While the covid pandemic shut down the Las Vegas Strip, that closure almost seemed to create an opportunity for major resort casino operators to make changes.
MGM Resorts International (MGM) – Get a free report sold The Mirage and bought The Cosmopolitan while Caesars Entertainment (CZR) – Get a free report decided to redevelop his Bally’s property into his Horseshoe brand. Lesser operators, including Phil Ruffin’s Circus Circus, saw more modest makeovers, while Bally’s Corp. (COUNTER) – Get a free report bought The Tropicana (although nothing has really changed there).
Additionally, Resorts World has opened on the North Strip, while its neighbor, Fontainebleau Las Vegas, is back on track with plans for a late 2023 opening.
A number of new Strip projects have also been announced, including a major resort casino on land purchased by billionaire Houston Rockets owner Tilman Fertitta, and a large-scale refurbishment of Miracle Mile shops is already underway. . But while Fertitta’s project seems safe, a new development suggests that many projects on the Las Vegas Strip may be in jeopardy.
Major Las Vegas Strip deal collapses
The Las Vegas Convention and Visitors Authority (LVCVA) has agreed to sell 10 acres on the southeast corner of Las Vegas and Elvis Presley boulevards, the former site of the Riviera, to Chilean real estate investor Claudio Fischer for $120 million. That deal was canceled in mid-January after Fischer missed a payment deadline, but it was unclear at the time why he backed out of the deal despite having to pay the LVCVA a $10 cancellation fee. 7 million.
Fischer’s reason for canceling, reported by the La Vegas Review-Journal, casts doubt on many current Strip construction projects.
“After seeing interest rates rise in the United States over the past year, Fischer was unable to commit to signing the documents by the December 15 deadline. Hill and the LVCVA gave Fischer a lot of leeway with the contract extensions, but in the end, the deal died,” the newspaper reported.
Fischer was disheartened that the Federal Reserve raised interest rates seven times last year, taking them to 4.4% on December 15 (the day the next land payment was due), the highest level in more than a decade. decade.
Most Las Vegas Strip offerings require borrowing money
While there may be a few people and companies in the world wealthy enough to finance a major project on the Las Vegas Strip on their own, it’s unlikely that most choose to do so. Part of the reason construction on the Strip (and really everywhere) has been so strong is that the cost of borrowing money had been essentially free for the past several years.
Now, with the Fed expected to continue raising rates, any planned projects on the Strip become a much riskier proposition.
That doesn’t mean Fertitta, who seems intent on building a world-class resort on his Strip plot, will back down, but it could put other potential projects at risk. For example, the Mirage’s new owner, Hard Rock International, has already given a vague and extended timetable for its plans to build a Guitar Hotel on the property.
In addition, Bally’s Corp. has said it will take its time before deciding what to do with Tropicana. That could be a major renovation or even a teardown/rebuild or it could be building a stadium for the Oakland A’s.
Any of these deals involves borrowing large sums of money and if Fischer, who owns two airlines along with many other properties, can back out, it seems likely that other developers will. Any construction on the Las Vegas Strip has always been believable when it actually opens (look at Fontainebleau’s nearly 20-year odyssey). Financing terms can make matters worse as deals fail to get financed or developers decide the cost of money is too high.
