Clark County commissioners approved plans in March for the expansion of the 50-year-old, 1,880-room resort that occupied 34 acres at the heart of the Strip. Expansion plans call for more than 8,000 new rooms in five towers at the corner of Tropicana Avenue and Las Vegas Boulevard.
Last week, company spokesman Hud Englehart told the local paper here that credit markets were having an impact on development in Vegas, causing the start of the Tropicana expansion project to be delayed until at least 2008. Although no official announcement had ever been made with regard to the commencement of the project, "I think they had hoped to be in the ground" by the end of the year, Englehart tells GlobeSt.com.
Deutsche Bank research analyst Bill Lerner said in a report this week to expect similar announcements with regard to other projects, and that it's a good thing. "We do not believe this is the last project that will be canceled or delayed [for credit or other reasons]," Lerner said. "This reduction in anticipated room supply and capex is actually good for the Las Vegas resort corridor given our thesis of over-supply in the market."
With nearly 10,000 fewer rooms in DB's supply forecast for Vegas, Lerner noted that the 2006-2012 [annual room growth rate] is now just 4.5% (down from 5.4%), or just slightly above the long-term historical average of 4%. "That said, we stress that 2010 and 2011 will still see significant sequential increases in new supply of 8.2% and 10.6%, respectively," he wrote. "In the near-term [pre-2010], we believe operators will experience continued solid operating leverage [evidenced by ADR growth in the mid-teens]."
There are about 135,000 hotel rooms in Las Vegas, well more than any other single market. If all announced projects are completed, the market will gain another 40,000 hotel rooms between now and 2012, the bulk of them in 2010 and 2011, when more than 26,000 rooms are projected to come online, according to the Deutsche Bank report. That total does not include projects for some 18,500 rooms that Deutsche Bank lists as having been canceled or suspended, including the Tropicana project, which may not be delayed for long.
Deutsche Bank's canceled or suspended list also includes the long-since abandoned, 4,400-room Las Ramblas project; the 3,000-room W Las Vegas project, the land for which has been on the market; a 1,200-room residential project at the Hard Rock Hotel property; and most recently, Majestic Resorts' 988-room Conrad/Waldorf Astoria hotel and condominium development (for that story, click here.
Brian Gordon, a principal with Applied Analysis, a locally based business research and advisory firm, tells GlobeSt.com that this is simply a case of the broader market's challenges affecting development projects locally.
"It's our understanding that many of the large financiers behind a significant number of projects have pulled back and are hesitant," he says. "It's no different in other major markets; Vegas just has a high number of large-scale projects proposed and certainly not all of them will make it. It's the natural ebb and flow and response to supply and demand."
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