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August 27, 2014

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Building in the boondocks

Even as skyrocketing construction costs and booming land prices have spelled doom for resort projects in town, a second-generation casino builder is breaking ground on his own $700 million casino - with the help of the Strip's biggest casino company.

And he's chosen a seemingly unlikely location - 11 miles south of Mandalay Bay at Las Vegas Boulevard South and St. Rose Parkway and the site, for now, of a truck stop.

While other entrepreneurs struggle with financing, the 33-year-old creator of M Resort, Anthony Marnell III, is worrying only about negotiating the lowest interest rate.

Not a bad position to be in, for a fellow building in the boondocks.

With desert stretching in every direction, the 80 acres that will eventually encompass the many phases of M Resort are a good mile from the well-developed suburbs of Las Vegas.

It's the calm before the storm. Across the street, financing is being lined up for a more ambitious gamble, the $1.3 billion 1,050-room Southern Highlands Resort that's anticipated to break ground this summer. Both properties, expected to open in phases starting in 2009, could eventually cost a few billion dollars each, creating a microcosm for the epic competition occurring farther north.

Competition for customers "will be the mother of all battles," Marnell said. "But we're going to be first out of the gate."

Marnell is envisioning his well-appointed lobby taking shape near the back entrance of what is now the Last Call Tavern truck stop.

"I think this site is ready," Marnell said, stepping over scrub brush and rocks to survey the patch of desert. "We may not have the houses yet, but we have the traffic - and there will be a lot more by the time we open."

About 30,000 cars travel through the intersection daily, with even more vehicles rumbling toward Las Vegas on nearby Interstate 15 to the west. Located at the southern end of the Las Vegas Valley, the corner is a geographic gateway to the Las Vegas Strip, significant for its dramatic view of the Strip and for being the first pit stop for travelers entering the valley. Yet it's the behind-the-scenes particulars of the deal, and not necessarily its choice location, that may mean all the difference between success and failure.

Marnell is the son of prominent casino developer Tony Marnell, who built Wynn Las Vegas and Bellagio and developed and operated the Rio before selling it to Harrah's Entertainment. The elder Marnell won't have an equity interest in M Resort, but will be designing and building it for his son's company.

The son ran the Rio's gaming and marketing departments and Harrah's high-roller business before forming his own real estate software company and a separate gaming company to manage casinos for Indian tribes.

Marnell bought his first casino last year - the Saddle West in Pahrump, which proved to be a small challenge involving millions of dollars in repairs and maintenance. Marnell anticipates a similar improvement process in Laughlin, where he recently purchased the Edgewater and Colorado Belle from MGM Mirage. Like the Pahrump casino, the Laughlin fixer-up pers can ultimately yield more profit, he said.

A few years ago Marnell saw his biggest career opportunity yet along the south end of Las Vegas Boulevard, buying land for M Resort for about $3 million per acre. That's far below prices being paid for land along the center Strip, which is fetching from $10 million per acre up to the $34 million per acre for the New Frontier.

"I don't know how these guys can make money at those prices," Marnell said. "But value is in the eye of the beholder."

While improving older properties takes skill, building from the ground up, without help from Wall Street or a support network of Las Vegas properties, is a bigger challenge.

But the combined expertise of father and son attracted interest from MGM Mirage, which is investing $160 million in the project even as it pursues much bigger developments at the Strip's core.

"Tony Marnell is a legend in this business," Jim Murren, president and chief financial officer of MGM Mirage, said. "And Anthony's enthusiasm, intellect and youth are what this industry needs more of."

All three are friends who have traded e-mails and late-night advice. But it wasn't until MGM Mirage, negotiating the sale of the Laughlin casinos, took an early peek at plans for the M Resort that the company decided to get in on the action.

MGM Mirage's investment wasn't the deal-clincher, but will help the project get financing at a lower interest rate and will expedite the development process, expected to take at least two years.

In effect, Marnell's gamble is making look fairly easy what has become a difficult, shotgun approach for developers.

"The experience of Marnell and the endorsement value of MGM is significant," Murren said. "There was a time when anybody could get financing. But the bankers are full with business and are already heavily invested in our valley. Now they're looking for the cream of the crop."

Unlike most towers under way or announced in Las Vegas, the M Resort won't rely on the sale of condominiums to help finance the project. That's a typical requirement for banks that use the equity from sales proceeds before they will make loans. But the M Resort, starting off with a conservative number of 400 hotel rooms, doesn't need to raise equity, nor does it need to rely on higher-cost bonds. The privately held resort will be financed entirely by cash from Marnell and MGM Mirage, supplemented by bank loans.

The resort is also a new gamble of sorts for MGM Mirage, which is making its second investment in suburban development as part of increased interest in joint ventures.

"They will be (cultivating) local customers, which is something we don't do well," Murren said.

And for the son who once worked for the father, the tables, happily, are turned.

"He's my trusted guy - I talk to him about everything," Marnell said. "And he's been through all these casino wars before.

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