The Las Vegas Strip May Have a New Resident
The north end of the Las Vegas Strip may be getting a new resident long before anyone expected. Boyd Gaming has sold its Echelon project to Genting Group, a Malaysian company with a web of gaming, hospitality, and real estate holdings worldwide. The company paid $350 million for the 87-acre site, the former home of the Stardust hotel.
This ends Boyd's attempt to make a splash in Las Vegas, down the street from Wynn Resorts and Las Vegas Sands , the two resorts that brought the north end of The Strip to a new level. Boyd had planned a $4.8 billion resort with 5,000 rooms, a 140,000-square-foot casino, and another 300,000 square feet of shopping. But now Genting will take its shot in Las Vegas.
What the new neighbor will look like
Genting's resort will be branded similarly to Resorts World Sentosa, one of just two casino resorts in Singapore along with Las Vegas Sands' Marina Bay Sands. The company says the resort will be called Resorts World Las Vegas, and phase 1 will include 3,500 rooms, 210,000 square feet of dining, and a 175,000-square-foot casino among the 8 million square feet. The cost will be a minimum of $2 billion but could be $7 billion by the time the entire project is complete.
This is the most ambitious project in Las Vegas since MGM Resorts built CityCenter at the bottom of the financial crisis. CityCenter and Cosmopolitan have been financial disasters, and Genting is taking a big risk in the new resort. The good news is, it's getting a great deal on the property.
A steal for Genting
Genting already opened a casino in New York in 2011 and has been trying to get into the U.S. gaming market in Miami as well. But Las Vegas is still the country's largest gaming market, and for just over $4 million an acre the company is getting a steep discount to Strip sales before the financial crisis. El-Ad Properties bought the New Frontier and the 34.5 acres it sat on for $1.2 billion in 2007, a whopping $33 million per acre. It even appears as if the company will use the abandoned construction Boyd left behind in its new resort, saving even more money.
What it means for Las Vegas
The good news for other casino operators is that Las Vegas will have a new resort sometime around 2016. This will revitalize interest in the city and bring more foot traffic to the north end of The Strip.
The bad news is that it will add more hotel rooms, gaming, and slot capacity to an area that could only fill 84% of rooms last year and already has enough gambling areas.
This also adds more rooms to the upper end of the market, pressuring prices there, and making the lower end look even less attractive. For MGM Resorts and Caesars Entertainment , which together own most of the land on the southern two-thirds of The Strip, it will bring even more high-end business to the northern end of The Strip.
Overall, the added capacity will limit upside to resorts that could use higher occupancy, higher room rates, more people in their restaurants, and more people at existing tables.
Foolish bottom line
If you need any more reasons not to buy Caesars or MGM, this is a big one. Just when Las Vegas should be picking up steam, there will be more capacity added, pulling customers from both companies.
For Wynn and Las Vegas Sands it's a little less disruptive, because they could use some more neighbors on their side of The Strip, but it doesn't really add to their position.
More on MGM's struggles
When MGM Resorts began constructing the CityCenter in Las Vegas, it was an audacious plan that seemed like a sure bet with its prime location in the center of The Strip. But Las Vegas hit a rough patch during the Great Recession and has yet to fully recover, so MGM has since turned its attention to a new market in Macau. This Chinese gaming enclave now holds the key to the company's future, and a new resort on Cotai may relieve the company from crushing debt. For expert analysis on whether this former high-flying stock can regain its form on the back of a growing presence in Asia, you're invited to check out The Motley Fool's new premium report on MGM Resorts. Simply click here now to claim your copy today.
The article The Las Vegas Strip May Have a New Resident originally appeared on Fool.com.Fool contributor Travis Hoium manages an account that owns shares of Wynn Resorts. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings, or follow his CAPS picks at TMFFlushDraw. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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