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twitterFlood of new hotel rooms dims Vegas outlook for ’10
Lower room rates have helped, but condo sales stay low, experts say
Justin M. Bowen
In recent reports, analysts expressed concern about an oversupply of rooms on the Las Vegas Strip, with additional rooms opening in the next several months.
Tuesday, June 23, 2009 | 2:41 p.m.
Skeptics have been suggesting for decades that Las Vegas has built more hotel rooms than can be filled, and still with every economic downturn, the Strip bounces back with remarkable occupancy rates, stoking even more construction.
It may be the closest that man has come to creating a perpetual motion machine.
But the machine is sputtering now, and will sputter more through 2010, according to two new reports out this week that fret about the number of hotel rooms being added to the market next year.
In their reports, debt analysts at Deutsche Bank and CreditSights zeroed in on the impending flood of new hotel rooms on and near the Las Vegas Strip — a market struggling with an oversupply of rooms, slot machines and gaming tables.
“The challenge for the casinos will be to maintain hotel occupancy even as new supply is brought on over the next 14 months,” CreditSights said in its report.
Even without taking into account the 3,815 rooms at the stalled and bankrupt Fontainebleau resort, analysts say new rooms coming online at CityCenter and elsewhere will pressure the Las Vegas industry.
CreditSights noted that lower room rates are helping to fill Las Vegas hotels, but sales of condominium units on and near the Strip have come to a near standstill with 2,200 vacant units on the market.
The CreditSights analysts called it “remarkable” that Nevada gaming win dropped in April for the 16th consecutive month, considering the major additions to the market.
With the opening of Las Vegas Sands’ Palazzo and Steve Wynn’s Encore, “the old rubric that ‘supply creates its own demand’ is clearly not relevant in today’s environment,” CreditSights said.
Still, CreditSights analysts Chris Snow and Frank Lee said they are encouraged by recent efforts by Strip leaders MGM Mirage and Harrah’s Entertainment to deal with their short-term debt and balance sheet issues.
Major gaming companies have successfully negotiated with lenders to fend off the immediate risk of default, the analysts said. Such an event could lead to Chapter 11 bankruptcy protection filings by giving lenders the right to demand repayment.
But they aren’t out of the woods yet. Both MGM Mirage and Harrah’s face a looming cash crunch in 2011, they said.
Although May gaming win numbers have not been released, it’s doubtful they showed much of an improvement considering the numbers issued for May last week by McCarran International Airport.
McCarran said the passenger count in and out of the nation’s gambling capital was about 3.5 million people, down 11.5 percent from May 2008 and 11.9 percent year-to-date.
Also this week, Deutsche Bank analyst Andrew Zarnett reiterated concerns about the new rooms coming online in Las Vegas. Overall, he said, they’ll reduce resort earnings and further stress owners’ balance sheets.
Even with the likely postponement of Fontainebleau, the Strip still won’t be able to fill new rooms that are coming online, Zarnett wrote. He cited “weak economic fundamentals and a diffident consumer.”
Deutsche Bank estimates the room count for the Strip market will grow about 15 percent, or 10,000 rooms, to 77,000 rooms over the next year.
This includes some 5,895 rooms at MGM Mirage’s CityCenter, 865 at the Hard Rock Hotel, 2,400 at the Planet Hollywood Westgate and 800 to 3,000 at the Cosmopolitan.
Strip gaming revenue and earnings before some expenses will decline by 15 percent and 30 percent respectively in 2009 even if the market begins to stabilize in the second half of this year, Zarnett said.
But the situation will worsen in 2010 with the opening of CityCenter in late 2009 and other resorts thereafter, he said.
One glimmer of hope is that CityCenter will drive added visitation to Las Vegas in 2010 — resulting in at least a slowing in the financial beating the Strip is taking, Zarnett wrote.
Discussion: 29 comments so far…
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Duh!
Did any idiot pay these analysts for this "insight"?
what will happen when we run out of water - just wondering! then there will be plenty of rooms for the whole world
MGM should sell all of those condos to their Management team. They have the millions. Since they made the decision to build condo/hotels, require them to pay full retail price immediately (they can be in debt for awhile) and the casino's balance sheet will improve dramatically. Shareholders and Bondholders should demand it!
Sic transit gloria...
This too shall pass. The recovery may not come until 2011 but when it does there will be enormous pent up demand. All of those rooms and condos will be sold.
haha, ya, there will be a TON of people just begging to pay $300,000 for 800 sq. ft. in 2 years. haha!
last fall everyone trying to sell something in this town said "summer of 2009" will be great...then it was 2010, now it's 2011.
as more people lose their jobs in america, and the longer they stay unemployed, the less money there is for people to splurge on condos in vegas.
In 2006 casino resorts were posting record profits. Room rates were at their maximum. Presently, the room revenues are lower and profits are down. How far are the profits really down? What is the true reality of this situation? Reports like this contribute the focus on negativity. Maybe writers should think about writing positive stuff about LV and publish it on the front page?
we have many british friends who used to come to town and stay on the strip, they now stay away from the strip, they say the strip has become too expensive, red bull $30 a can in luxor, $40 for a small wine, 2 coffees and 2 pastries in caesers , the casinos need to get real otherwise they will lose all the trade..
I was in Vegas in May. 4 weeks in a row. I love this city. I lost money but not on the Strip. During my 4 weeks, I counted it on one hand, I was on the Strip just 4x in total!!! I hate the Strip. The chaos on the street and parking hassle unless you valet. The sidewalks full of Mexicanos handing out the bs papers of the super charged "entertainers". It's ridiculous they can do it and therefore provoce the tourists and locals alike while it's not allowed for a poor streetperson to gather around on the Strip. Then the police will show up instantly!!!
The room rates are too high on the Strip resorts, and so are the restaurant prices. The buffets are great but too busy as logically hotels with thousands of hotel rooms have a huge number of people being hungry at most times and therefore there's always something going on.
And then there's the noise inside of the casinos. Many casinos have more than one live gig going on or music coming out off a lounge and from a different direction at the same time, conflicting and irritating the visitors. Planet Hollywood or MGM Grand are great examples of HOW NOT TO RUN IT nearby the poker area. How can somebody be so crazy and go gambling if it's sooooo noisy????? I mean, not all Vegas visitors are deaf!!!!
It's nice having a night club with great sound spectacular inside, but the gaming floor does need to be filled with additional and useless noise. It will backfire and drive away the gamblers I guess.
The room rates need to be low and the there must be more eateries at decent prices for the customers. It's ridiculous to jack up the weekend rates in a way that people stay away or stay without room on the Saturday night, just to check in early on Sunday, because they refuse to pay 120 per cent of what they otherwise pay on a regular weekday for the same room!!!
Vegas has to learn a lot again. Perhaps they should learn quickly from all the other resorts that recently opened up worldwide as otherwise international gamblers will not fly into Vegas anymore but instead will check out Singapore or Macao (which is a great idea anyway from what I have heard).
East Side Cannery is one of the last true resorts with great value. Just by chance I hit that place and was surprised how much I get for how little money. and in return, I gave them action at the machines and in the pit. It was great and I will return to that resort soon again...under the condition that they will not get intoxicated by this ridiculous RESORT AMENITY FEE that is a policy by Station Casinos or Boyd Gaming, just another way to take out the ignorant (stupid) visitor.
Good luck Vegas !!!
BorisR
Mmmmmm....seems like you don't like Vegas at all. It has ALWAYS been noisy in the casinos; that's part of the whole Vegas scene. And it's always noisey in ANY casino, not just here. And I NEVER heard of guest complaining about the noise. Most just tune it out. If you want quiet, maybe Vegas isn't for you.
The water issues isn't even mentioned.....there's plenty to worry about beyond the influx of new rooms. I love Las Vegas so much, it pains me to see what is going on and what may happen in a worse case scenario. Sigh
Vegas doesn't know what it is... Disney World or Sin City and it doesn't care.
You find examples of both on the "Srip".
It just wants your money, it tolerates you because its in your pocket and they are trying to get it. Which is why Harrah's is so interested in Internet Gambling.
No hotel employees, no food service workers, no unions, no real estate tax, no electric bill, no water bill, no OSHA, very few operating costs except for computer maintenance and software updates. Operating costs on a "Cyber Casino" are very low in comparison to what they have going on now.
People from around the world can just "Pay Pal" their money in... won't even have to show up to lose it.
Granted there are other things that people come to Vegas for, but not enough to fill 70,000 rooms.
Not that it matters, but in certain parts of the strip so much has been constructed in around and on top of things that any possible view of the mountains and surrounding area is gone....and gives it a SLIGHT claustrophobic feel to boot!! O well, JMO
In the recent past (1-4 years) many of the properties really alienated customers with the total focus being on the customers wallets instead of their vegas experiences. Sky-high room prices for rooms that weren't being kept clean or modern and insane restaurant prices. Eliminating competition by creating two mega-players (Harrahs and MGM) left a sour taste in the mouth of many. Casino loyalty towards customers was gone and now customer loyalty towards casino properties has followed suit.
teambeam:
LOLOLOL I don't recall ever seeing the Mountains from the Strip. From our hotel room - yes, but not from the street. Maybe back in the 80's you were able to do that but not in the last 20 years. Maybe you should try staying at Red Rock, Aliante, Cannery, JW Marriott, and an off-strip hotel where you will be able to see the mountains. Some of us who live here can't see the mountains anymore either, but hey....all one has to do is get in a car and drive to see the mountains!! But then that would mean you would have to leave the casinos....
boris...here's the thing with those cards they hand out on the strip:
as long as people take them...they will be there handing them out. i always see some middle aged guy from ohio that takes one of those cards or connie and melba from nebraska take one because they think it's so "dirty" and "vegas" to take one.
there needs to be some kind of advertising at the airport in the tourist magazines asking people to PLEASE not take those cards.
lightfoot is totally right.
when it went from 5 or 6 companies on the strip down to 3 or 4 it really started to go downhill. the room rates went up, the gouging began, and people were like "ahhh...vegas...been there, done that", then the stardust and frontier shut down, leaving really only the riviera and sahara for people that don't need a $300 per night room and the riviera is a dump.
All great posts. I also think that the csinos have forgotten that the majority of the Vegas visitors are made up of average everyday folks. My wife and I make a very good living but we are by no means considered wealthy. During the boom there were so many people who had accumulated alot of paper wealth, both in the stock market and in real estate. Those days are gone now and in order for Vegas to be successful they will have to play to the middle income brackets. I hope they do because I love the old Vegas.
The problem isn't so much too many rooms, but that each room carries too much debt. Once a couple of the companies declare bankruptsy and dump their debt, they can bring room rates down, keep them filled, keep enough bodies in the casinos to keep the tables and slots rolling, and they'll make money.
But until they dump the debt, it isn't going to happen.
Sounds good - dump the debt on investors and financial groups and on some suckers who sock their life savings into hopes and dreams only to have someone screw them because each room has too much debt. Gotta be a better way. Oh well, it won't make any difference when Lake Mead dries up.
you know whenever there is discussions about vegas its really always negative..and its all true but I think you will see an emergence of off strip casinos that do very well becuase they take care of thier patrons I am comming to vegas for UFC 100 and I will only give the Mandaley Bay a walk through i wont bet a dime there.
BorisR....I was downtown one day just walking about. The sounds coming from the Golden Nugget and the laughter from the customers drew me in like a fly to honey. What a fun and happy crowd that was. THIS IS VEGAS. I have to admit, I miss the "actual sound of coins paying off. I guess the "canned" sound will have to do. I agree...lower the room price...for all 7 days...any day same price...it's worth a try.Get the kitchens to pay more attention to waste and over purchasing,then lower their prices. They can do it,they just need to want it.
My friend came up with a funny line the last time he was in town...You have a better chance of getting hit by a jumper off the Str*tosphere than hitting a jackpot in Vegas anymore. I think that is part of the problem. The Casinos went for the $500 bottle of Vodka crowd and left the middle of the road visitor in the dust. I think that hurt the town tremendously. Las Vegas will come back with a more realistic focus.
Won't stop recommending Downtown/Fremont St. Best bang for your buck!!!
And all the new rooms coming on line in the near future are designed for the rich. Casino executives expected to make their nut on over-priced rooms, high end boutiques, expensive eateries, and lastly, gambling. All of these computations relied on baby boomer discretionary dollars. Boomers have seen their investments deflate drastically and have gone into super saver mode redirecting discretionary income into conservative saving vehicles instead of trips to Vegas.
BorisR:
Good trip report. I share a lot of your opinions, especially on the weekend rise in room rates, and the noise problem in the MGM poker room. Maybe noise doesn't bother Mandy while she's pushing buttons on Wheel of Fortune or Texas Tea, but poker requires some thought and concentration.
Did I read ' when City Center ' comes on line? Wow, when might that be? 2016 ?
"Even with the likely postponement of Fontainebleau, the Strip still won't be able to fill new rooms that are coming online"
Actually, they will not have a problem filling the new rooms, it will just drag down the price of the "old" rooms. We usually stay at either a Station Hotel or Imperial Palace, great value. If they have $30 Red Bulls, I haven't seen them, And I'd never buy the overpriced room service or trendy bar items anyway. Just because you stay at a hotel, doesn't mean you have to eat there.
We usually eat at a local restaurant (Memphis BBQ, Lindo Mochigian, TC's Rib crib, etc. Great food and no casino crowds.
bakersfield makes a really good point.
folks, you can hop on a city bus and go 2 blocks in either direction and find restaurants that are just as good ( if not better ) than anything on the strip.
Recent airfare increases makes my roundtrip to LV $120 more expensive in 2010. Also some carriers have cut back on their flight schedules. Instead of one stop and 7 to 8 hours it is now two stops and 10 to 12 hours.
It is difficult to believe that it has been 5 years since MGM Mirage announced their plans for City Center. The turn around time is so long for these mega resorts that the whole world can change.
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Fountainbleau thought they would be surrounded by a sea of new casinos transforming the North Strip. (1) The Plaza (2)Echelon, (3) a Crown Resort, (4) MGM resort off Sahara Ave., (4) A greatly enlarged Sahara Casino, (5) the W.
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Now they are all alone surrounded by timeshares and the same old casinos from the 1950's. No wonder the banks are freaking.