Many investors priced out of Vegas market, Adelson says

Friday, March 4, 2005 | 10:53 a.m.

The price of playing with the big boys on the Strip is limiting competition for developers like Sheldon Adelson, the Venetian owner said.

With Las Vegas expected to attract a record of 38.2 million visitors this year, developers are flocking to the hottest resort destination in the country to get a piece of the action. Yet soaring land prices, driven by a boom in high-rise residential construction, are driving up shares for casino stocks and pricing many buyers out of the market at the peak of demand.

That scenario leaves people like Adelson, who gambled and won on a high interest rate bet to build the Italian-themed Venetian resort, sitting in an enviable position that's unlikely to be duplicated.

The big gaming companies on the Strip have gotten to be too expensive for many other companies to buy into the gaming industry, Adelson said during a recent interview.

Adelson said he invested $440 million into his business, a company that is now worth about $17 billion including Adelson's 88 percent stake.

MGM Mirage's market capitalization is more than $10 billion before it acquires Mandalay Resort Group.

"That's a lot of money," Adelson said. "Our company has a market cap of $17 billion to $18 billion. There aren't too many companies that can buy those as a long term investment."

For individuals, the barrier to entry on the Strip also is cost prohibitive, he said.

Resorts that would have made a dent on the Strip years ago with a billion dollars now would cost about $1.5 billion.

"There aren't many individuals who would put a billion dollars into a business they don't know," Adelson said.

The casino business isn't for the faint of heart.

Adelson said "entrepreneurs and visionaries" like himself are "few and far between."

"Very few people have the adventurous nature," he said. "I had the adventuresome nature and the risk-taking mentality."

Smaller investors are getting priced out of the market but the market for investment is growing, said John Knott, a senior vice president with CB Richard Ellis in Las Vegas.

"We're busier than ever," Knott said. "Even with prices where they are there's no slowdown at this point as long as capital is available, and it's more available today than ever before."

Individual investors are pursuing condominium towers and other high-rise residential development on land that in some cases is more expensive than casino parcels, he said.

"The highest and best use (for land) has historically been gaming. Now it's gaming with residential and other components."

Las Vegas continues to attract interest from "the wealthiest people in the world," including foreigners who are extremely rich but have not yet made their mark, he said. Well-financed gaming companies growing elsewhere in the world, as well as hotel companies, aren't yet in Las Vegas, he said.

For those who can't buy on the Strip, there's opportunity to build on the sparsely-developed south or north ends that are growing to meet demand as well as along the east and west corridors parallel to the Strip, he added.

Marc Falcone, a casino stock analyst with Deutsche Bank Securities, said high prices haven't killed opportunities for developers.

"There's a lot of capital willing to be committed to Las Vegas," Falcone said. "It's a much smaller pool of developers but it's not just gaming companies buying land. It's commercial, residential and retail developers."

"I think you will see some new people try to bring new ideas to the market," he said.

Adelson said Las Vegas may see a new crop of entrepreneurs emerge to take advantage of the market in future years.

"In every generation there are visionaries. There's no closing the door on visionaries," he said.