Foreclosure filing meant to push Strip project’s sale

By Liz Benston

Wednesday, March 19, 2008 | 2 a.m.

Wall Street lending troubles and increasing construction costs have so far derailed the Tropicana hotel expansion, which was seen as too ambitious even before the market decline, and the possible Riviera redevelopment, which already was doubtful because of infighting among large shareholders.

Unlike these projects, the Cosmopolitan, under construction for a late 2009 opening, is still on track because lenders are paying contractor Perini Corp. to finish the job.

But there’s plenty of drama behind the scenes.

Lender Deutsche Bank — which filed a notice of default against the Cosmopolitan in February — has started foreclosure proceedings to pressure potential buyers into taking over the property from seller and Cosmopolitan developer Ian Bruce Eichner. To stay in the project, Eichner would have had to put more equity into the resort. The purchase by supposed buyers hotel giant Global Hyatt Corp. and hedge fund manager Marathon Asset Management looked like a sure thing a few weeks ago. But that’s not the case now that Deutsche Bank and the would-be buyers haven’t come to an agreement on the terms of a loan, and other buyers could enter the picture.

With additional financing costs and new amenities, the Cosmopolitan will probably end up costing more than $3.5 billion, with Deutsche Bank owed more than $900 million.

No wonder executives at Las Vegas Sands Corp. are slapping themselves on the back for having completed their Palazzo resort, which held its grand opening in January, at the relatively bargain price of $1.9 billion and with nearly 50 percent of the resort’s costs fixed years ago, well before construction.

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The locals casino market in the Las Vegas Valley has become even more of a competitive slugfest in these tougher economic times.

One of casino operators’ biggest concerns is higher gas prices, which are reducing the number of trips customers are making to their local haunts and reducing the amount they have left in their pockets when they get there, gaming insiders say.

One possible sign that the competitive stakes are higher is Station Casinos’ recent decision to offer repeat gamblers free play for their slot club points. That’s not as far as competitor Coast Casinos has gone — its customers can get cash for their slot club points — but for some Station customers it’s a welcome new option for using their comp dollars. Now privately held, Station hasn’t been shy about responding to Boyd Gaming Corp.’s recent move to consolidate its Sam’s Town and Club Coast slot clubs. And it has unleashed a slew of TV ads to promote the free play option.

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Convention business is down and lower rollers are spending less money, some executives say. But the January statistics from the Las Vegas Convention and Visitors Authority don’t shed much light on the business slump on the Strip.

Average daily auto traffic, based on car counts at the California border, was down 4.6 percent in January from a year earlier, though that traffic isn’t a good measure of tourism because it includes travelers passing through Vegas and others who aren’t tourists. Over the past five years, traffic has increased by as much as 12 percent and decreased by as much as 6 percent January to January.

Convention attendance fell 13 percent from the previous January, but that was in part because of a major show that was in town a year ago and moved to February of this year. Gaming revenue on the Strip was flat, as was visitor volume, and room rates were down 3 percent from the previous January.

“We ended ’07 as a record year and it’s kind of early, based on one month, to draw any major conclusions,” visitors authority senior research analyst Kris Tibbs said. Visitor volume, hotel occupancy levels and room rates, which averaged $132 a night, hit new highs last year.

More telling is airline traffic through McCarran International Airport, which was down 3 percent in January from a year earlier, as well as in December and November. It was nearly flat in October.

Some analysts say the slowdown could be significant this year because a slew of new resorts expected to boost business won’t open until 2009 and 2010.