Las Vegas Sun

March 28, 2024

General Growth in $1 billion-plus deal

Analysts say the eye-popping acquisition of The Venetian's Grand Canal Shoppes mall by the operator of Las Vegas' Boulevard and Meadows malls will put a key retail asset in the hands of a company that has succeeded in a major tourism environment.

Representatives of The Venetian hotel-casino and General Growth Properties Inc., Chicago, jointly announced the acquisition of the 407,077-square-foot mall, two other retail components within The Venetian and the rights to develop an extension of the mall for a total amount that could approach $1.5 billion.

The deal is expected to close by May 17.

General Growth Properties will pay $766 million for the existing Grand Canal Shoppes and a minimum of $250 million for the extension of the mall, which would be at Phase II of The Venetian project. The minimum purchase price would be payable to the seller upon the grand opening and is subject to increase based on the actual square footage built and the net operating income generated during the 30 months after the opening.

Venetian officials have begun clearing Strip frontage for The Venetian's Phase II project, which hasn't officially been named. Venetian documents filed with Clark County refer to it as "The Palazzo," and analysts and a General Growth Properties' press release on the transaction refer to Phase II by that name.

Gaming analyst Marc Falcone of Deutsche Bank Securities Inc., New York, called the transaction a "landmark deal" that validates the value of Strip real estate. He also said the big price tag may keep the Venetian's parent company from having to go public to finance upcoming projects.

"We think this is a landmark transaction for two primary reasons," Falcone said in a report issued today. "It underscores the underappreciated land values on the Las Vegas Strip and should represent the current demand environment as well as the premium placed on certain strategic business models.

"This transaction will likely cause management of Las Vegas Sands to once again address the potential, or not, for an initial public offering sometime this year," he said. "In our view, the company has ample capital, especially with these proceeds, to complete is development plans in both Macau and Las Vegas, and therefore might not need to go public to meet its development goals."

George Connor, senior vice president of Colliers International, Las Vegas, an expert on Strip retail properties, said today that not only did The Venetian get a great price for the property, but it also chose a buyer that is experienced operating in a tourism environment.

In addition to operating the Boulevard and Meadows malls in Las Vegas, General Growth Properties operates the Ala Moana shopping center, the centerpiece retail development off Waikiki Beach in Honolulu.

"It's a solid match because they know the business," Connor said. "They've operated successfully in a tourist destination with high-end shops that drive sales of around $1,000 per square foot."

Falcone said the Canal Shoppes generate between $900 and $1,000 a square foot in sales, just below the $1,200 per square foot total generated by the Forum Shops at Caesars, considered the nation's most successful shopping mall by that criterion.

The price for the mall was well above many experts' expectations. When Venetian officials announced in January that they had retained Goldman, Sachs & Co., New York, to "explore strategic alternatives available," some expected the sale would raise between $300 million and $400 million.

In December, RFR Holding LLC and Sutton East Corp., acquired the Desert Passage mall at the Aladdin hotel-casino for $241.5 million.

And, in March 2003, when the Simon Property Group Inc. cashed out of its partnership at The Forum Shops at Caesars, that mall was valued at $415 million, or $590 million including debt.

Connor said the value of the Forum Shops has undoubtedly increased with Strip real estate values exploding.

"There are more and more aggressive offers being placed on the table for commercial real estate, not only here but for regional malls across the nation," Connor said.

But he said the values are even higher on the Las Vegas Strip because there is a "finite commodity for supply and demand." He speculated that there may have been even higher bids for the property, but that General Growth Properties was a proven commodity and "they're going to be operating in their back yard from here on out."

Venetian officials did not disclose whether there were other bids or who made offers.

Brad Stone, executive vice president of Las Vegas Sands Inc., the parent company of the Venetian, said that the combination of the General Growth having had experience in Nevada and in tourism centers nationwide were a plus in the company's bid.

"They put out a bid that was very acceptable to us, but we're also confident that the asset will be run as efficiently and as positively as it has since it opened."

Stone said The Venetian and General Growth Properties have had preliminary meetings to discuss the general theming of the Phase II development and that some early discussions have occurred on potential tenants. He did not disclose any details.

"Fortunately for us, attracting tenants will be a lot easier for us than it was when this was just a plan on paper," said Stone, acknowledging that the company's track record should draw interest from a number of big-name tenants.

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