Boyd Gaming Corp. said this morning that it will delay construction of the $4.8 billion Echelon project because of the souring credit markets. Watch the video
In its quarterly earnings press release, distributed this morning, the company said: "We have decided to delay construction of our Echelon project on the Las Vegas Strip due to the difficult environment surrounding today’s capital markets and the challenging economic conditions that currently exist. We expect to resume construction when credit market conditions and the overall outlook for the economy improve."
Analysts said that the delay of Echelon could forestall a complete housing recovery in the local market. Housing observers had long relied on the 2009 opening of CityCenter, combined with the 2009 start of hiring for Echelon, to lift prices and sales of local homes by next summer. With financial markets questioning the number of new jobs the megaresorts will create, and with staffing delayed, prospects for improvement in housing are cloudy.
After the delay of Echelon was announced, shares of Boyd Gaming Corp. climbed almost 18 percent in value this morning on the New York Stock Exchange. Shares were trading at $11.73, up $1.75 at 3:16 p.m. EST.
For the most part, the analyst community supported the company’s decision to stop construction on the Strip site that once housed the since-imploded Stardust.
"We believe the Street has become overly negative on Boyd Gaming, and management has made the appropriate decision to protect and reinforce the underlying shareholder value of the core portfolio," Macquarie Capital gaming analyst Joel Simkins said in a note to investors.
During a conference call to discuss the company’s second quarter earnings today, Boyd Gaming CEO Keith Smith said he was unsure how many of the 800 construction workers who have been working on the Echelon project would lose their jobs.
Smith said the current state of the credit markets made it virtually impossible for Boyd Gaming and two of its joint venture partners in Echelon to obtain financing for their portion of the development. General Growth Properties, which was building and will operate Echelon’s retail space, and Morgan’s Hotel Group, which is contributing two boutique hotel products to the development, were responsible for about $1.5 billion of the overall project’s cost.
Boyd Gaming executives hope to resume construction on Echelon sometime in 2009, which would delay the project by more than a year. Echelon was expected to open in the second half of 2010. Boyd Gaming broke ground on Echelon in June of last year.