While the covid pandemic closed the Las Vegas Strip, that closure almost seemed to create an opportunity for major resort casino operators to make changes.
MGM Resorts International (MGM) sold The Mirage and bought The Cosmopolitan while Caesars Entertainment (CZR) decided to overhaul its Bally's property turning it into its Horseshoe brand. Lesser operators including Phil Ruffin's Circus Circus had more modest renovations while Bally's Corp. (BALY) bought The Tropicana (even though it hasn't really changed anything there.)
In addition, Resorts World opened on the North Strip while its neighbor, Fontainebleau Las Vegas got 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 a piece of land bought by billionaire Houston Rockets owner Tilman Fertitta and a large-scale overhaul of the Miracle Mile shops has already gotten underway. But while Fertitta's project seems safe, a new development suggests that many Las Vegas Strip projects may be in peril.
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Major Las Vegas Strip Deal Falls Through
The Las Vegas Convention and Visitors Authority (LVCVA) had 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 not clear at the time why he pulled out of the deal despite having to pay the LVCVA a $7 million cancellation fee.
Fischer's reason for canceling, which the La Vegas Review-Journal reported puts many current Strip construction projects in doubt.
"After seeing interest rates rise in the United States over the past year, Fischer couldn’t commit to signing the papers by the Dec. 15 deadline. Hill and the LVCVA gave Fischer plenty of latitude with contract extensions, but in the end, the deal died," the paper reported.
Fischer was discouraged by the Federal Reserve raising interest rates seven times last year bringing them to 4.4% on Dec. 15 (the day the next payment on the land was due), the highest they have been in more than a decade.
Most Las Vegas Strip Deals Require Borrowing Money
While there might be a few people and companies in the world rich enough to fund a major project on the Las Vegas Strip on their own, it's unlikely most would choose to do that. Part of the reason construction on the Strip (and really everywhere) has been so robust is that the cost of borrowing money had essentially been free for the past few years.
Now, with the Fed expected to keep raising rates, any planned project on the Strip becomes a much riskier proposition.
That does not mean that Fertitta, who seems very intent on building a top-tier resort on his Strip parcel will back out, but it could put other potential projects at risk. For example, new Mirage-owner Hard Rock International has already given a vague, extended schedule for its plans to build a Guitar Hotel on the property.
In addition, Bally's Corp. has said it's going to take its time before deciding what to do with Tropicana. That could be a major revamp or even teardown/rebuild or it might be building a stadium for the Oakland A's.
Any of these deals involve borrowing huge sums of money and if Fischer -- who owns two airlines along with many other properties -- can get cold feet, it seems likely that other developers will do. Any construction on the Las Vegas Strip has always been believe it when it actually opens (look at Fontainebleau's near-20-year odyssey). The financing conditions may make that even worse as deals fail to get funding or the developers decide the cost of money is too high.
