connecting older and newer casino areas and funneling customers directly to the Colosseum theater, executives said Monday.

It marks just one of several barriers that will be removed over the next several months at Caesars Palace, which is undergoing its most significant transformation in recent history, executives said at a ground-breaking ceremony for the resort's previously announced 949-room hotel tower.

"This is the first time Las Vegas has transformed a resort without resorting to dynamite or a wrecking ball," Park Place Entertainment Corp. Chief Executive Wallace Barr said. Park Place owns Caesars.

Caesars Palace "has been a legend and is becoming a legend in a much greater way," Caesars Palace President Mark Juliano added.

The opening of the casino space this year will be followed by a new "Roman Plaza" entrance at its southeast corner, which will funnel pedestrians into the property from Flamingo Road and Strip entrances by summer 2004. The room tower will follow in fall 2004.

Caesars Palace, considered the first themed megaresort at its Strip debut in 1966, also claims ownership of several Las Vegas firsts, including the first luxury retail mall connected to a casino and the first celebrity chef restaurant.

It is also one of the most talked about Las Vegas resorts on Wall Street.

Several analysts have applauded initiatives to revamp the property to better compete with newer and hipper megaresorts such as The Venetian and Mandalay Bay. Others have criticized the company for plowing millions into the resort over the past few years instead of reducing debt or slashing its ballooning operating costs.

"The company's crown jewel, Caesars Palace in Las Vegas, has been plagued by additional myriad issues (including) operational inefficiencies, cost overruns, high-end market share erosion and volatile ... swings" in the percentage of bets won from gamblers at the tables, casino analyst Ray Neidl of Blaylock & Partners wrote to investors in February when he initiated coverage of the company with a "hold" rating. "We believe that 2003 should continue to be a transition year for the company."

Construction barriers won't help returns in the near term, though analysts say they anticipate improved returns in the long run as upgrades are unveiled.

In a research note last week, Deutsche Bank Securities analyst Marc Falcone said construction disruption in front of the resort is expected to dissipate in mid-2004, while construction will wrap up at Park Place's Flamingo resort, across the Strip from Caesars Palace, in December.

"Looking into 2004, the company should benefit from continued improvement in trends in Las Vegas and a solid outlook for first-quarter convention bookings, Falcone wrote. "With the addition of the hotel tower at Caesars in 2005, that property should be well positioned to compete with Wynn Las Vegas, although we expect Wynn to carve out a piece of Caesars table business."

In a separate research note last week, CIBC World Markets analyst William Schmitt said he was also bullish on the property's revitalization and that the improvements should position the resort to gain market share at the high end of the market in time for the opening of Wynn Las Vegas in 2005.

The Celine Dion show at the Colosseum, which has played to sold-out shows and increased traffic "dramatically" at Caesars Palace, is a positive sign of things to come, he said.

"This increased traffic helped drive results in the region for the (third) quarter," Schmitt wrote. "We believe that the Plaza and New Tower ... should be as successful as the Colosseum when fully integrated into the property's operating assets."

Park Place spokesman Robert Stewart downplayed the effects of ongoing construction projects on returns.

Construction of the Roman plaza and hotel tower are expected to have "zero" effect on returns because the construction zone has been segregated to a single area that has long been off-limits to Caesars customers, Stewart said Monday. The property has been functioning for more than two years with the walls in place, he said.

Though minimal, construction of the "casino connector" project is expected to have some negative effect on business because it will "break through the reception area" at the main entrance, he said. The walls surrounding the space have been up for about six months.

The company hasn't yet defined what potential disruption could cost the company.

"It's been a long and challenging task," Barr said of the stream of construction projects that Park Place has initiated at Caesars Palace since the company bought the property from Caesars World in 1999.

The casino connector project is expected to open by Thanksgiving with about 35,000 square feet of casino space. The casino will feature about 350 to 400 slot machines, a high-limit slot area with a kitchen and lounge and a "carnival game pit" with creative card games, such as those offering progressive jackpots, Caesars Palace Senior Vice President of Hotel Operations George Markantonis said.

Nearby will be an aquatic-theme bar that is expected to feature live seahorses in tanks, as well as an Elton John retail store to complement the upcoming Colosseum show, he said.

Some of the restaurants will be open this year, though other features, including a nightclub, are expected next year, Stewart said.

The two-story nightclub will be a first for the resort in size and scope and is anticipated to include a rooftop area facing the Strip, Markantonis said.

The club is aiming for a broader audience than other hot spots catering to 21-year-olds, he added.

The new tower will help Caesars Palace meet existing demand for rooms from convention goers and tourists, Juliano said.

The property offers about 2,400 rooms -- fewer than some other major resorts on the Strip.

The property has reported annual hotel occupancy averages of more than 94 percent over the past five years and record cash room rates for six out of the last eight months, Juliano said.

The tower expansion is expected to employ from 500 to 600 new full-time workers, executives said. The tower will feature a porte cochere entrance along Flamingo Road as well as 52 suites larger than 1,000 square feet. The majority of suites will be between 650 to 760 square feet.

Rooms will include 9-foot ceilings, spa tubs, digital television systems and high-speed Internet access.

Other tower features include a VIP lounge, several new wedding chapels, retail space, restaurants and 140,000 square feet of convention and meeting space.

A fourth swimming pool at the resort's 4.5-acre Garden of the Gods pool complex begins construction next month for an expected opening in April, Markantonis said.