Last week’s news that Genting Group had bought the moribund Echelon property and would build out a $2 billion to $7 billion Strip hotel-casino complex was hailed as good news for recession-weary Las Vegas.
But not all analysts are sanguine about adding another 3,500 hotel rooms to an already saturated resort destination. At least one was downright negative.
Which viewpoint is right won’t be known for some time.
Construction of Genting Group’s Resorts World Las Vegas won’t be as quick as flipping on a light switch. Development of the 87-acre site on the Strip’s north end will take at least three years to complete, allowing the Strip’s recovery to gain additional traction.
Fitch Ratings Service gaming analyst Michael Paladino told investors that the timing and scale of the Genting Group’s plan exceeds previous expectations for the Strip’s near-to-medium-term gaming expansion and hotel room addition.
Many analysts have said Las Vegas is an oversaturated hotel market with more than 150,000 rooms. The $400 million redevelopment of the Sahara into SLS Las Vegas adds 1,620 more by the end of 2014.
“Tepid capacity growth has been one of the key considerations for our favorable outlook for the Strip,” Paladino told investors. “The two projects’ proposed room capacity equates to 3.4 percent of citywide room inventory as of December 2012.”
Macquarie Securities gaming analyst Chad Beynon echoed some of Paladino’s concerns. Adding SLS and Resorts World will give Las Vegas almost 155,000 rooms.
“That’s more than any other city in the world,” Beynon said.
By 2016, when Resorts World is scheduled to open, the market would need to add at least 800,000 more visitors per year to maintain current hotel room occupancy levels, Beynon said.
“(This) would effectively wipe out the effect of the visitation growth we saw in a year like 2012,” Beynon said. “Fortunately for current Las Vegas Strip operators, the supply won’t come on line for another three-plus years.”
Paladino called the Strip’s economic recovery “choppy” and called the results from 2012 “disappointing.” Strip gaming revenues grew 2.3 percent to $6.2 billion, and tourist volume was up 2.1 percent, to 38.9 million visitors.
Commentary from Las Vegas casino operators concerning 2013, he said, has been somewhat somber.
Still, projects such as Caesars Entertainment Corp.’s $550 million Linq development and an arena recently announced by MGM Resorts International are worthy investments, Paladino said.
“(They) provide the types of compelling entertainment offerings that have been the foundation for Las Vegas’ long-term growth and success relative to other gaming destinations such as Atlantic City,” Paladino said.
“We recognize that meaningful capital investment in Las Vegas is integral to the vitality and allure of the city as an entertainment destination, which will benefit leading operators,” he added.
While saying Genting’s Resorts World Las Vegas provides “another critical component of the city’s long-term growth story,” he questioned the timing.
High-end resorts with substantial international customers “are vulnerable” in the face of competition from Genting.
The company is based in Malaysia and operates hotel-casino complexes in Asia, the United Kingdom and other international markets.
Paladino said Wynn Resorts Ltd.’s two Strip hotel-casinos (Wynn Las Vegas and Encore), The Venetian and The Palazzo (operated by Las Vegas Corp.), Caesars Palace, and MGM Resorts International’s Bellagio and the CityCenter complex could lose business.
But Genting Americas Senior Vice President of Development Christian Goode said last week that Resorts World Las Vegas would target middle-income Asian customers looking to visit iconic U.S. cities, such as Las Vegas.
“China has a burgeoning middle class and the Chinese want to travel in the U.S.,” Goode said. “Las Vegas is a perfect destination.”
Galaviz and Co. managing director Jonathan Galaviz, who specializes in Asian gaming markets, has long predicted that Las Vegas would be the next destination for Asian casino companies seeking a global footprint.
“A big part of the Genting strategy here is to build a resort that comprehensively caters to the Asia-based tourist,” Galaviz said. “Mainland Chinese tourists to the United States make up the largest segment of new-growth arrivals. It’s clearly important for Las Vegas to get a piece of that national action.”
Even with the project centered on family-friendly components such as a 7.5-acre indoor water park, analysts say Resorts World Las Vegas will grab its share of the high-end baccarat business.
Genting’s Resorts World Sentosa in Singapore has an aquarium and a Universal Studios theme park. But the property produced $2.94 billion in gaming revenues in 2012, much of it from baccarat.
On the Strip, baccarat accounted for 22 percent of gaming revenues in 2012. Ten years ago, baccarat was 9 percent of the Strip’s gaming revenues and it was 13 percent in 2007.
“We believe the property will target high-end Asian customers, which has been the principal catalyst for gaming revenue growth on the Strip since 2010, when the recovery started,” Paladino said.
Beynon agreed that Genting would focus somewhat on “this high-end relationship-driven business.”
Contact reporter Howard Stutz at email@example.com or 702-477-3871. Follow @howardstutz on Twitter.