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November 23, 2014

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Riviera’s staying power on display

Within months of opening its doors in April 1955, the Riviera hotel and casino went bankrupt -- the fallout of a glut of casinos that opened around the same time.

In 1984 the property filed for Chapter 11 bankruptcy after struggling to pay down a high interest loan, digging itself out a year later. In 1991 the property again sought bankruptcy protection after a construction delay prevented the company from refinancing its debt.

Each time the Riviera -- boosted by the city's fledgling convention business -- emerged to survive another day.

That staying power is on display this week as the property celebrates its 50th anniversary Wednesday. Like a showgirl past her prime, the 2,100-room property is a sentimental testament to the glitz and glory of the city's past. Its 26 acres -- just up the Strip from the $2.7 billion Wynn Las Vegas megaresort and the $1.8 billion Venetian -- also is a symbol of its optimistic future.

For years rumors about a potential takeover and redevelopment of the Riviera have swirled about the property. Such talk has intensified over the past year as land prices have skyrocketed, high-rise condos have taken root and major upgrades have taken shape at the north end of the Strip.

"There's no doubt that the future of that property is a tear down and redevelopment project," said Andrew Zarnett, a bond analyst at Deutsche Bank.

Residential and commercial developers -- not just gaming companies -- are exploring the potential of resorts with large nongaming components like residential towers and retail malls, he said.

Riviera management is so far mum on future prospects.

In February the company announced it would retain an investment bank to explore the possible redevelopment of the property. Options include refinancing debt, joint ventures, mergers and "other methods of realizing the value of our stock," the company said.

All options are still on the table, said Duane Krohn, chief financial officer of parent company Riviera Holding Corp.

"We haven't made a decision as to how to develop it but the value of the land keeps on going up," Krohn said.

Nearby redevelopment projects including Boyd Gaming Corp.'s eventual rebuild of the Stardust and Turnberry Associates' purchase of Strip-front property near the Riviera will no doubt factor into that decision, he said.

After years of steering clear of the north end of the Strip, developers are now hot on redevelopment sites in that area, Las Vegas resort broker David Atwell said.

"That's basically Old Las Vegas in that couple of blocks and it's going to rapidly change," he said. "I don't think you're going to be able to see 30-year-old buildings compete in this market."

Jacques Cornet, a bond analyst with CIBC World Markets, said the Riviera will have an increasingly tough time in future years competing with a new stable of resorts.

"They've got their stable of customers and it seems to work for them now," he said. "If you were going to go up against these other properties you're going to have to redevelop at some point."

Zarnett said a decision on the Riviera might not be made until Wynn Las Vegas has been up and operating for about a year.

A successful opening of the nearby resort "will lead others on the north end of the Strip to look at development opportunities and will force others to reevaluate their sites," he said.

The Riviera sits on 26 acres, "some of the most critical acreage between the (Las Vegas) Convention Center and the Strip," he said.

What the property might be worth has been the subject of debate, but some analysts say it could range from the high $200 million range to the mid-$300 million range or more.

That means the Riviera could be worth about $11 million per acre if priced based on its land value and relative worth as a redevelopment site. Some analysts say that is conservative and that the Riviera is worth far more than it makes in its casino.

Opening with nine stories, the Riviera was the Strip's first high rise and was patronized by upscale tourists.

"It was luxurious and classy and we dealers were making excellent money," said Bill Kissam, who was 27 when he opened the property as a roulette dealer.

"When I was there you had to get dressed up to go out," said Ruth Gillis, a retired singer who performed a showgirl routine with Liberace in the property's heyday.

High-rollers still preferred the Sands and Desert Inn casinos, however, said David Schwartz, coordinator of the Gaming Studies Research Center at the UNLV.

The Riviera distinguished itself on the entertainment front, hiring Liberace to open the property and paying the entertainer $10,000 per week.

"That kind of money was unheard of," Schwartz said. "They went into it with the attitude that they were going to make a splash. They started a headliner war on the Strip where everyone was trying to outbid each other."

Eventually the Riviera brought in revue shows to control costs, a move emulated by other casinos, he said.

Rather than signing huge contracts with big stars, the Riviera has attracted attention with production that push the envelope. Those include Crazy Girls, a bawdy topless show that has been viewed as an alternative to strip club entertainment and Splash, a variety show that pairs topless showgirls with motorcycle daredevils and ice skaters. The long-running shows now compete with a plethora of risque entertainment on the Strip.

While other casinos went after Strip passersby and daytrippers, the Riviera carved out a stable customer base of convention-goers and tour-group customers. About 30 percent of the property's rooms were occupied for conventions last year, with about the same projected for this year. Another 21 percent of rooms were occupied by groups referred by the property's four largest tour and travel operators.

After the property emerged from bankruptcy in 1993 the property made a conscious decision to retain its convention business rather than push harder to attract gamblers, Krohn said.

"We realized the value of midweek business and that it would be easier to fill" with convention-goers, he said. "I guess we made the right decision."

The Riviera's profit is largely eaten by debt payments that have dogged the property over the years. A debt balance of around $215 million, which carries an 11 percent interest rate, helped push the Riviera in the red last year.

The property still maintains a loyal following.

Over the past decade, the property's occupancy rate has ranged from 90 percent to 98 percent -- among the highest on the Strip. Last year, occupancy was 93 percent.

Among the property's many regulars is Clyde Butz from upstate New York.

Butz and his wife, Judy, began staying at the Riviera in the early 1990s after a slot host at the Sands relocated to the Riviera along with some of the other casino staff.

"The friendliness of the staff keeps us coming back," he said. "Even if they tore it down and rebuilt it if the staff stayed we would stay with it."

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